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  • Posted August 4th, 2019
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    What’s the difference between capitalism and a free market?

    What’s the difference between capitalism and a free market?

    People usually conflate the two, but I want to try to persuade (mainly the right) that capitalism is nothing like a free market, and (mainly the left) that there’s nothing wrong with a truly free market.

    There’s a distinction provided in David Graeber’s Debt: the first 5000 years between a commodity-based economy and a money-based economy. It’s from Marx, in Capital (you can agree with Marx’s critique without agreeing with his proposed solution), but Marx writes in dense, academic terms. I think it’s a concept that could do with translating for a wider audience. Here’s an attempt:

    A commodity-based system is represented by C-M-C, and a money based system by M-C-M.

    C-M-C means that someone produces a commodity (C) – i.e. a useful product or service, and exchanges it for money (M), which is then used to purchase another commodity (C) that they can’t produce themselves. This is just a normal, free-market model that has been used for millennia. People are free to produce what they want to produce, free to sell it for a price that they agree with a buyer, and free to use the exchange medium they get for it (whether it’s legal tender, bank credit, crypto or mutual credit) to buy whatever they like. No skewed market, no coercion, no central control.

    M-C-M is the capitalist model. It’s a relatively recent invention. Someone has money (the more they have, the more useful this model is to them; and the more they have, if you trace the history of its acquisition, the more illicit it’s likely to be), which they invest in the production of commodities, to obtain more money. The on the end of the final M is crucial. It signifies that M is more than M. This is the really damaging part – it ensures that wealth will concentrate, via extraction, and that the economy has to perpetually grow, and therefore destroy ecology.

    A mutual credit trading system (which we’re developing with the Open Credit Network) is firmly part of the C-M-C economy. And lots of small, private businesses fall into that category too.

    M-C-M can never be a free market, because the concentration of wealth that it inevitably brings will overflow into the political system and mean that the state will continue to skew the market in favour of big capital. That’s exactly what’s happened. A Starbucks will always pay far less tax than a local, independent coffee shop in any community it’s situated in anywhere in the world. Tax is only one of the many ways the state supports big capital (protection for their patents is another; giving monopoly control of the money supply to banks is another; ultimately bailing them out if they screw up another). Take away the state prop for the corporate sector, and I think ‘economies of scale’ will be revealed to be an illusion.

    I think it’s perfectly possible to be a free-market anti-capitalist – that’s exactly what Kevin Carson (one of my favourite writers) calls himself. For me, the mutual credit, and especially the Credit Commons is an attempt to replace the failed M-C-M model experiment by reverting to the C-M-C economy, and that has only really become possible with the internet.

    [Workers often think – or are fooled into thinking – that the rich must have worked hard to become rich, because they live in a C-M-C world. Capitalists are fully aware that other people have worked for them to get rich, because they operate in a M-C-M world. They know that it’s not work, but money, that brings them money. A microscopic minority of the super-wealthy did actually work hard – Bill Gates, for example – but it was still the work of others that made him super-wealthy.]

    Then we have the libertarian position. It’s this: there are 2 capitalisms – free-market capitalism and crony capitalism. In free-market capitalism, business trade freely with each other without state interference. Everything will then balance out – there will be no monopolies, inequality or injustice, which means there can be real democracy. But with crony capitalism, wealthy individuals corrupt the political system and create an alliance between the state and corporations. The state then supports multinationals in the ways mentioned above – but there are many others. If we could prevent crony capitalism by shrinking the state, everything will be fine.

    However, another viewpoint is that if the means of production is owned by people who do no work, in an M-C-M model, then wealth will always concentrate, because of the M’. Concentrated wealth will inevitably build institutions that look very much like a state (like the WTO, IMF etc.) – with regulations, propaganda and preferential treatment for the M-C-M model and its beneficiaries, and with ultimate recourse to violence if people transgress. And then we’re back to crony capitalism. So from this viewpoint, any kind of capitalist, M-C-M model will ultimately result in crony capitalism, and destroy democracy and ecology.

    I guess none of us want crony capitalism, but does any kind of M-C-M’ always result in crony capitalism in the end? I think it does. But one thing I’m sure of – capitalism can never be truly a free market.


    The views expressed in our blog are those of the author and not necessarily lowimpact.org's


    3 Comments

    • Eloïse Sentito August 6th, 2019

      Absolutely. Especially: ‘This is the really damaging part – it ensures that wealth will concentrate, via extraction, and that the economy has to perpetually grow, and therefore destroy ecology.’

    • Eloïse Sentito August 6th, 2019

      (So as I understand it, money creation as debt at interest acts as a locking mechanism within which we cannot break out of M-C-M’ and concurrent growth. Since the total percentage of money created thus has surged to ~97% of all money in the neoliberal period, capitalism’s squeeze has become all the more widely felt as it exhausts the commons and cheap labour supplies. Grace Blakely argues usefully in the New Statesman for the ‘definancialisation of the markets’, which seems to me a good phrase for what we’re all talking about. The label ‘socialist’ doesn’t sit perfectly for many of us who value plenty of autonomy, but surely most of humanity would welcome properly distributive markets fairly regulated by fair states, and so positive monetary systems seemingly offer a solution around which most factions could cohere.)

    • Dave Darby August 7th, 2019

      Eloise – agreed. Plus the word socialist is most often associated (I think) with state control of some sort, rather than grassroots economic development. In fact, the public sector unions (Unison) in Preston have come out against the Preston model, because it seems they’d prefer local businesses serving publicly-owned ‘anchor’ institutions (hospitals etc.) to be run by the public sector rather than by local co-ops (which they seem to see as a back-door to capitalist ownership). I think this is misplaced – especially if co-ops have good asset locks (which most building societies didn’t).
      I don’t think the C-M-C model has any ideology – it’s just the best way of running an economy. There’s no reason that it should repel the right. M-C-M’ is suicidal. Let’s go back to our roots and recognise that capitalism was a failed experiment (hopefully before it destroys ecology to the point that it won’t support us any more).

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