There is No Such Thing as Laissez-Faire Capitalism

There is No Free Lunch

Modern Republicans have enthusiastically embraced Jefferson’s mantra that the best government is the one that governs least.  Like most Republicans, I don’t think you can find any activity that government performs better than private enterprise.  Trouble is there are some functions that private enterprise simply won’t perform.  The market only delivers products or services that can be performed for a profit.  Some smart theorists and dedicated Libertarians have tried to concoct models that would allow courts, the military, firefighting, police, and other government services to be operated on a for-profit basis.  But none of their models hold up to the cold calculus of reality.

Milton Friedman once famously remarked that “there is no free lunch.”  Every form of value comes with costs attached, regardless of whether those costs are visible to the consumer, or accounted for by the producer.  By the same token we are coming to realize that there is no such thing as a free market.  Our imagined ideal of markets operating with no government involvement not only doesn’t exist, it can’t.

Capitalism is not anarchy.  There are at least three minimum conditions needed in order for capitalism to function.  Individuals need to have an enforceable right to property ownership.  There must be means available to protect against fraud in the marketplace.  And transactions must be free from coercion or violence.  The dirty little secret of free market capitalism is that these conditions can only be reliably created by government.  Hamilton trumps Jefferson yet again.

Maintaining free market capitalism is not about eliminating government meddling, it’s about containing it.  Previous generations of Americans have understood this far better than we have.  Somehow in all the Goldwater-era hyperbole about expanding government we on the right picked up the absurd notion that government had no legitimate role in the marketplace.  Sitting amid the sad rubble that was once our financial system, we shouldn’t be surprised where this nonsense has led us.

The Party was very successful in the Reagan era at rolling back market restrictions that had become so severe that they amounted to the de facto nationalization of whole industries.  Of all the things Reagan accomplished, this may have been the one that has brought ordinary Americans the greatest material benefit.  In the years that followed we experienced an unprecedented economic explosion as the new freedoms liberated creativity and generated new capital.

You might get the idea that since one margarita is good, twenty would be outstanding.  If you survive your first experiment with that theory, you’ll come away understanding the value of moderation.  Over the last decade with weak Republican leadership in the White House and a set of rabid Republican ideologues running Congress, it was all you could drink night in Washington and the free market Kool-aid flowed in rivers.

As Republicans we have embraced “free markets” with such enthusiasm that we are in danger of snuggling them to death.  This free market fundamentalism was deployed so blindly and aggressively inside the executive branch that it unleashed forces that managed within just a few years to burn out the engine of Western capitalism.  We found the WMD’s just a few years too late – they were on Wall Street.  If Osama bin Laden understood the true destructive power of Collateralized Debt Obligations he still couldn’t have done as much damage as we did to ourselves.  No one can wreck America like Americans.

Reasonable regulation creates an environment that rewards honesty, punishes fraud, and provides an atmosphere in which markets can thrive.  Our role as Republicans is to foster reasonable regulation that will preserve markets, while fighting the Democratic urge to turn corporate America to their own political purposes.

3 Responses

  1. I find it ridiculous that an ardent Anti free enterprise article dares mention Milton’s explanation of Free Enterprise economics to try to justify government interventinism

  2. I would have to say this post nails it. Reagan’s era of deregulation was at a time when oversight was way too extensive…this doesn’t mean you keep going until their is NO regulation! It’s called “moderation” and the goal is equilibrium ( to whatever degree such a thing is possible ). Capitalism is about the honest, legitimate, unrestricted flow of capital, not some idealogical BS free-market recklessness that to me, seems little different than it’s left wing incarnation of Marxist-Leninism. Both are obsessive and stupid and like Communism in the mid-twentieth century and Free-Market Fundamentalism today, both seem to motivate a MASSIVE amount of “useful idiots”, and both are equally destructive. Great blog by the way! I have hardly found a post I don’t find insightful on some level.

  3. Hmm, could you be more specific as to what constitutes “reasonable” regulation? I wholeheartedly agree that the US regulatory system is an utter mess, and that a major rewrite is in order. If so-called “socialist” (as defined by nutjobs) countries such as Canada, Germany, Denmark, France, and the Netherlands have more economic freedom than the United States, we have a serious bit of soul searching to do.

    I think that is where the two-party split is going to occur should our parties find salvation: Where do we draw that line between regulation that is reasonable and regulation that is burdensome? Democrats and Republicans will, however, have to agree on certain key parts for the sake of national integrity, such as the presence of a social safety net (its generosity and method of delivery are highly negotiable) and a guarantee of fair and equal access to the marketplace.

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