The Free Market of Ideas
[Writer’s Note: This was originally posted on my website on 10/31/2019. There is a full podcast in video and audio format covering this article.]
The free market is a place where goods and services can be exchanged for capital. It is a simple concept that anyone can participate in if both sides agree freely to the exchange. At its simplest form, a free market can be two kids exchanging snacks on the schoolyard. The brilliant part of the free market is there is no one person who can determine the price or cost of a good or service. This concept tells us two things: The market must be free and voluntary, and even the smartest economist is not wiser than the collective market. To best understand how a free market can benefit society, the common terms must be defined clearly.
Let us start with one of the most important concepts in every market today: Economy. Economy comes from a derivation of Greek, oikos and nomos. Oikos means an extended family unit that consists of family members and all property. Nomos means management, law, or principle. Together, oikonomos is the management of the family unit and property. Already we see that the word economy has a larger meaning than just money. This is an important distinction because it further broadens out the meaning of free market that has more to do management of several types of resources than just managing monetary capital.
Another important term is capital itself. There are several different definitions for the word capital that are more explicitly tied with money, but, as with most words, the definition can be used in a broader context. The Merriam-Webster dictionary defines capital as, “accumulated goods devoted to the production of other goods,” or “a store of useful assets or advantages.” Both definitions refer to a “good” or “asset.” A “good” in the noun form can relate to money, specific object that holds value, or service (which is why “goods and services” are often lumped together). An “asset” is similar for the exception it can often refer to people of value as well. This is where the term capitalist comes because it refers to someone holding capital, although, capitalist has a history of being used as a pejorative term. This is because many groups who oppose capitalism, or free markets, see capital as purely monetary and associate that with greed. What pulls this argument apart is the falsehood that most people who try to accumulate monetary wealth do it at the expense of others. This would be true is monetary value was a zero-sum game. The truth is capital is not explicitly monetary. In fact, everyone deals in social capital every day. Social capital is the accumulation of social value that can be used at a later time or spent on self-fulfillment. I will explain this concept more later in the article.
The next term can provide a less abstract visual of where a free market occurs. The marketplace, as defined by Merriam-Webster is, “the world of trade or economic activity.” A marketplace can be used as a physical location or theoretical public square. Just like capital, the marketplace is not limited to physical items or monetary exchange. There are social marketplaces where ideas can be exchange. We see this today in the form of social media, but social marketplaces have been around since the beginning of human history. Social marketplaces have been heavily regulated in the past because authoritarian governments saw how dangerous the free exchange of ideas can be to their grip on power.
The final terms are a set of terms which have separate definitions but cannot exist without each other: producer and consumer. A producer is someone or a group of people who produce a product or provide a service. A consumer is someone or a group of people who consume or use a product or service. These terms are often set against one another, but they are truly two different sides of the same coin. A consumer cannot consume with no product, and a producer cannot produce without the resources acquired from the consumer. People who oppose free markets pin these two different groups against each other in an attempt to create a disconnect between producers and consumers as two different classes of people. The truth is everyone is a producer and consumer at the same time. Even most large corporations who produce mass product and make billions of dollars every year must purchase, or consume, raw materials from another producer in order to build their product or sell their service. Let us put these terms to work and see how the free market of ideas benefit society.
Monetary capital is exchanged in a monetary or traditional marketplace. This marketplace may be physical or virtual, but both marketplaces are filled with producers and consumers trading monetary capital for goods and services. These concepts are simple, but powerful. What is more difficult to understand is the power of the social marketplace where social capital is exchanged. The social marketplace also has producers and consumers. To best understand this, I will use an example.
A man takes a woman out on a first date. He wants to impress her, so he takes her out to a nice restaurant. He encourages her to order whatever she wants off the menu. They have a great dinner, and then the check comes. This is where it is easiest to see the monetary marketplace at work. The man gives his credit card to the waiter to pay for both his and her meal. This is an exchange of goods (currency with value to be traded in for something down the road) and services (food, food prep, and customer service). At the same time this monetary transaction takes place, a social transaction does as well. The act of paying for his date’s meal, although considered outdated to some, is assumed to hold social value. In this scenario, the man (producer) is producing social capital in the form of a social gesture to his date (consumer) in exchange for continuing and building a relationship. Throughout this scenario, the man was producing different opportunities for social capital exchange by picking out a nice restaurant to take his date, encouraging her to order anything she wants regardless of price, and any other value-added exchanges during their social interaction. This does not limit the woman to only being a consumer, because we are always producer and consumers at the same time, but she could also produce social capital by offering to help pay or not ordering expensive items from the menu. In the end, both people must freely choose what will benefit them as individual consumers, meaning, will there be another date? Was enough social capital offered to continue the relationship? We try not to think of these interactions as so transactional, but at their basest concept, they are the same as exchanging goods and services in a marketplace. Different people attribute different values to each social capital offering.
This example is exactly why the free market, or capitalist system, is the most successful economic system in the world. It allows free traders to exchange capital in many different forms. In a simple situation where someone is selling an item for a set price, but then gives a discounted price to a friend because of their friendship, is an instance where both monetary and social capital is exchanged for a good. The free market works so well because it does not require a third party to mediate or control the outcome as a highly regulated government does in a fixed market.
In a fixed market, like socialism and communism, a central decision-making body takes free exchange away for the people in varying capacities. There are examples of socialist governments who allow their people to exchange goods and services in a marketplace, but the power of a fixed economy is the ability to jump in at any moment and start restricting decisions or making decisions for its people. The common theme throughout history with countries with fixed economies is they are more restrictive of what they allow their people to say and do. The behavior to restrict or control monetary market exchanges is the same mechanism that restricts and controls social behavior because human beings are social creatures who cannot do one without the other. Governments who grow and heavily regulate their economies always widen their scope to include human behavior resulting in less freedoms for all.
It is important to fully understand what a free market economy is and why it is important to protect it. It is also important to understand the role of social capital in our lives. Social capital, or the threat of losing it, is what keeps large corporations honest. Any bad publicity of a large corporation not acting in their consumer base’s best interest will drive consumers away regardless of the price they offer for their produces. An increase in social capital will also drive more consumers to purchase a company’s goods at a higher price than their competitors. A free market is more than best products for the lowest prices. A free market is where people come to grow, learn, and find the best tools to improve their lives.
P.S. If you are still reading, and I hope you are, I will be republishing my writing from my website on Medium so there may be some older stories I cover, although I do not often cover current events. I shut down my website because I have changed my main resource of communication and content hosting to Locals.com. Although I will be publishing my long-form written content on Medium, you can find my more regular content, podcasts, and interactive community at engineeringpolitics.locals.com. Please feel free to join this growing community if you want to stay up to date and/or support this content. Thank you for your consideration!
Note: None of the persons, podcasts, or books referenced above reflect my ideas and personal beliefs, nor should they be held accountable for anything published on this site in the future.
