Paradoxical free markets? Not really

(’76 Contributor) Sometimes I wonder: Could self-denial perversely lead to self-indulgence and thus cause the demise of the free-market system? “What’s all that gobbledegook about?” you might wonder. Well, indulge me there for a moment.

The free-market system is virtuous because it is rooted in such basic moral values as self-denial and delayed gratification. Ask any budding or seasoned entrepreneur and they’ll tell you, for instance, that capital formation for investment, a staple of the system, requires saving money, which undeniably is a form of self-control. Similarly, in the early stages of any business, the morally legitimate prospect of making money meeting the needs and desires of others entails making all manners of sacrifices before even hoping to reap any rewards. Ultimately a culture based on the free-market system necessarily revolves around the virtuous circle of self-restraint, vision, productivity, and higher standards of living.

And yet, on second thoughts, one might argue that the very same productivity that has lifted millions out of poverty over the past three hundred years could perversely be the catch in the virtuous revolution of the system, wrenching it out of orbit into the void of stagnation, if not decay and ultimate conflagration. Indeed the ability of free enterprise to produce cheaply and abundantly goods and services that people want might counter-intuitively foster a culture of self-indulgence that is light years away from the self-abnegation that is indispensable for the system to function properly. In other words, too much of too many good things might warp the very psychological, moral, and cultural standards needed for a free-market economy to thrive and pave the way for decadence. Shades of ancient Rome there…

Following that line of reasoning, economic crises and their consequent relative scarcity seem a welcome opportunity to retrench and rediscover the virtues that underpin free enterprise and its unparalleled capacity to lift all boats. But why echo Rahm Emmanuel’s notorious “Don’t let a crisis go to waste” comment and invoke hardships as a moral and economic bail-out when the free-market system, if left to its own devices by government, contains the seeds of its own regeneration?

Joseph Schumpeter called some of those seeds “creative destruction” in his 1942 classic Capitalism, Socialism, and Democracy. Creative destruction vividly describes the normal process of renewal that occurs when the economy is driven by untrammelled human ingenuity and innovation. Some businesses and industries become obsolete and others rise up to take their place in the never-ending aspiration of people to take responsibility for themselves through economic service to others. Seen this way creative destruction dovetails with competition, another built-in sobering mechanism of the free-market system.

Psychologically, creative destruction and competition keep entrepreneurs on their toes. Attention to what customers want being paramount for survival in a free-market economy, entrepreneurs have no choice but to keep a creative mind and nurture a sense of thoughtful, self-controlled dedication. This particular attitude and its attendant effectiveness should unabashedly be celebrated and proclaimed as cultural norms for others to emulate, curbing complacency and compulsive self-gratification.
Which leads to the conclusion that in the end the catch is not the supposedly intractable proclivity of the free-market system to self-destruct through the self-indulgence of those it serves. The blames lies squarely with all those that ideologically interfere with the system or vilify it. If government steps in to halt the process of creative destruction in the futile attempt to save jobs and if the culture constantly demonizes the virtues of entrepreneurship and individual responsibility, prudence and self-restraint will end up being thrown to the wind in a blasphemous rendition of John Maynard Keynes’ infamous aphorism “In the long run, we are all dead”.
Paoli is the pen name of a conservative political scientist who did graduate work in the United States before taking up an academic post in his native France.

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