Market freedom is an attractive ideal, evoking a bygone age of human scale life with economic self-sufficiency and individual liberty. But in the modern corporatist economy "freedom" means replacing democratic government with plutocrats operating nation size corporate behemoths who are 'free' to plunder the world for private gain at public expense.

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Free Enterprise vs Corporatism

This article began as a comment on Paul Craig Roberts' Jan.27 OpEd News article, "How Ron Paul Could Win".   Jeff Rock replied that "Ron Paul's economic policies are draconian", as Mr. Paul favors a libertarian laissez faire economic policy that, theoretically, allows "the free market" to do its virtuous work.   But Jeff, and I, observe that the conditions under which a free market can function no longer exist in the real world, so laissez faire in fact generates corporatism and plutocracy, not individual liberty.   Market freedom may have motivated primitive capitalism's struggles against landed aristocracy, but mature capitalism is a privately governed oligarchic beast not much different from the feudalism it overthrew.

Adam Smith's idealized free market was made up of very large numbers of small businesses, small tradespeople and craftsmen and merchants and farmers, cottage industries, and a newly emerging class of small scale (by today's standards) factories.  Small scale is critical to the viability of "free" markets.  If one participant fails, he is too small to affect the industry in which he produces.  Other participants immediately replace his market share.  The economy keeps going, and the failed entrepreneur can try try again, because his personal failure did not bring down the economy, and there is still a fully functioning economy for him to go back to work in.

In today's world we have transnational corporations that control more financial and economic resources than all but the largest nations.  We have private megabankers issuing all the money as loans, with most of the people (and our governments) in debt to the bankers.  If one of these corporate giants fails, the economy as a whole is wounded.  These participants are WAY too big to be "free market" players whose personal success or failure has no noticeable effect on the markets in which they operate.   Too big to fail is too big for a "free" market.

"Corporates" are "collectives" of large numbers of people who all cooperate towards a single purpose.   A "nation" is also a corporate body, whose individual members accept "government", towards achieving the corporate purposes of the whole nation.   Adam Smith's free market was populated by individual human beings who personally feel and are "disciplined by" the consequences of their actions, not by enormous corporate collectives.   Smith's "Wealth of Nations" was written explicitly AGAINST the corporate-government collusion of his era called "mercantilism", which Smith correctly saw as politically empowering some market participants at the expense of the others, to the detriment of the nation as a whole.

In a collective the rewards and costs are necessarily distributed by human political decisions, because the governors of the collective are the people who directly allocate the work and receive the revenues and distribute these costs and benefits to the members.   The political or corporation governors might try to distribute the rewards and costs according to somebody's idea of what the various members of the collective "deserve", but this kind of highly corruptible human evaluation is supposed to be ELIMINATED in a free market where "the invisible hand" makes all these allocations.  

And as everybody knows by now after seeing bankrupt Wall St bankers once again paying themselves $megamillion "bonuses", political allocations are almost always corrupted by self-serving interests.   The closer you are to the source of the money, the greater portion of it you take for yourself.   Bill Black calls this a "criminogenic environment" that virtually guarantees there will be accounting control fraud to disguise looting of the company by its managers and other employees who are in on the fix.

In a real free market the small businesses' customers directly pay the owners by buying their wares.   A customer "allocates" his spending to whichever individual business he happens to prefer.   Hundreds, thousands, millions of individual consumers, acting independently of each other, effectively determine which businesses flourish and which flounder and fail.  

In a free market it is consumers, not corporate managers or politicians, who allocate resources and reward and punish business behavior.   Failing business people are strongly motivated by personal loss of income to adapt their behavior to the preferences of the marketplace.   Consumers "discipline" businesses, and business people accept and respond positively to the discipline or they suffer the consequences of business failure and personal financial ruin.

People succumb to temptation.   Billions of dollars of corporate revenues that make possible 10s of millions of dollars of employee "bonuses' proves to be irresistible temptation.   Human nature responds to circumstances and opportunity and discipline.   This is what drives individuals to work and innovate and prosper in Adam Smith's free market.   Small business owners personally receive the business's sales revenues which, after paying workers and suppliers and expenses and taxes, become the owner's personal income.   There are no vast pools of other people's money laying around to take as "bonuses".  

Corporatism concentrates access to and control over enormous amounts of money and power in the hands of managers who are supposed to allocate according to the long term good of the collective.   But in the first place, managed economies are notoriously prone to expensive error because managers cannot predict the future, and big moves in the wrong direction are far more costly for the economy than are a small business's small scale personal follies.  

And in the second place human nature drives managers to take the money for themselves, because it is right there, and they figure out ways to "justify' their taking it.   Any "market theory" that fails to acknowledge these intellectual and moral failings of human nature is fantasy if it is naive ignorance; or it is deception if it is preached knowingly.   We know very well what behaviors and consequences will be generated by "deregulating" corporatized markets, because we are currently looking at those criminogenic behaviors and suffering those collapsing economy consequences.

Partisans enjoy constitutional freedom to preach "free markets" when markets are decidedly not free, but believing that these mega-companies are working in a free market is a delusion no different than believing that a comparable size nation like Venezuela is a free market participant.  Everyone recognizes that Venezuela is large enough and powerful enough to "legislate" what it allows and doesn't allow within its borders.

This is the opposite of Adam Smith's free market, where no player is big or powerful enough to "dictate" what happens within its market.  Each individual enterprise is "subject to" market discipline.   None of them is dominant enough to "administer" discipline.

We must recognize that gargantuan transnational banks and companies behave more like independent sovereign nations like Venezuela, not like free market businesses competing within an economic environment that is   "free" of dominance and control by any human being or legalized collective of human beings.   Control by a group of human beings is called "government", and behemoth corporations do indeed "govern" the industries and economies and nations within which they operate.  

Free market participants, by contrast, govern only their own personal behavior, and enjoy or suffer the personal consequences according to the un-coerced choices of the market's myriad "governors', the consumers.   A functioning free market, if such a system can actually exist in the real human world of greed, ego and power, truly is a form of economic self-government where individual choices are coordinated into a functioning "economy" by the workings of the free market's "invisible hand".  

If the hand that rules the marketplace is attached to a "visible" human being exercising political governance or corporate governance, then the free market cannot function.   Austrians and libertarians decry market interference by the visible hand of political governments, but they are blind to the equally powerful and equally "interfering" hands of corporate government.  

If "economic management" is the problem and "market forces" are the solution, then human governance is a problem whether the manager calls himself a "politician" or a "CEO".   Hank Paulson manages Goldman Sachs as "CEO", then he manages the US Treasury Department as "Secretary".   Is Hank a virtuous free market actor at GS, and he suddenly morphs into an evil distorter of markets at Treasury?   It's the same guy in both roles, all you "free market" folks out there.   Get real. NEITHER GS nor the US Treasury Department are "free market" actors.   They are both large scale corporate managed economies.  

Jeff Rock correctly points out that allowing these monolithic corporate enterprises "free rein" in a free market populated by nation-size giants, is the death of free markets and economic survival for us non-corporate people and our small independent enterprises.  Should Hank Paulson as Treasury Secretary be "freed" from democratic government oversight and control?   Should Hank Paulson as CEO of Goldman be freed from the laws and regulations of the representative government of the US of A?   Removing government "interference" does not open up a free market.  It merely replaces democratic government with government by giant corporations and their political enablers, which is plutocracy, not liberty.

Small businesses absolutely lack the resources to operate in a "global economy", so a globalized economy is populated by nation size transnational corporations rather than by free market actors, and these companies (and their political allies) effectively make their own rules in the nations in which they operate.   Citizens United recognized that corporations have become the "people" who populate the modern plutocratic world.   Us human beings and our independent businesses are the ants that get carelessly squashed when giant predators roam the Earth.

So global free trade means rule by these corporations, which is plutocracy. Plutocrats dismantled America's manufacturing economy and shipped it to Asia, which is good for short term corporate profits and manager bonuses, and good for Asians, and good for rich Western consumers who have money to buy cheap Asian goods, but is catastrophic for American workers who no longer have any jobs to earn incomes to buy the cheap goods.  

It is true that unregulated capitalism tends inevitably toward monopoly, and monopoly is market "control", which is the opposite of competitive free markets in which no player is dominant enough to exercise control.   A free market would not have, COULD not have, offshored the US economy.   Economic gargantuanism and market control made that possible.   Small business owner-operators do not "offshore" their own livelihoods.

So in order to preserve the free market economy, we NEED government regulation of large scale corporate enterprises.  Or, we simply need to eliminate the whole idea of "limited liability" corporations, which are creations of government legislation and can be uncreated by legislation, so that when a big business, inevitably, suffers a big loss, the owners of that company are personally ruined and stripped of all their personal wealth to cover their business losses and/or to pay for the damages their business has done.  Meanwhile numerous other local businesses rise up to grab their piece of the dead giant's market, most likely hiring the giant's experienced workers to bolster their productive capacity.

This is what happens to human beings and our failed businesses in a free market.   We are "personally" responsible for ALL of the consequences of our actions, because it is recognized that as the human agent and owner we "are" our "business".   And 100% of our personal wealth is at risk at all times, if we take large risks in the hope of large rewards.   We are rewarded when our risk taking pays off.  

We are bankrupted and ruined when risk goes the other way.   Our productive assets and our workers are picked up by new players and the economy goes on without us.   We, the business failures, pay the full price of our personal failure.   "The economy" does not pay for our failures or bail us out.   It wounds us or kills us off, to discipline us or to make way for new players.   Business is not, nor should it be, a guarantee of "security".   Business is real life risk taking with real rewards and real consequences.

We can limit our personal market risk by limiting the scale of our operations, so that we can "afford" to suffer the losses, costs and damages we open ourselves up to.   Or we can, as they say, "bet heavy and sleep in the street".   The magnitude of the potential rewards and losses is commensurate with the magnitude of our risk taking.   But the invisible hand of the marketplace is only potent if the person who makes the decisions personally and directly enjoys or suffers the consequences.   It is these consequences that "discipline" the behavior of players in the marketplace, so that while individual players rise up and fall down, the market and the economy as a whole continue functioning.   This potent personal discipline is the essence of real free market capitalism as described by Adam Smith.

Right now it is government legislation that allows behemoth limited liability corporations to exist and that insulates their owners and managers against the kind of free market discipline that Adam Smith required.  Eliminate the government protections that limit owner and manager liability, and behemoth too big to exist companies will very soon consume their owners and managers in personal bankruptcy and personal ruin, just the kind of "creative destruction" that is supposed to happen in a "free" market, where human beings are free from both government 'interference' and government "protection".

It is governments, not free markets, who allow limited liability corporations to exist and, incubated by government protection against the market's constraining and corrosive forces, to mutate to gargantuan proportions.   Limited liability legislation is government interference in the free market, and the unintended consequence is this freedom crushing hydra headed corporate monster.   If this creature has now grown too big to be disciplined and destroyed by market forces, then for the sake of liberty we should pull the legislative plug on limited liability and set this un-limited liability beast free to consume itself in its own excesses. 

Authors Bio:

I spent my working life as an independent small business owner/operator. My academic background is in philosophy and political economy. I began studying monetary systems and monetary history after the 1982 banking crash that was precipitated by the Mexican default and rendered 7 of America's 8 biggest banks, and 4 of Canada's Big 5, technically insolvent. They were quietly bailed out then as they are being loudly bailed out now. After the 2008 banking crash I started blogging about monetary system reform, in the tradition of Irving Fisher and CH Douglas who were prominent voices for reform during our last systemic collapse in the 1930s.

I also write about the wide divergence between perception and reality in matters of public opinion, and the central role of mass media propaganda in moulding perception and manufacturing consent, a role identified by Walter Lippman and perfected by Edward Bernays and Madison Avenue. Financial, industrial, and military-industrial corporatism is increasingly usurping the functions of government in America, Europe and elsewhere, replacing elected republican and democratic forms of government with unaccountable plutocracies mascarading as "free enterprise". Plutocracy is a neofeudal tyranny of lawless power, serving the interests of wealth rather than democratic justice. Responsible government with the power to legislate and enforce laws and control its own monetary system is our only bulwark against concentrated corporate power, which is why plutocrats are intent on destroying the credibility and power of elected governments leaving the new feudal masters free to abuse and plunder the masses of serfs at their leisure. The money issuing function is a most fundamental feature of government sovereignty, and America's government transferred that power to private bankers in 1913, placing the effective government of the nation in the hands of the money power. It may not be possible for the people to take back control of their government from the plutocrats. But it is some consolation to be able to read and write about the truth of what is currently happening to our once free countries.