In the wake of the green wave, we see renewed calls for a “system change”. But what exactly does that mean? Does anyone have any ideas? Ideas other than Anarchy, Communism or a return to Feudalism? When posed this question, those that shout loudest, tend to go quiet very quickly. But we don’t have to invent a new system to change the status quo. Sometimes, a look back to our founding fathers is all the inspiration we need.
Political and economic theory can be very bothersome and messy. Today we refer to most of the world’s economies as “mixed economies”, because that’s the easiest way to define them, without actually having to deal with the theoretical constructs necessary to create realistic definitions. There are so many cross-references and (mis)interpreteations of commonly used terms that it becomes nearly impossible to break it down for your everyday person. Which is ironic, because our modern economic systems are based on the assumption that everyday people make rational decisions, which contribute to a just and free market. But today’s topic is so relevant and important that we once again have to try to break it down.
Some believe that what makes the free market great and indeed, free, is the notion of non-interference by the state (laissez-faire politics). After all, humans are biased and their subjective decisions would skew the outcomes of a fair and free competition. There are many things that are very wrong about this idea, though its proponents will surely do everything in their power to discredit any evidence I could present. Or in the words of the founding father of Capitalism:
“The learned ignore the evidence of their senses to preserve the coherence of the ideas of their imagination.”- Adam Smith
First of all, the free market gets its name, because of its predecessors. Feudalism and Mercantilism did not have a free market in three respects. 1) There were no property rights for everyone. Some people did have property rights, but the rest were either forced into serfdom or spent their lives as vagabonds. 2) Market dynamics were not determined by supply and demand, but strictly controlled by states, whose only goals were to outperform all others economically. 3) There was no free enterprise. One could not simply choose to be part of a specific profession. Either your social class or the guilds dictated your future.
Scottish moral philosopher Adam Smith (whose ideas are the basis for this article) fought against these restrictive tendencies and for a free market, where everyone was free to accumulate property, start their own business and states were trading freely, rather than trying to interfere with and control market forces. But he never said that state regulation was a bad thing. In fact he openly advocated for it. He only condemned the then prevalent notion of Mercantilism, which led to wars and colonialism.
“When the regulation, therefore, is in support of the workman, it is always just and equitable; but it is sometimes otherwise when in favor of the masters.” – Adam Smith
Secondly, humans are always involved in decision-making in society. Whether it is state actors, or the entire general population, there are always humans making decisions. The biggest mistake is assuming that everyone is an individual actor, making their own personal decisions. We are, of course, but once you put us together, we become frankly, dumb as sheep. It is simple mass psychology. As individual thinkers, humans are mostly able to be critical rational thinkers. But in a crowd our collective IQ goes down, as we adapt to herd thinking and assimilate into the mass.
This may not have an effect on individual consumption, but it certainly has an effect on our financial markets. One person can initiate an action that can spiral out of control, because the masses react in unison. It can make or break companies and even entire industries in a matter of hours, sometimes even minutes. This is why Adam Smith always warned against letting the financial markets outgrow the labour market.
“Such regulations may, no doubt, be considered as in some respect a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as or the most despotical.” – Adam Smith
Now we live in a globalised world market economy, which is mostly free. But as I stated above, they are mixed economies and we still experience trade tariffs and other barriers to trade. In some cases, like the U.S., protectionist governments are interfering with the free markets, by imposing new tariffs. This goes against the principle of free markets. But there is also a reason, why they are fighting this “tariff war”.
Proponents of free trade in the West have long been advocating for the positive social effects free trade has on the rest of the world. Free trade allows the West to export democratic ideas and human rights to the rest of the world. Slowly, the rest of the world will accept these ideas and change their systems, because they will want to trade with us and make money.
This notion would hold true if the rest of the world was poorer and in desperate need of trading with us. But when we are dependent on Saudi Arabian oil, or Chinese cheap production facilities and labour force, suddenly, the tables turn and we end up accepting their human rights violations and authoritarian tendencies.
We readily accept everything Turkey is doing in the Middle-East, no matter who they invade. We’ll even pay them taxpayer money, so long as they keep the refugees away from us. Saudi-Arabia is killing journalists and beheading people publicly every Friday? No problem, we just look away and count the gallons of oil that arrive at our doorsteps instead. We will even throw in some European weapons if that will make them happy. China is threatening to invade Hong Kong and massacre anyone who dares to stand against their regime? We better make sure, none of our people publicly shows solidarity with the people of Hong Kong. We should censor free speech, as the Chinese do, so that they do not withdraw their investments from our companies, or worse, block us from accessing the big Chinese consumer market. Perhaps we should stop our sanctions against Russia too? I mean, are they even effective at this point? Think of all the money we are losing by not trading with them!
We are faced with multiple authoritarian regimes that do not recognise human rights or democracy, but that do recognise the value of free trade for their own growth and their ability to influence us and undermine our values. Our companies and governments will always choose to give in to the incentives they are presented by them. Unfortunately, it is up to us, the everyday consumers, to remind them of what is really important. Democracy is not just upheld by your vote at the ballot box. It is upheld by our everyday actions. Vote with your wallets and make your voices heard, wherever and whenever a European company goes against European values, in favour of foreign authoritarian money.
“It comes from an order of men [dealers], whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.“ – Adam Smith
Today, companies and governments only act, based on PR and profits. So it is up to us, to make life difficult for them, when they go against the common good and truly come together as an invisible hand that threatens to crush them if they do not change their ways.
Adam Smith argued one central idea throughout his three main books. A free market needs to be a market with moral sentiments. Our values must stand above our need for profit, or else our system cannot be fair or work at all. Money requires trust and if people lose trust in the validity of money, the whole thing comes crashing down.
“Without this sacred regard for general rules, no-one’s conduct can be much depended on. It is what constitutes the most essential difference between a man of principle and honour and a worthless fellow.” – Adam Smith