Wednesday, May 28, 2014

Re-free the marketplace

In reference to the cartoon in the last post, Rifkin differentiates the free market from capitalism. Free markets existed before the advent of capitalism in the late medieval period, when craft guilds produced goods. There were mostly small, family operations where the craftsman owned their own tools. The change to capitalism occurred when some merchants wanted to bypass the guilds and hired poor laborers in the countryside to do the work with tools the merchants leased to them. Their operations grew so that they could provide goods at lower cost than the skilled craftsmen and ran them out of business, then hired them as slave wage laborers. Adam Smith saw a direct relationship between the enclosure of land and the enclosure of tools (39-40).

As noted in the book, there is always a mix and overlap of the eras involved. So when regressives talk about free markets they tend to use examples of small business. This seems more from the medieval era of skilled craftsmen competing with each other to make the best products for the best price, which serves everyone. Capitalism, however, is about big business, monopolies and oligopolies. Rifkin makes a case that it was the best way to implement that era given the massive scale of building out its infrastructure.

But make no mistake about it: it was not a free market of the kind envisioned by Adam Smith. That was more a vision for the burgeoning first industrial revolution when we were in the transition from feudal guild markets still situated in an agricultural economic base. Smith himself warned of the dangers of large corporations taking over and monopolizing the marketplace.

If we accept that capitalism was a functional fit for the era, we must also admit that it no longer fits for the emerging era. It's time to free the market yet again, this time with free goods and services, i.e., in terms of marginal costs, not fixed costs. As to who finances the latter, it was discussed in the book chapters in previous posts.

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