No such thing as free-market U.S. capitalism

When the economic mess came to light about a year ago, a good many friends of the welfare state and its full expression, social democracy (a type of socialism), seized the opportunity and claimed it is all the fault of capitalism, of free-market economics.

James Galbraith, the political scientist son of the late John Kenneth Galbraith, a professor at the University of Texas, gave a talk in which he gleefully referred to the late Milton Friedman as someone who contributed to "the bust."

Galbraith was hoping to get some laughs out of his audience at Chapman University where Friedman not only has a small bust displayed in the courtyard but whose president, James Doti, studied with Uncle Miltie. All because Galbraith believed, along with such luminaries as Princeton Nobel Laureate in economic science and New York Times columnist Paul Krugman, that it is indeed the free market that's to blame.

One central flaw in this line of analysis, if one should even call such outbursts by that term, is the plain fact that there has never been any kind of full-blown free-market capitalism implemented in the United States. Among the many elements of the country's economy that clearly diverge severely from that system was slavery.

Under free-market capitalism all persons in the marketplace must be free to trade, to sell and buy the valuables they own, and no human being may be treated as anyone's property (other than, perhaps, one's own - in the fashion, as it is sometime put, of self-ownership).

Any kind of subsidy, a standard policy of various levels of American governments - whereby the government confiscates some citizens' resources and hands these to other citizens - violates the principles of the free market. Those from whom the resources are confiscated have lost their liberty to make use of them in their own market activities.

Protectionism, which has been practiced in this country on and off from the beginning, is also a practice that violates free-market principles, preventing citizens from the freedom to buy goods and services from abroad and forcing them to pay whatever domestic vendors ask for what they might have obtained elsewhere.

And there are a great many other such breaches of capitalism that have been features of the American economy, including all those local restrictions of free trade that come from blue laws, various ordinances as to where one may build homes, businesses, etc.

Oh, you may say, but these are all results of democratic politicking and should not be objected to in a country like America where democracy is the method for determining public policy. Well, if so then at least admit, I would argue, that democracy has been trumping the free-market system from the nation's birth, making the claim that there has been rampant free-market capitalism afoot here utterly false.

Yes, compared to many countries across the globe and throughout human history, America has had a freer economic system. Before the birth of the USA most countries operated with a mercantilist system wherein the monarch and his minions decided on important social, including economic, matters - in science, religion, publishing, trade with foreign nations, etc. So compared with that, the citizens of this country obviously enjoyed more liberty (except, of course, those kept enslaved).

But just because of the relative greater economic freedom here, it is not true that there has been free-market capitalism in America. In some regions of the economy freedom has been progressively eroded, such as in banking and finance which have become nearly nationalized under the rules of the central bank, the Federal Reserve system, since the early 1900s.

Again, the point here isn't whether this was something right, just as the point about democracy in the political system isn't about whether that is just or proper. The issue here is only whether those who loudly blame the current fiasco on free-market capitalism have any kind of case at all. And they do not.

Making references to the late Milton Friedman, as did professor Galbraith, is also quite disingenuous because while the great economist from the University of Chicago did advocate a virtually fully free-market capitalist economy, his recommendations were hardly followed and, instead, he was listened to mainly concerning certain technical monetary policies, rules laid down by the Federal Reserve. But following those rules by no means gave the country a free-market economy.

The task of figuring out how various results are produced in a mixed economy such as America's is a difficult one. Many claim, for example - and not at all implausibly - that what largely brought about the current mess is the federal government's insistence that banks lend money to people who were utterly unprepared to repay it and how this policy spawned others, mostly in the financial markets, so that they led to the mess we now face.

But whatever is the right explanation, it simply cannot be that free-market capitalism caused it all since, well, there has never been free-market capitalism in America, especially not in the financial sector.

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Tibor Machan holds the R.C. Hoiles Chair in Business Ethics and Free Enterprise at Chapman University and is a research fellow at the Hoover Institution (Stanford). He advises Freedom Communications, parent company of this newspaper. Most recently, he is author of "The Promise of Liberty."