Form & Function: Capitalism Does Not Necessarily Mean Free Market

This post will challenge many who consider themselves “conservative,” but I implore you to read it and give it careful consideration before you dismiss this argument.  At the top of this blog, under the page titled “Basic Precepts,” you will find a post titled “Form & Function,”  in which I explain that a thing is not defined by what we call it, but rather, by its form and function.   This post uses this basic precept to explain why ‘Capitalism’ does not necessarily equate to ‘the free market.’  In fact, as they are practiced today, in this country, they are not the same thing.  In order to make my case, I will have to refer to a lot of definitions.  This may make for tedious reading; however, if you will stick with this post, I believe that – even if I do not win you to my side – I will give you sufficient reason to reconsider what you do believe regarding the relationship between Capitalism and the free market.

 We will start with the definition of ‘the free market:’

Definition of FREE MARKET

: an economic market operating by free competition

 Next, the definition of ‘Capitalism:’

Definition of CAPITALISM

: an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market

 OK, so far, so good.  Looking at the definition of Capitalism, we find ‘free market.’  I readily grant that, where there is nothing but a few private individuals involved, and the ‘playing field’ is truly neutral, ‘Capitalism’ usually equals ‘free market.’  However, once corporations enter the picture, ‘Capitalism’ does not equal ‘free market.’

Now, for many who will probably read this, that last statement is not going to sit well.  I understand this because we have been told and taught that Capitalism means the free market.  But, if you will keep an open mind and try to look at this issue conceptually – in other words, at the form and function behind the words we’re using to describe economic structure – I think I can show you why I believe the introduction of corporations destroy the free market.  Furthermore, I think I will even be able to explain why they do so.  We start with this:

Definition of CORPORATION

2: a body formed and authorized by law to act as a single person although constituted by one or more persons and legally endowed with various rights and duties including the capacity of succession

3: an association of employers and employees in a basic industry or of members of a profession organized as an organ of political representation in a corporative state

Notice that a corporation is not real.  It is an artificial entity created by law. Now, at its most simple form, what is a law if not an extension of the Social Contract which formed the society it governs?  (Please see Social Contract for a more detailed explanation of how this works).  For example: our States are societies.  These societies formed through Social Contracts we call State Constitutions, but which are essentially contracts between every individual within a given State.  These Contracts, or constitutions, define how laws will then be written, enacted and enforced.  In this sense, the laws are an extension of the Social Contract which formed the society we call a State.  So, when the people of a State created corporations by an act of legislation, it is a smaller act of a larger contract; a contract that created the society that then used the contract to create corporations.  And none of these – the society, government or corporations are real.  They are all artificial entities.

Now consider this:

Definition of COLLECTIVE

1: denoting a number of persons or things considered as one group or whole <flock is a collective word>

2a : formed by collecting : aggregated

b of a fruit : multiple

3a : of, relating to, or being a group of individuals

b : involving all members of a group as distinct from its individuals <a collective action>

4: marked by similarity among or with the members of a group

5: collectivized or characterized by collectivism

6: shared or assumed by all members of the group <collective responsibility>

 In other words, the collective is that artificial entity we create in our minds to help us visualize that which is actually a larger group of individuals working in cooperation with each other.  However, notice that there is a feel of size in the definition.  You and I working together would not be a collective, we’d partners.  A small group of closely related people working together wouldn’t be a collective; they’d be a family.  Even a larger group of close friends working together could be excluded from the definition of collective: they would be more correctly called a team.  But – at some indefinable point – we start to think of large groups as a single thing – like a corporation. (Please see The Collective vs. the Cooperative for a more detailed explanation of the difference between a small group of individuals and the collective).

This is what a corporation is: a collective.  It is a group of people that share the same goal: to make money by investing in the company.  But they also share the same risks.  In essence, they ‘socialize’ the risk.  In theory, this is still compatible with a free market – so long as the number of stock holders is small enough to allow each of them personal involvement in the operation of the corporation and there is a structure in place prohibiting any one stock holder from having a larger vote than any other.  This way, personal responsibility is maintained and every individual stock holder can be held personally accountable for the actions of the corporation.  This keeps the corporation inside the confines of Natural Law and permits a free market.  However, this is not how our modern corporate system works.

In our system as it exists today, people invest their money and then – most often – have no say in the operations of that company nor share in its profits unless and until they sell their stock. And, even if you buy a preferred stock with voting rights, your vote is no longer equal to that of a person who owns more stock than you do.  Nor do you really own a piece of the corporation.  If you own stock in a company, but you cannot walk into the company at will, or maybe take a computer home for the night, then you do not really own anything in that company.  All you own is a piece of paper that may or may not make you a profit when you sell it.  This also means you can be forced into participating in a violation of Natural and Civil law by being out-voted.  This structure is – itself – a violation of Natural Law.  But it gets worse when you consider that many corporations are run by small groups of people who – in essence – are the heads of their corporate societies.  And this is how the modern corporation destroys the free market: because it is a socialist microcosm.

Think of the stock holders as citizens of a State.  Together, they form a small society.  The stock holders own the corporation (in theory), but they also share in the risks associated with running the corporation without having much real control over it.  They can vote and even elected the President of the corporation, but they have little more control over what that President does or how he runs the corporation than the average citizen has over their State over their governor.  If the company fails, they can lose their investment.  But, even in a well-run corporation, the President of the corporation and his small group of ‘administrators’ generally tend to treat the corporation as their private property.  How often do such people in the real world refer to the corporations they run as “mine?’ How many decisions do they make without ever consulting the stock holders, or even in the face of stock holder opposition?  This is basically what Woodrow Wilson said is the best form of government for the nation: an elected dictatorship (see The Study of Administration).  So, now that you are thinking of a corporation in these terms, tell me: how is it different from this?

Definition of SOCIALISM

1: any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods

Now, before you dismiss the connection, think about a few things.  How do we put artificial entities in jail when they break the law?  Usually, we just fine the corporation.  But this doesn’t hurt the corporation; it just raises its prices and passes the penalty for its crimes to its customers.  We’ve done nothing to discourage the corporation from breaking the law again.  This is a violation of Natural Law and, as a simple fact of human nature, inevitably leads to abuses of just this sort.  But there’s more.

As soon as a corporation starts to think of itself as a collective, it starts to act in the perceived best interest of that collective.  But this usually equates to the best interest of the people running the corporation because the individual stock holders are lost in the creation of this artificial entity we call ‘the collective.’  So, instead of paying out greater dividends to its rightful owners, the corporation spends money to ‘lobby’ government to pass laws that limit competition, thereby helping to solidify market share and increase profits.  Or it spends money to lobby government to give it select contracts.  It doesn’t matter: the point is that it has used the collective against smaller businesses, thereby destroying the free market.

Here’s the clincher.  How does all this destroy the free market?  Because it uses the law to make an artificial person that can then take advantage of this artificial nature against the very people who created it.  This is a violation of the Social Contract that allowed the creation of the corporation.  In other words: the corporation uses the laws of society to create itself, then it uses the greater profits it can accumulate due to its special nature to protect itself by limiting free trade.  And at that point, ‘Capitalism’ ceases to be free trade and becomes something closer to a collection of competing socialist entities within the same economy.


2 thoughts on “Form & Function: Capitalism Does Not Necessarily Mean Free Market

  1. Makes sense to me.

    It is no wonder that the govt. is willing to bail corporations out. It’s like a form of logrolling: The corporations grease the politicians’ palms, and in so doing, not only profit themselves, but are willing to take the outrage of the public by allowing themselves to be coined “capitalism” or “free markets”.

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