POV: What Is Capitalism?
by Ayn Rand | November-December 1965
In Pursuit of Wealth: The Moral Case for Finance
by Yaron Brook | September 30, 2017
Inequality Doesn't Matter If We’re All Paid According to the Value We Create
by Don Watkins | October 18, 2016
Who Cares about Inequality?
by Don Watkins | April 28, 2016
Equal Is Unfair: America’s Misguided Fight Against Income Inequality
by Don Watkins | April 19, 2016
Economic Inequality Complaints Are Just A Cover For Anti-Rich Prejudice
by Don Watkins | April 14, 2016
Equality of Opportunity Doesn’t Exist in America — and That’s a Good Thing
by Don Watkins | April 06, 2016
Inherit The Wind . . . And Not Much Else
by Don Watkins | April 05, 2016
Equal is Unfair: America’s Misguided Fight Against Income Inequality
by Don Watkins | October 20, 2015
Religion in America
by The Editors | December 05, 2014
Religion vs. Freedom
by Onkar Ghate | December 03, 2014
Debate: “Inequality: Should We Care?”
by Yaron Brook | May 08, 2014
Economic Inequality: Who Cares?
by The Editors | March 25, 2014
Our Poverty Problem?
by Don Watkins | March 11, 2014
Is Inequality Fair?
by Yaron Brook | March 05, 2014
Government tries to do too much: Opposing view
by Don Watkins | January 26, 2014
“You didn’t build that,” conservative style
by Steve Simpson | December 09, 2013
Why Do 1.4 Million Americans Work At Walmart, With Many More Trying To?
by Doug Altner | November 27, 2013
Atlas Shrugged Is A Book About Pride In One’s Work, And The Success That Results
by Steve Simpson | November 08, 2013
Bernie Madoff, Steve Jobs, and Wall Street Greed
by Don Watkins | September 26, 2013
Justice Department should let US Airways & American Airlines merger proceed
by Tom Bowden | August 16, 2013
What Are The Search Results When You Google ‘Antitrust’?
by Tom Bowden | April 18, 2013
To Be Born Poor Doesn’t Mean You’ll Always Be Poor
by Yaron Brook | April 12, 2013
We Should Be Embarrassed by the Sequester Debate
by Yaron Brook | March 20, 2013
“Give Back” Is One of the World's Most Impoverishing Commands
by Yaron Brook | March 12, 2013
Capitalism in No Way Created Poverty, It Inherited It
by Yaron Brook | February 25, 2013
3 crucial lessons Ayn Rand can teach us today
by Yaron Brook | February 02, 2013
Capitalism without Guilt
by Yaron Brook | January 21, 2013
President Obama Duels With Ayn Rand Over What Makes America Great
by Don Watkins | October 29, 2012
Why Ayn Rand’s Absence From Last Thursday’s Debate Benefits Big Government
by Yaron Brook | October 15, 2012
The Virtue of Employee Layoffs
by Yaron Brook | September 06, 2012
Ayn Rand’s Atlas Shrugged: A Paean to American Liberty
by Don Watkins | August 17, 2012
President Obama vs. My Grandfather
by Don Watkins | July 30, 2012
The Dog-Eat-Dog Welfare State Is Lose-Lose
by Don Watkins | July 12, 2012
Changing the Debate: How to Move from an Entitlement State to a Free Market
by Don Watkins | July 02, 2012
Private Equity Firms Want Acquisitions To Profit, Not Fold
by Doug Altner | June 05, 2012
Opposing view: Celebrate private equity
by Don Watkins | May 29, 2012
The “On Your Own” Economy
by Don Watkins | March 09, 2012
What's Really Wrong with Entitlements
by Don Watkins | February 21, 2012
Happy Birthday, Ayn Rand — Why Are You Still So Misunderstood?
by Don Watkins | February 02, 2012
America Before The Entitlement State
by Don Watkins | November 18, 2011
How Did Ayn Rand’s Atlas Shrugged Predict an America Spinning Out of Control?
by Onkar Ghate | October 31, 2011
What We Owe Steve Jobs
by Don Watkins | October 06, 2011
What’s Missing From The Budget Debate
by Don Watkins | July 12, 2011
Does America Need Ayn Rand or Jesus?
by Onkar Ghate | June 29, 2011
When It Comes to Wealth Creation, There Is No Pie
by Yaron Brook | June 14, 2011
It’s Time To Kill The “Robin Hood” Myth
by Yaron Brook | May 06, 2011
Using Ayn Rand's Values to Create Competitive Advantage in Business
by John Allison | April 04, 2011
In Defense of Finance
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The Tea Party Will Fail — Unless it Fully Embraces Individualism as a Moral Ideal
by Tom Bowden | January 21, 2011
How About Tax Reparations for the Rich?
by Don Watkins | January 18, 2011
The Guilt Pledge
by Don Watkins | September 22, 2010
How To Succeed In Business: Really Try
by Don Watkins | September 13, 2010
The U.S. Anti-Business Epidemic
by Don Watkins | August 17, 2010
Atlas Shrugged’s Timeless Moral: Profit-Making Is Virtue, Not Vice
by Yaron Brook | July 20, 2010
Capitalism: Who Needs It — Ayn Rand and the American System
by Yaron Brook | June 09, 2010
Apple vs. GM: Ayn Rand Knew the Difference. Do You?
by Don Watkins | March 02, 2010
Commercialism Only Adds to Joy of the Holidays
by Onkar Ghate | December 18, 2009
Why is Ayn Rand Still Relevant: Atlas Shrugged and Today’s World
by Yaron Brook | August 10, 2009
The Corrupt Critics of CEO Pay
by Yaron Brook | May 2009
America’s Unfree Market
by Yaron Brook | May 2009
Energy at the Speed of Thought: The Original Alternative Energy Market
by Alex Epstein | Summer 2009
Is Rand Relevant?
by Yaron Brook | March 14, 2009
Stop Blaming Capitalism for Government Failures
by Yaron Brook | November 13, 2008
From Flat World To Free World
by Yaron Brook | June 26, 2008
Vindicating Capitalism: The Real History of the Standard Oil Company
by Alex Epstein | Summer 2008
The Right Vision Of Health Care
by Yaron Brook | January 08, 2008
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by Tom Bowden | November 20, 2007
The Influence of Atlas Shrugged
by Yaron Brook | October 09, 2007
The Morality of Moneylending: A Short History
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Say “No Way!” to “Say on Pay”
by Yaron Brook | May 22, 2007
Atlas Shrugged — America's Second Declaration of Independence
by Onkar Ghate | March 01, 2007
Pay Is Company’s Prerogative
by Yaron Brook | January 08, 2007
Religion and Morality
by Onkar Ghate | October 18, 2006
Net Neutrality vs. Internet Freedom
by Alex Epstein | August 16, 2006
Why Are CEOs Paid So Much?
by Elan Journo | May 11, 2006
To Outsource or to Stagnate?
by Onkar Ghate | August 01, 2004
Ayn Rand's Ideas — An Introduction
by Onkar Ghate | June 02, 2003
Capitalists vs. Crooks
by Elan Journo | July 22, 2002
Forgotten Heroes of 9/11
by Onkar Ghate | May 17, 2002
Religion vs. America
by Leonard Peikoff | 1986
The Sanction of the Victims
by Ayn Rand | November 21, 1981
Egalitarianism and Inflation
by Ayn Rand | 1974
The Moratorium on Brains
by Ayn Rand | November 14, 1971
What Is Capitalism?
by Ayn Rand | November 19, 1967
Is Atlas Shrugging?
by Ayn Rand | April 19, 1964
The Fascist New Frontier
by Ayn Rand | December 16, 1962
America’s Persecuted Minority: Big Business
by Ayn Rand | December 17, 1961
The “New Intellectual”
by Ayn Rand | May 15, 1961
Capitalism vs. Communism
by Ayn Rand | 1961


Government And Business in Voice for Reason
Government & BusinessCapitalism

America’s Unfree Market

by Yaron Brook and Don Watkins | May 2009

Since day one of the financial crisis, we have been told that the free market has failed. But this is a myth. Regardless of what one thinks were the actual causes of the crisis, the free market could not have been the source because, whatever you wish to call America’s economy post World War I, you cannot call it a free market. America today is a mixed economy — a market that retains some elements of freedom, but which is subject to pervasive and entrenched government control.

The actual meaning of “free market” is: the economic system of laissez-faire capitalism. Under capitalism, the government’s sole purpose is to protect the individual’s rights to life, liberty, property, and the pursuit of happiness from violation by force or fraud. This means a government is limited to three basic functions: the military, the police, and the court system. In a truly free market, there is no income tax, no alphabet agencies regulating every aspect of the economy, no handouts or business subsidies, no Federal Reserve. The government plays no more role in the economic lives of its citizens than it does in their sex lives.

Thus a free market is a market totally free from the initiation of physical force. Under such a system, individuals are free to exercise and act on their own judgment. They are free to produce and trade as they see fit. They are fully free from interference, regulation, or control by the government.

Historically, a fully free market has not yet existed. But it was America’s unsurpassed economic freedom that enabled her, in the period between the Civil War and World War I, to become an economic juggernaut, and the symbol of freedom and prosperity.

That freedom has largely been curtailed. But one sector that remains relatively free is America’s high-tech industry. Throughout the late 20th century, the computer industry had no significant barriers to entry, no licensing requirements, no government-mandated certification tests. Individuals were left free for the most part to think, produce, innovate and take risks: if they succeeded, they reaped the rewards; if they failed, they could not run to Washington for help.

The results speak for themselves.

Between 1981 and 1985, about 6 million personal computers were sold worldwide. During the first half of this decade, that number climbed to 855 million. Meanwhile, the quality of computers surged as prices plummeted. For instance, the cost per megabyte for a personal computer during the early 1980s was generally between $100 and $200; today it’s less than a cent.

That is what a free economy would look like: unbridled choice in production and trade with innovation and prosperity as the result.

But this is hardly what the economy looks like today.

The latest Federal budget was $3.6 trillion dollars, up from less than $1 billion a century ago. Taxes eat up nearly half of the average American’s income. A mammoth welfare state doles out favors to individuals and to businesses. Hundreds of thousands of regulations direct virtually every aspect of our lives. The Federal Reserve holds virtually unlimited control over the U.S. monetary and banking systems.

All of this represents the injection of government force into the market. And just as the elimination of force makes possible all the tremendous benefits of the free market, the introduction of force into markets undermines those benefits.

Nowhere is this clearer than in the highly controlled U.S. automotive industry and in the housing market.

The U.S. automotive industry is subject to thousands of regulations, but most relevant here are pro-union laws, such as the Wagner Act, which force Detroit to deal with the United Auto Workers (UAW), and the Corporate Average Fuel Economy (CAFE) law. These laws – not some innate inability to produce good cars – put American companies at a severe competitive disadvantage with foreign automakers.

In a free market, individuals would be free to voluntarily form and join unions, while employers would have the freedom to deal with those unions or not. But under current law, the UAW is protected by the coercive power of government. Individuals who wish to work for Detroit auto companies are forced to join the UAW — and Detroit is forced to hire UAW workers. This gives the UAW the ability to command above-market compensation for its members, to the detriment of the auto companies.

Compounding this, CAFE standards force Detroit to manufacture small, fuel-efficient cars in domestic (UAW) factories. These cars are notorious money-losers for American auto companies, swallowing up tens of billions of dollars. But under CAFE, the Big Three are barred by law from focusing on their more profitable lines of larger vehicles, from producing their fuel-efficient fleet overseas, or even from using the threat of offshoring as bargaining leverage.

Imagine if the same sort of anti-market policies imposed on Detroit had been applied to the computer industry. Suppose that in the mid-1980s, as IBM-compatible computers were battling Apple for preeminence, the government had decided that it favored Apple computers and would give tax incentives for computer buyers to purchase them. This would have hobbled and very likely wiped out IBM, Intel, Microsoft, and thousands of other companies. And while today Apple is an innovative, well-managed company, it is because of market pressures that required it to shape up or go bankrupt – pressures that would not have existed had Washington loaned it a helping hand.

Now turn from the auto industry to housing.

The conventional view of the housing crisis is that it was the result of a housing market free of government control. But, once again, the notion that the housing market was free is a total fantasy.

On a free market, the government would neither encourage nor discourage homeownership. Individuals would be free to decide whether to buy or to rent. Lenders would lend based on their expectation of a profit, knowing that if they make bad loans, they will pay the price. Interest rates would be determined by supply and demand – not by government fiat.

But that is not what happened in our controlled market. Instead, the government systematically intervened to encourage homeownership and real estate speculation. Think: Fannie and Freddie, the Community Reinvestment Act, tax code incentives for flipping homes, really the list goes on and on. This was a free market?

Unquestionably, today’s crisis is complex, and to identify its cause is not easy. But the opponents of the free market are not interested in identifying the cause. Their aim since day one has been to silence the debate and declare the matter settled: we had a free market, we had a financial crisis, and therefore, the free market was to blame. The only question, they would have us believe, is how, not whether, the government should intervene.

But they are wrong. There was no free market. And when you look across the American economy, what you see is that the freer parts, like the high-tech industry, are the most productive, and the more controlled parts, like the automotive, banking and housing industries, are in crisis.

Is this evidence that we need more government intervention or more freedom?

About The Authors

Yaron Brook

Chairman of the Board, Ayn Rand Institute

Don Watkins

Former Fellow (2006-2017), Ayn Rand Institute