What Exactly is a Free Market?
What do we mean by “free markets” or even “capitalism” for that matter? It’s probably not what you think. For many people, these terms conjure images of Wall Street bankers and multinational corporations. Perhaps they also bring to mind small businesses and scrappy startups. All of those are part of free market capitalism, but they’re only one piece of the puzzle.
To understand the whole picture, you need to start with a single individual.
Start with yourself. You have hopes and dreams, talents and passions. You want to build a life that brings you and the ones you love happiness and excitement even as you achieve independence and stability. Ultimately, you want to build a life with meaning, filled with purpose. Everyone of us wants that for ourselves. And for each one of us, that life looks as unique and diverse as we all are. For all the things we share as a community and a society, there is no getting around the fact that each of us values different things at different times in different ways. One person’s trash is another person’s treasure. No one can know you as well as you know yourself. The same is true for every one of us.
So here you are, a unique individual, out in the world trying to figure out life. Doing it the “free market” way means following three pretty simple rules.
Those are the rules of the free market: so long as you don’t hurt other people or steal their stuff, and so long as you keep your word, you’re free to do whatever you want. You’re free to work for whoever you want. You’re free to love and marry whoever you want. You’re free to worship whoever or whatever you want. You’re free to trade with whoever you want.
And with this freedom, you’re empowered to take on any problem you want to. Free markets destroy the problems in our society because they empower free people to destroy those problems and offer new solutions. Free markets empower everyone, but especially underdogs, upstarts and immigrants to take on the status quo precisely because they don’t need to seek permission first. Free markets don’t respect traditions unless those traditions are maintained peacefully. Free markets are the most radical, revolutionary force for change humanity has ever discovered. And the reason is simple. Free markets are nothing more and nothing less than each of us and all of us having the right to try our best at improving everything for each other.
Capitalism is an inherently racist system, designed by white men to empower white men, right? Wrong.
Over and over capitalism has proven to be a powerful force AGAINST racism. And one of the greatest examples of this is a simple mail-order catalog.
In the Jim Crow South, racist laws forced rural black families into sharecropping. This brutal arrangement required them to work someone else's land for low pay, leaving these families unable to buy anything without credit.
Local stores would often deny credit for items deemed “too white” such as luxury items. Or stores would simply ban black customers from their stores entirely. How could southern black families possibly skirt racist laws and get access to the items they needed to run their lives?
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It turns out, racism was costing brick and mortar stores money. Store owners were artificially suppressing their own sales when they turned away black customers. As the famed economist Thomas Sowell explained, “their bigotry came at a cost.”
Jim Crow laws and practices created a huge, underserved customer base, unintentionally generating an enormous market opportunity. Black Americans were earning money and they wanted to spend it on high quality goods.
Enter Richard Sears, the Jeff Bezos of his day. Before Amazon or Walmart, Sears was the biggest name in American retail. Richard Sears actually came up with an ingenious solution for skirting racist laws: the Sears mail order catalog.
Popularized in the 1900s, the catalog gave black families a way to buy high quality goods on credit without ever encountering racist laws or store owners. Hundreds of pages, free rural delivery and special credit lines were available specifically for black patrons.
The impact of the catalog was particularly noticeable on the development of black music. In 1908, the catalog started selling steel string guitars for less than two dollars. Sales of those guitars were crucial to the development of the Delta blues. Blues legend B. B. King learned how to play on strings on a guitar he bought from Sears.
The catalog quickly became the main way black customers accessed high end goods and it evolved as local racist politicians and companies tried to crack down, going so far as to burn the catalogs in the streets. Sears even gave customers instructions on how to get around racist post office staffers who refused to sell buyers the stamps they needed to mail their orders.
With every purchase, Sears was reinforcing the notion that even if someone doesn't look like you, they're still worth serving, still worth helping.
Discrimination excludes customers. This creates a strong incentive for entrepreneurs to serve the new market created by racist laws or practices. It is a dynamic at work all the time in the open market.
In the landmark Supreme Court case, Plessy v. Ferguson, profit hungry railroads joined forces with civil rights groups to legally challenge segregation laws because the artificial seat vacancies were costing them money.
Or look at present-day ride share apps like Uber. Uber made discrimination impossible, fueling the app's explosion.
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Racism still exists, and in fact, it is government and special interest groups that are still leading the charge.
This example is front and center in America’s public schooling system. School bureaucrats, politicians and union bosses stick up for a system that sends minority children to failing schools, many in inner cities. They reject opportunities for school choice even though minority students and families are the ones who would benefit most. These opponents of the improved educational outcomes of minority children know full-well that the research is clear.
You needn’t look further than Stanford University’s CREDO study. It analyzed charter school outcomes across 27 states and found negative effects for some white students, with positive effects for black and Hispanic students in poverty. Black students who attended charter schools gained 36 days of math and 29 days of reading. Hispanic students gained 43 additional days of reading and 50 days of math.
Summary of Significant Charter Impacts by Student Group
| STUDENT GROUP | READING | MATH |
|---|---|---|
| White | Negative | Negative |
| Black Poverty | Positive | Positive |
| Black Non Poverty | Similar | Similar |
| Hispanic Poverty | Positive | Positive |
| Hispanic Non Poverty | Negative | Negative |
| Hispanic ELL (English Language Learners) | Positive | Positive |
| Hispanic Non ELL (English Language Learners) | Positive | Similar |
| Asian | Similar | Negative |
| Students in Poverty | Positive | Positive |
| English Language Learners | Positive | Positive |
| Special Education | Similar | Positive |
It was even more clear in urban areas – Black students gained 59 days of math and 44 days of reading. Jim Crow laws might be gone but there are plenty in positions of power who stand against the educational advancements of minority children.
Free market capitalism provides information and opportunity that creates incentives for us to serve each other – regardless of how we look or what we believe. In other words, free markets destroy racism.
