The Root of Inequality: The Free Market or the State?

by David D’Amato

The Root of Inequality: The Free Market or the State?

In early September, Reuters reported on a new Federal Reserve survey showing widening wealth and income gaps in the United States. “All of the income growth,” Reuters reports, “was concentrated among the top earners … with the top 3 percent accounting for 30.5 percent of all income.”

The Fed survey will no doubt disconcert those on both the left and the right who mistakenly regard the United States as “the land of the free,” home of opportunity where anyone can get ahead with a little hard work. Indeed, the data seem to show a reality very different from that rosy misconception, a reality in which connections between elites in the business and political worlds ensure that the rich get richer while the poor get poorer.

Presented with such a bleak vision of American economic and class structures, those genuinely unsettled by growing wealth inequality are often quick to blame “the free market,” cutthroat competition that puts profits above people. But what a free market actually is and whether we have one today are themselves separate questions which we must address in order to analyze American inequality. The American left may be surprised to learn that the radical socialist tradition includes a whole species of anti-state, free market libertarians.

By conceding that markets and competition in themselves are part of the social problem to be solved, the left needlessly disadvantages itself, capitulating to the misbelief that the capitalist ruling class has simply won the day fair and square. After all, if in the here and now we really do have a genuine free market, to what can we really object?

Most anti-capitalists thus share a foundational myth with the worst apologists for existing capitalism and its many inequalities. Both groups maintain that the economies of today are essentially free markets. Market anarchists like Ezra Heywood and Benjamin Tucker did not believe this untruth — that labor could not hope to compete with capital where the two met on fair and level playing field.

Rather, they argued that the most common and inequitable features of capitalism were in fact the poisonous fruits of profound affronts to generally accepted free market principles. Remove the state’s aids to big business, the manifold privileges handicapping working people, and true voluntary exchange and cooperation would dissolve capitalism as we know it.

As Ezra Heywood wrote in The Great Strike, “The ‘survival of the fittest’ is beneficently inevitable; the capitalist is powerless against labor, unless the State … steps in, and helps him catch and fleece his victims. The old plea of despotism, that liberty is unsafe, reappears now in the mistaken notion that competition is hostile to labor.”

Heywood offered a lesson for the contemporary American left: That capitalism is a system of land theft, legal and regulatory bars to competition, intellectual property monopolies and huge handouts to big business in the forms of subsidies and government contracts. What, then, is all this talk about “the free market?”

Market anarchism is a form of decentralism, a libertarian socialism that sees voluntary exchange and cooperation as solutions to the widespread inequality we struggle with today. Politicians and CEOs rather like the system we have in the United States; they depend on it, and it depends on them. The rest of us, quite unlike political and economic elites, don’t mind working for a living, aren’t asking for special legal privileges, and just want to be left free to undertake our own projects and pursue our own goals. That kind of free market offers an exit from present day inequalities, not an encouragement to them.

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5 thoughts on “The Root of Inequality: The Free Market or the State?

  1. Capitalism (what people such as Ludwig Von Mises spent their lives defending against the enemies of liberty – both the followers of the Red Flag and the followers of the Black Flag) is not “a system of land theft, and legal and regulatory bars to competition” – that is not what people like J. Wedgewood (who industrialised the pottery industry) were about.

    The idea that large scale production (ether in farming or industry, or in retail) is based upon big government is false. State intervention does exist – but production would be on a large scale (not an individual or communal scale) without it. For example if neither state or private roads existed then supermarkets would be near railway stations – for that is where most people would live.

    HOWEVER, not all inequality is natural – some (Indeed a lot) is artificial.

    it is odd that D.D. starts off with the Federal Reserve – and then forgets about it.

    It is odd because the “cheap money” policy of the Federal Reserve (and other government backed Central Banks), the low interest rates and so on, is the primary cause of artificial inequality.

    Monetary expansion (lending that is not from REAL SAVINGS – an actual sacrifice of consumption) tends to benefit the rich at the expense of the poor. It is why (for example) most of Latin America is as it is (centuries of monetary expansion – fiat money credit bubblism).

    Hardly a new discovery – Richard Cantillon was going on about it as long ago as the 1700s. It is odd that D.D. does not even mention the folly of a “cheap money”, “low interest rate” policy (especially as interest rates for the wealthy and connected are now basically zero around the world).

    A central principle for restoring real capitalists is to bring back capitalists.

    To bring back the importance of REAL SAVING (the sacrifice of consumption) – as the source of funding for investment.

    Whilst people can turn to credit expansion (not real savings) for borrowing – then everything (starting with the Capital Structure itself) will be crooked, utterly distorted.

    As for “the capitalist is powerless against labour” (or the other way round) – this is based on a fundamental misunderstanding of politics and economics.

    It is a misunderstanding of politics as the power of “labour unions” is actually from government (see W.H. Hutt “The Strike Threat System”) if it were not for special laws (overturning the normal principles of law in this area) such thing as “collective bargaining” would be unknown (and worker coops would be very rare – they have even, mostly, failed in Israel where the government backed them with fanatical zeal for decades). The American (and British) “labour movement” (NOT the fraternities – but the “strike threat system”) would have got nowhere without government support (exactly the opposite of the story the left tell).

    And it is a misunderstanding of economics because it ignores the central economic principle of Classical Liberalism and Libertarianism – the central principle that the long term economic interests of employers and employees are THE SAME. The “natural harmony of long term economic interests”.

    People who base their economic (and political) thinking on some supposed opposition between “Capital” and “Labour” are the central enemies of both Classical Liberalism and Libertarianism.

    And people who push their stuff (such as Sean Gabb) are, at best, playing stupid games.

    • Neil,

      I have moved your comment to the front page, where I hope all discussion of it will take place. In future, when you have anything to say at length and of this quality, please have the goodness to send it in as a proposed main posting.



  2. Pingback: Neil Lock on Justice and Inequality: Response to David D’Amato | The Libertarian Alliance

  3. Sean – Neil would not have to reply at such length, if you did not push this Black Flag poison in the first place.

    Although, no doubt, you will play your normal trick of saying “D’Amato write it – it is nothing to with me” (in a cowardly effort to avoid responsibility for this Class War stuff).

    Sean if you really do hate (for example) the supermarket chain Tesco so much that you what to DESTROY them (rather than just not shop there – which is what normal people who dislike them do, and as I could not even get a jumper I wanted there, or a pair of pyjamas, I am starting to have sympathy for the “Tesco’s is rubbish” position), then off you go and try and burn their stores down.

    You would be sent to prison (and a good thing to) , but at least you would have shown the courage of your convictions.

    This putting up of anti Capitalist writers (who rely on the fallacies of long refuted economists such as David Ricardo – and do not even interpret this stuff in a way that David Ricardo himself would have approved of) whilst pretending “it is nothing to do with me governor” is stupid (stupid because people can see through what you are up to) as well as sickening.

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