In classical economic theory, all the participants in the economy are assumed to have perfect and complete information, at all times, about everything they need to know in order to make the best decisions about how they should behave. This attribution of omniscience to human beings is a very curious assumption, since it elevates the members of our flawed and imperfect species to the status of gods. It is not surprising, then, that economics is not very good at explaining human behaviour in the imperfect world we live in, since it was developed to explain the behaviour of a class of imaginary creatures that, at the present time, does not exist, and probably never has existed, on Earth.
Free-market economists like Mises, Hayek, and Friedman declare that all the information a consumer or company needs to know is contained in a product’s price, for its price, like a magic talisman, summarizes everything that the participants in the economy need to know in order to make informed decisions. But this simplistic belief is very clearly wrong, for behind a product’s price can be concealed a great many things which the consumer, intermediary company, or retailer would not approve of if one knew about them, and hence, would influence their decision to buy or not buy the product, or buy a competing brand instead. Hence, many individuals and companies do their best to hide these things from the knowledge of consumers and other companies which buy from them. Some examples are the use of child labour, employment practices that harm or exploit workers, the widespread mistreatment of farm animals, the pollution or destruction of natural habitats, the use of illegal ingredients or practices in manufacturing a product, tax or managerial fraud, dangerous or unsafe practices, false claims, misleading advertising, and so on.
With the constant pressures due to unbridled price competition and globalization, which has given manufacturing companies access to cheap labour in poor countries while forcing them to compete with each other continually, as if economic production were a sort of corporate or entrepreneurial Olympics where the winners are able to reap huge profits for their no-responsibility owners, while the losers disappear in a free-market-capitalist version of the survival of the fittest, or they are bought by other companies before rival companies have the chance to buy them, there is constant pressure to reduce production costs, regardless of how this reduction is achieved – even if it means underpaying one’s employees or suppliers, firing a significant number of workers, harming people or other living creatures, polluting the environment, ignoring safety regulations, and engaging in other harmful, illegal, or morally questionable practices.
Contrary to what the classical economists believed, it can happen, as a result of unbridled price competition, that a product’s price falls so low that it is not sufficient to ensure that the workers who labour to produce the product earn enough to keep body and soul together, for poverty, hunger, misery, and desperation can force people to continue working under deplorable conditions and for meagre pay that strip them of their dignity as human beings. If consumers care only about a product’s price, then it is obvious that most of them will prefer to buy the product at the lowest possible price, regardless of the harm and suffering, whether to humans or to other living creatures, which that low price may – and often does – conceal.
This is what I mean by the grave inefficiency of the price mechanism, for, contrary to what standard economic theory tells us to believe, paying attention only to a product’s price most certainly does not lead to the best possible outcome for all the participants in the economy. In such a system, it is not the best, but often the worst, practices that become dominant and widely adopted, so that even those who do not approve of them, in some cases finding them repugnant or morally wrong, are forced to adopt them in order to stay in business. The simple but demoralizing truth about human beings is that even decent people can become habituated to many things, including things that they formerly found offensive, disgusting, repulsive, troubling, or wrong, especially when they see those things being done by all or most of the people around them.
The widespread belief that the excesses and the many harmful effects of free-market capitalism are due solely to human greed is not entirely correct, for there are a number of systemic causes which result from the erroneous beliefs of economists, and in particular free-market economists, that, first of all, competition is good, and the more there is of it the better; second, free trade is good, and the more trade liberalization and globalization there is the better; third, consumers and producers should only pay attention to a product’s price in making decisions about what they buy and what they produce; and fourth, government, with all its regulations and distorting effects on the free market, is bad, and therefore the less government interference and regulations there are, and hence, the more free the market is, the better things will be for everyone.
It is truly astonishing how many people have been misled by the term “free market” into overlooking the many harmful and coercive effects which this supposedly “free” market has on people and the world we live in. For the truth, which all the fanatical and ideologically-blinded advocates of free-market capitalism overlook, is that the supposedly “free” market is merely another of the many utopian dreams that have been advanced and implemented as the solution to humanity’s numerous problems and daily challenges. But anyone who is not blinded by this ideology should be able to see the many harmful effects of free-market capitalism, which include, but are not limited to, growing inequality on a very large scale, the elimination of well-paying jobs as human labour is replaced by machines or production is shifted to poorer countries, often due to the demands of the no-responsibility owners of large corporations for higher and higher profits, the widespread pollution of the environment, the depletion of natural and living resources, such as many fish and other marine stocks around the world, the reckless and unsustainable consumption of limited resources like oil, natural gas, and coal, a materialistic way of life that judges and classifies people according to the things they own and how much they own, the constant encouragement, to the point of manipulation, of consumers to buy and consume many things which they don’t need, reckless financial speculation that can destabilize both national economies and the global economy, and the constant pressure, along with the accompanying stress, to work harder, produce more, and be more efficient in order to keep up with or stay ahead of one’s competitors.
The free market is not a living entity that exists apart from humanity; and neither is it more important than people’s lives, as if it were some sort of inanimate economic deity that must never be opposed, angered, modified, contradicted, or restrained, as some free-market fanatics believe. In other words, the free market should serve people, rather than the reverse, which is the situation that increasingly exists in many countries. This means that when the free market fails to improve people’s lives – when it subjugates and oppresses them and makes many of them worse off – then clearly it needs to be corrected, and some of the basic doctrines that underlie its operations modified or rejected.
After the collapse of communism and the subsequent dominance of free-market capitalism as the only remaining credible economic doctrine, its mistaken policies have been adopted and implemented in more and more countries around the world. We are now seeing the many harmful effects of free-market capitalism, specifically of unbridled price competition, and the folly of preventing governments from checking and correcting the excesses of privately-owned corporations. For, unlike governments, corporations do not have the mandate to consider the effects of their actions on all people, including those who are harmed by their actions and decisions. Because free-market fanatics like Milton Friedman peremptorily declare that corporations should not consider anything other than the narrow and selfish interests of their shareholders, which is to make as much money as possible for these no-responsibility owners, it follows that governments must act to punish and restrain them whenever they do things that harm those who do not own corporate shares. For otherwise the fundamental principle on which all democracies are founded has been violated, by giving to a rich and powerful minority the legal right to harm others with impunity.
We cannot afford to wait until the growing problems and grave inequalities which are due to this false ideology lead to its collapse, just as communism collapsed when it became increasingly evident that it was not able to fulfill its lofty promises, and the hideous, totalitarian reality which it produced differed more and more from its unrealistic utopian dream. For to wait until capitalism collapses as a result of its mistaken beliefs and excesses would result in a great deal of preventable harm to both human beings and other living creatures. Unlike some social and economic radicals and revolutionaries, I am not arguing for the outright rejection of capitalism, for it is a system that has proven that it can produce a great deal of material wealth in an efficient manner, while providing vast numbers of people with the things they need in order to live meaningful and fulfilling lives. But it is abundantly clear that capitalism has many flaws and problems, and to ignore these problems, as the do-nothing, don’t-interfere, keep-your-hands-off, stick-your-head-in-the-sand, just-trust-us-because-we-know-what-is-best, ideologically-blind free-market fanatics constantly urge, would be just as foolish as allowing the communists to lead entire countries on the road to social disorder and economic ruin, as happened in many countries during the course of the last century.