Markets are not the same thing as capitalism

Many left wingers are, broadly speaking, against markets. This is unfortunate, because markets are powerful tools for solving particular problems of collective action. Markets can enable diverse agents to engage in cooperation, on a more-or-less equal basis, in a fashion that leads to every participant agent being better off than they would be in the absence of the market.

So why are left-wingers so suspicious of markets? After all, as Chris Dillow argues, markets encourage many of the behaviours and outlooks that left wingers eulogise; individual freedom, consideration for the needs of others, and co-operation in pursuit of general prosperity. So it is perhaps surprising that there is so much hostility to market solutions on the left.

I suspect that the reason for this is that right-wingers have successfully elided capitalism and markets in popular debate on the subject, with the result that many left-wingers believe arguing against the iniquities of capitalism requires that they also argue against the use of markets. This view is reinforced by the historical observation that the rise of the ‘market system’ occurred alongside the rise of capitalism.

But it is important to note that capitalism and markets are not the same thing, nor is one a necessary condition for the other. Capitalism is a social system in which the means of production are privately owned, and in which those means of production grow and accumulate over time. Markets are a social technology whereby individual agents aggregate knowledge and so optimise the allocation of a given set of resources. The knowledge they aggregate consists of information about their abilities and resources, and information about their desires and needs.

It is possible for a social system to be capitalistic and simultaneously lack free markets. The ‘market’ for oil in the US at the beginning of the twentieth century was such a social system. The means of production were owned by one company, which largely dictated the price of oil. Similarly it is possible for markets to exist in social systems that are not capitalistic, for example one can conceive of a social system consisting of worker-owned cooperatives which interact with each other through market interactions.

So markets are distinct from capitalism. Capitalism is a social system with characteristics that many find iniquitous. Markets are a tool – a very powerful tool – for resource allocation, and like all powerful tools they need careful monitoring, maintenance, and oversight for them to work properly. Furthermore it is important to use the right tools for the job, and to recognise those problems for which markets are not a suitable solution.