Will Truly Free Markets be Truly Different?
This is the second response to Kevin Carson's lead essay in C4SS's October 2015 Mutual Exchange. The first response by Derek Wall was published on October 4, 2015. Kevin Carson will conclude with rejoinders to each.

Steven Horwitz’s Response to Kevin Carson.

There is much to like in Kevin Carson’s lead essay and even where I think he goes astray, he performs a valuable service by reminding us of the ways in which the state has affected the evolution of really-existing capitalism and he thereby challenges us to think more critically and expansively about what a truly free market might look like.

One of the most important points Carson makes is something of a throwaway at the start, namely the claim that the “free market” need not mean only, or even primarily, that social cooperation takes places through the “cash nexus.” Instead, it simply allows such relationships as one among a whole range of ways in which humans can voluntarily cooperate to solve their problems, whether through markets or friendly societies or houses of worship or any of an array of other organizational forms that might arise in a free society. This is a point often overlooked by both libertarians and their critics. A free society is much more than a giant marketplace. One of the strengths of Carson’s essay, and his work more generally, is to remind us that the omnipresence of the state for so much of human history has often limited our imagination about what a free society might look like, both in its narrowly economic relationships and all the other ways humans interact.

This, I will note, is one reason why the work of the Ostroms, who Carson briefly mentions, is so important. Both Lin and Vincent Ostrom challenge the market/state dichotomy from different angles and thereby also force us to think more creatively about what a free society really means. Lin’s work asks us to consider the variety of forms that managing the commons can take, with special attention paid to how communities might create rules and norms for doing so. What’s interesting about that work is that it is about governance more than government. To the degree the community collectively and voluntarily agrees to a set of rules, it looks like something other than the market or state as we typically know them. It is a political solution to an economic problem, but it is not the sort of top-down regulation we get from states. As Carson notes, we might well get much more of these sorts of community-based institutional solutions in a free society, particularly on a local scale.

Vincent’s work asks us to consider that “democracy” is more than elections and legislatures, but instead refers to the participatory way that each of us negotiates with each other to develop rules of social conduct. Each time people avoid or resolve conflicts by working with others to solve the problem at hand, they are engaged in the task of democracy. Like Lin’s work, this is about developing rules for solving problems. For Vincent, the more interesting problems were often smaller scale ones, such as the more routine conflicts that characterize our day-to-day existence.

The Ostroms shared the concern that community-based solutions to commons problems and our ability to avoid and resolve small-scale conflicts were being crowded out by both the state and the market (in Carson’s sense of the “cash nexus”). These other forms of human cooperation were being crushed from both sides by the regulatory state and narrow conceptions of economic institutions. One way of reading this opening point from Carson is that a truly free society opens up that middle ground to a range of Ostrom-style organizational forms. A free market need not be only markets. And an anarchist society is not without governance. The institutional forms that emerge may look much more like the ones we associate with civil society, and Carson rightly notes they are likely to play a much bigger role in a free society.

The problems with Carson’s argument are the same ones that seem to infect much left-libertarian writing: too many assertions without careful economic argument about what a truly free market would look like and simultaneously overstating, in my view, the distortions created by the state by ignoring the underlying economics. Before I give a couple of particulars, let me note that I don’t deny the general claims. The state has certainly distorted the way in which markets have evolved and thereby affecting the kinds of institutions and economic arrangements that define the status quo. And I do think a truly free market would look different from the status quo. What I am much more skeptical about is the degree of those differences.

There is no doubt that the interventions of governments at various levels have subsidized aspects of the current structure of the US economy, as Carson points out. The state’s role in building interstate highways and the railways certainly enabled producers to externalize the costs of transportation onto others. Carson concludes from this that such large-scale transportation systems would not exist in a free society (or would not have existed had we been a free society) and that economies would be more regional and local. Perhaps. It is always worth reminding left-libertarians that you can’t prove a counter-factual. In addition, it is not clear why he so quickly dismisses the possibility that ensuring the existence of such transportation systems to facilitate a nationwide market might not be worth it for the private sector.

Think about the ways in which Walmart benefits from infrastructure subsidies. They are certainly happy to do so, of course, but if those subsidies didn’t exist, it might well be worth it for Walmart to bear the costs themselves, or to develop cooperative arrangements with other producers, if the projected revenues were sufficient. Perhaps that might mean higher production costs for Walmart, but it would also mean much lower property taxes. It is not as obvious as Carson seems to think it is that the private sector would not replicate something close to what we have now. Interestingly, one way they might do so is through inter-firm institutional or organizational arrangements that display the sort of commons management that Lin Ostrom’s work discusses.

Carson also makes a similar kind of assertion about electrical machinery: “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.” I can see no meaningful argument or evidence to support this assertion. It might be true, but there’s no reason to think so that I can see. It strikes me as a bit of wishful thinking whereby Carson is able to draw a much greater contrast between the capitalist status quo and his idealized free society.

One last point of economics for Carson to consider. At the end, he argues that in a truly free market we would see less of the sort of unemployment and “going out of business” that we see today thanks to the fluidity of a market with lower capital requirements for entry in smaller-scale production. What Carson appears to misunderstand here is the nature of capital goods, at least in the eyes of the Austrian economists. Even where the scale of production is smaller, “capital” in the abstract does not exist, in contrast to the implication Carson leaves by referring to “capital requirements.” Capital comes in the form of specific goods with a limited number of productive uses, not all of which deliver the same value. The same is true of human capital. The fact that it takes less investment to start a business in a smaller-scale economy doesn’t help much when even the smaller-scale machinery that a firm uses cannot be costlessly refit to new uses when demands change or competition favors other firms. The same is true of people. They cannot costlessly “refit” their human capital in the face of exogenous change. Even if production is at smaller scale, inevitable economic change will require costly and time-consuming adjustments by capital and labor, leaving some capital idle and some labor unemployed for some period of time. Perhaps those time periods will be smaller, but again absent more argument, that would be mere assertion. But thinking the length of idleness would approach zero is precisely the sort of utopianism of which left-libertarianism is too often guilty.

As I have argued before, I find it a very convenient coincidence that the left-libertarian picture of a free market society just happens to line up almost exactly with the world that many on the traditional left desire. Eliminating all the influence that the state might have does not magically transform all of the stuff the left doesn’t like about really-existing capitalism into alternative arrangements that they (would) like. It is an open question how much statism it takes to conclude that the truly free market will look very little like actual capitalism. It’s my own belief that the underlying economic processes matter more for the relevant costs and benefits than do the distorting effects of the state, and along more margins, than the left-libertarians believe. I might well be wrong, but the danger for the left-libertarians is that they are making the same sort of utopian (in the bad sense) promises that have been made by the traditional left. If people are skeptical of that utopianism, it may also backfire onto more mainstream libertarians.

Kevin Carson’s essay reminds us not to succumb to what some have called “vulgar libertarianism” in taking the status quo as evidence for what a free society would look like. At the same time, though, that reminder can turn into an equally unproductive utopianism that makes promises that have little evidence to support them and are therefore unlikely to be kept.

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Fighting Fascism
Markets Not Capitalism
The Anatomy of Escape
Organization Theory