What’s a Free Market Anyway?

Recently, I found myself in contact with online denizens arguing that Republicans want to destroy trade unions because they are against the free market.

No. Just no. Putting aside what the GOP does or does not want for another (very rainy) day…

Trade Unions are emphatically NOT part of the free market.

How do we know? Because in the late 19th and early 20th twentieth century, American unionists were routinely arrested for conspiracy, and under the laws in effect at the time, that was appropriate. It took decades of violence, death, and a series of laws and two depressions to finally legalize unions and collective bargaining as we know them today. This is a good thing (with some bad consequences we’ll come back to) but it was anything but the free market.

A free market is one in which goods and services are exchanged via unobstructed private transactions between individual buyers and sellers.

The free market determines supply and price based on individual consumers and individual producers directly negotiating in fair and open competition. That’s literally what the “free” in “free market” means–fair and open. When either group (consumers or producers, buyers or sellers, workers or employers) hide information or coordinate to withold their free market response (i.e. hold out for a higher price or wage than they would otherwise accept) that is BY DEFINITION interference in the free market.

Employers distort the market by setting salaries, knowing they control an effective monopoly, or worse, can conspire to blackball workers who demand better working conditions, creating an actual monopoly. Monopolies poison the free market.

Employers distort the market by issuing rules that employees not discuss their compensation (which rules are legally void in the US, by the way) because this acts to suppress the transparancy required for a free market to operate.

Workers distort the free market when they band together in trade unions and seek to bargain collectively. By definition, they are garnering non-free market power by acting as an effective monopoly (on labor).

This is not to say unions are bad, and I realize it’s a bit of a pedantic point, but it’s important to understand the details and terminology in this age of bald-faced, “say the exact opposite of the truth and accuse the other side of the evil you represent” political lies.

Neither unions nor cartels are part of free market economics–but both can play essential roles in functional ones. The primary role of government in a free market is to ensure transparency, prevent theft and violence, and inhibit power concentration that would distort the market, however, sometimes the market needs to be distorted for the public good (to prevent formation of an economic underclass, fight a war, go to the moon, etc.) and sometimes the only practical way to fight one power concentration (say by large, wealthy producers) is with another (say, by unionization and collective bargaining.)

In the real world, things are complicated, and even the most well-meaning propagandists do not serve the public interest by misrepresenting one element drawn from a complex economy as if it were the only factor that mattered. Consider unions, as just one example:

• Pure free market economics can drive the entire low- and semi-skilled working class into poverty, leading to political instability and revolt.
• Unions can prevent this by giving members the power to compete as a unit–i.e. from a position of collective power.
• This power can be abused for purposes other than that for which it is granted–for example, the personal benefit of organizers at the expense of members.
• This power can drive a company or entire industry into bankruptcy by making it less competitive with other domestic or foreign producers, or others products that can serve similar ends.
• This power can stifle innovation and macro-scale free market forces by lithifying job roles and reducing the rewards for investment.
• When wielded appropriately and accepted in kind, this power can help all market participants profit by sharing a smaller slice of a bigger and more stable economic pie.

All of these points are inarguably true. No position on unions can be correct that ignores any of them. And make no mistake, when Republican leaders today say they are fighting for “the free market,” they mean a laissez-faire market in which the rich and powerful call all the shots, and everyone else is crushed into poverty. America already rejected that form of capitalism after what were called the “Robber Barron” class drove the system to its knees. Today’s working class will not–and should not, allow the nation to slide back down into that particular cess pit. On the other hand, when some progressives argue for using the power of the government to grant salaries and jobs that market cannot support, they don’t always consider where the money will come from in the short run, much less the long-term economic effects. No matter your political bent, the details are important, and you cannot propose sensible policies if you oversimplify the system to the point of caricature.

Neither capitalism nor socialism, free market nor collectivism are inherently good or evil. They are tools, and a civil society and functioning economy requires that we work together to provide opportunities both for investors and for workers. Any system that succeeds in optimizing only for the benefit of one social class to the exclusion of all others will fail–and we are perilously close to that point now.

The problem in America is not trade unions or gay marriage or judges who legislate from the bench or immigration. Its the self-serving concentration of power.