Will Free Markets Recreate Corporate Capitalism?
This is the lead essay in C4SS's October 2015 Mutual Exchange. Responses from Derek Wall and Steven Horwitz will follow. Kevin Carson will conclude with rejoinders to each.

Some anarchists and socialists argue that, even if markets can theoretically be non-capitalist, and non-capitalist market economies can exist, the dynamics of the market will eventually lead to the restoration of capitalism. The argument used by non-market anarchists and socialists is that, in a competitive market — even a competitive market of widespread distribution of the means of production and mostly self-employment or cooperative production — there will be winners and losers. The losers will go out of business, and go to work as wage laborers for the winners who buy them out. A typical statement of this argument is that of Christian Siefkes, a libertarian Marxist associated with the P2P Foundation (quoted from their email discussion list):

Yes, they would trade, and initially their trading wouldn’t be capitalistic … But assuming that trade/exchange is their primary way of organizing production, capitalism would ultimately result, since some of the producers would go bankrupt, they would lose their direct access to the means of production and be forced to sell their labor power. If none of the other producers is rich enough to hire them, they would be unlucky and starve … which is what we also saw as a large-scale phenomenon with the emergence of capitalism, and which we still see in so-called developing countries where there is not enough capital to hire all or most of the available labor power). But if there are other producers/people [who would] hire them, the seed of capitalism with its capitalist/worker divide is laid.

The question, then, is whether a competitive marketplace without capitalistic distortions would, entirely through peaceful exchange, eventually be transformed into one with large concentrations of wealth and the predominance of wage labor. I argue that it would not.

Before I continue I should clarify some points: Coming from the individualist anarchist tradition of Thomas Hodgskin and Benjamin Tucker, I distinguish “capitalism” here from the free market, as a system in which the political and economic system is controlled by capitalists, and the state intervenes in the market on their behalf; a capitalist market, as opposed to a free one, is characterized by artificial property rights, artificial scarcities, subsidies and monopolistic entry barriers or cartels.

And when I say “free markets,” I am not referring to a society in which the majority of economic functions are organized through money exchange (the “cash nexus”) or business firms. By “free market” I mean only a society in which money exchange is allowed as part of the mix, not any particular specification as to how big a component of the mix it might be. In fact I think it’s quite likely that a far greater share of economic needs than at present would be met, in a free society, through non-market activities like direct production for use within the informal and household sector, direct subsistence production in larger co-housing units and neighborhood multi-family collectives, or networked “commons-based peer production”; and a major share of natural resources would be owned under the kinds of commons governance regimes Elinor Ostrom devoted so much analysis to. As both employer-based and government-based safety nets erode and corporations and governments retreat from the social sphere, I expect a growing share of economic life to be governed through voluntary, communal organizations for pooling risk, costs and income on models similar to the guilds and fraternal societies and the open field villages of the later Middle Ages (which figured so prominently in Kropotkin’s historical work). In this regard I refuse to include Siefkes’s stipulation of exchange as the main way of organizing production, as part of the definition of “market economy.”

All that being said, I’ll return to the original question: Would the existence of free markets inevitably lead to the revival of capitalism, wealth concentration and the wage system, or to a corporate economy dominated by a small number of giant business organizations? To repeat, I say it wouldn’t.

To take the question of the corporate economy first, the typical argument — in my experience coming from liberals and Center-Left types in venues like Salon or the comments at Daily Kos — is that the Gilded Age was a time of “laissez-faire” that spontaneously gave rise to the era of giant trusts. The Progressive reforms at the turn of the 20th century were passed to bring the unbridled corporate economy that grew out of it back under control.

But the corporate economy as we know it did not emerge naturally as the result of market forces; it was a creature of the state. The large-scale system of long-distance railroad trunk lines in the U.S., which rendered long-distance shipping artificially cheap and created artificially large market areas and artificially large firms to serve them, came about through the railroad land grants. This high-capacity national railroad system was a prerequisite for the ecosystem of national wholesale and retail operations that grew up around it, which in turn were prerequisites for the rise of national manufacturing corporations that grew up to serve the newly created continental market. Even Alfred Chandler, an enthusiastic defender of the centralized mass-production industrial model of the 20th century, conceded that centralized nationwide distribution and then production were possible only because of the state’s role in creating a high-capacity nationwide transportation system.

Absent such intervention, the railroad system would likely have taken the form — as Lewis Mumford argued — of a large number of local networks loosely patched together with a much lower capacity system of national trunk lines. And the ideal form of industrial production for such a loose federation of local railroad networks would have been the industrial district model.

In addition, the industrial tariff served as a wall behind which it was easier to cartelize industry. And the exchange and pooling of patents was also a powerful cartelizing tool (for example, the origins of A&T as the Bell family patent system, the cartelization of the consumer appliance industry by GE and Westinghouse’s exchange of patents, the formation of RCA by pooling the patents of the five leading U.S. radio producers, etc.). Finally, the most important effect of the Progressive Era regulatory state was to permit stable oligopoly industries for the first time by restricting price and quality competition; the Federal Trade Commission, which for its first two decades treated selling below cost and other price-war tactics as “unfair competition” was especially significant in this regard.

The ideal technical application of the electrically powered machinery enabled by the invention of the electric generator and electric motor would have been the above-mentioned industrial district system:  Craft production using relatively cheap, electrically powered, general-purpose machinery to produce for local markets, frequently changing from one product line to another as orders came in, on a lean/just-in-time/demand-pull basis. The cumulative effect of all the state interventions listed above was to divert this technological current into an entirely different channel:  Mass-production using expensive, large-scale, product-specific machinery and producing enormous runs of the same product for national distribution on a supply-push, batch-and-queue basis.

In short, the large-scale corporate economy that arose in the 19th century was very much — to repeat — a creature of the state.

Moving further back, to the origin of the capitalist system itself, I argue that it was likewise entirely a creature of the state. The concentration of wealth and predominance of wage labor did not arise from a free market; massive state coercion was involved in its creation.

First of all, in the only history we know, systems in which the means of production are mostly owned by a small wealthy class and the majority of the population works for wages did not come about through the peaceful process of sorting winners from losers in a competitive market. They came about through large-scale force. And in particular, the engrossment of enormous tracts of land in a few hands has come about only through robbery. The capitalist system of early modern Western Europe was a direct outgrowth of the “bastard feudalism” of late medieval times. A major part of the landed aristocracy reinvented themselves as agrarian capitalists. The new absolute states, reflecting a constellation of interests that included the landed classes, the mining and armaments industries, and the chartered monopolies, nullified the peasant majority’s customary rights in the land, and either transformed them into agricultural wage laborers or rack-rented and evicted them. With their new gunpowder armies they militarily defeated the free, self-governing town communes. The process culminated in Britain, on the eve of the Industrial Revolution, with the Parliamentary Enclosure of common wood, fen and pasture, and the same drama was reenacted on a global scale starting with Hastings’s Permanent Settlement in Bengal. By the end of the 19th century the mineral wealth of Africa and Oceania had been looted by Western mining companies, and much of the best arable land appropriated by European settlers.

The great capitalist fortunes that funded the Industrial Revolution in Britain belonged to the Whig landed oligarchs who inherited the fruits of robbery and Enclosure, and to the mercantile profiteers associated with chartered monopolies of various sorts. The industrial working class that worked the new factories was supplied by the former peasants, who had already been forcibly transformed into a propertyless proletariat through the Enclosures.

And the institutional forms of the Industrial Revolution — the factory system and the wage system — took shape in an environment of police state repression. The Laws of Settlement in Britain amounted to an internal passport system prohibiting the working class from travelling from parish to another without the permission of the Poor Law authorities. So inhabitants of overpopulated parishes were unable to “vote with their feet” by moving elsewhere in search of better employment opportunities. Although at first glance this would seem to work counter to the needs of factory owners in the sparsely populated areas of the industrial north and west, the authorities — having prevented the population from travelling on their own and negotiating to fill vacancies — filled the vacancies themselves by auctioning off the destitute surplus population to employers. Besides this, the Combination Laws and a whole body of police state legislation against friendly societies prevented workers from freely associating to increase their bargaining power. So the state mandated that workers take whatever employers offered or leave it, with no freedom to bargain for higher wages — and then acted as bargaining agent on behalf of employers.

Second, the coercion isn’t just a matter of past history, whether the early days of capitalism or of the industrial revolution. In our actual history, the fortunes resulting from those original acts of robbery have continued to grow upon themselves throughout the capitalist era through the “magic of compound interest” — the result of monopoly rates of rent, interest and profit possible only because of artificial scarcities and artificial property rights enforced by the state.

Natural property rights are rights to one’s own possessions and labor products; they reflect natural scarcity, and enforcement in the first instance follows directly from the act of physical possession itself (physically occupying and using a piece of land, retaining physical custody of things one has produced, etc.). Artificial property rights, on the other hand, enable the holder to a portion of the labor product of others, by creating artificial scarcity where it would not naturally exist. A legally privileged class of people is able, in the words of Henry George Jr., to obstruct access to natural opportunities or erect toll-gates to the use of things that should be naturally free and abundant. The classic example is the landlord who encloses vacant and unoccupied land and charges tribute for the right to cultivate or build on it.

Absent artificial scarcities of land and credit, and barriers to market entry for firms, most remaining profit would be short-term and entrepreneurial from the “first mover advantage” of introducing an innovation or being the first to move a resource where it is needed, and would quickly be destroyed by competition as others adopt the innovation or follow the same price signals. Profit would be self-liquidating.

Another major example is so-called “intellectual property,” which amounts on a restriction on using one’s own labor to transform material resources in one’s own possession because someone “owns” the pattern into which one wants to organize those resources. And a whole host of laws restricts the supply of money and credit to a privileged class, and thereby makes them artificially scarce and expensive.

But the general category includes all entry barriers and restraints on free competition: Zoning laws that protect established businesses from competition from home-based micro-enterprise; regulations that impose capital outlay requirements on undertaking production over and above those actually required by technical necessity; licensing regimes that restrict the numbers of competing providers in a market or limit market entry to those able to pay a large licensing fee; regulations whose main purpose is to artificially increase the cost of entering the market, so that only big players can participate; “safety” codes written by the regulated industries whose primary purpose is to prevent the adoption of new, cheaper production technologies (a good example is housing codes written by building contractors that exclude vernacular building techniques and new, low-cost technologies for self-built housing, and thereby put a floor under the minimum cost of comfortable subsistence).

More broadly, the category extends to all forms of guard labor, planned obsolescence and subsidized waste, and all restraints on competition that make the market safe for large, inefficient bureaucracies with high overhead that, in Ivan Illich’s words, increase the cost of making and doing anything by 300% or 400%. And this 300% or 400% increase goes entirely to a class of parasitic rentiers. And it includes the “radical monopolies,” to use another good term of Illich’s, that render people artificially dependent on the output of some industry (the classic example is subsidies to freeways and regulatory mandates to sprawl and monoculture development, which make it impossible to access work and shopping by foot, bicycle or streetcar and transform the automobile into a necessity of life).

In every case, the principle is what Thorstein Veblen called “serviceable disserviceability”: Collecting tribute for the “service” of not obstructing production.

It should go without saying that none of these things — all of which were involved in transferring wealth upwards from the producing population and concentrating it in the hands of a small propertied class — would be permitted in a society based on voluntary association and free exchange.

But besides all that, new production technologies are rendering earlier distinctions between being “in business” and “out of business,” or between being “employed” and “unemployed,” increasingly meaningless — and in the process rendering obsolete the whole idea of a capitalist wage system emerging from the process of winners and losers.

Not that sorting itself is bad — competition that causes people to shift from things they’re comparatively worse at to things they’re better at is good, so long as 1) there are no harsh, abrupt dislocations; 2) people are cushioned and able to ride out periods of change comfortably; and 3) there is no permanent class of losers.

And there is indeed no reason to have any permanent losers. First of all, the overhead costs are so low that it’s possible to ride out a slow period indefinitely. Second, in low-overhead flexible production, in which the basic machinery for production is widely affordable and can be easily reallocated to new products, there’s really no such thing as a “business” to go out of. The lower the capital requirement for entering the market, and the lower the overhead to be borne in periods of slow business, the more the labor market takes on a networked, project-oriented character — like, e.g., peer production of software. In free software, and in any other industry where the average producer owns a full set of tools and production centers mainly on self-managed projects, the situation is likely to be characterized not so much by the entrance and exit of discrete “firms” as by a constantly shifting balance of projects, merging and forking, and with free agents constantly shifting from one to another. In addition, in a society where most people own the roofs over their heads and can meet a major part of their subsistence needs through home production and sharing or exchange with their neighbors, workers who own the tools of their trade can afford to ride out periods of slow business, and to be somewhat choosy in waiting to contract out to the projects most suited to their preference.