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“free market”, “socialism”, and “government interference”…

When people talk about “free markets” and how the government should keep its hands out of the markets they are showing a cultural blindness to the truth that the government is massively intervening, or “interfering” as it might be, in markets on a literal momentary basis.

Metaphorically speaking, when someone is raised in a religion, the religion seems normal to them. That the Son of God was born to a virgin, impregnated by the Holy Spirit, and visited by three wise men doesn’t sound odd to them, even though someone raised in a completely different culture might see it as a bizarre, if not fictional, belief.

We live in a similar religion, the religion of “incorporation”. That is, we don’t even think about the very basis of our “free market” capitalist system is an artificial entity called “incorporation” where “incorporation” is an entirely government (that is social) granted status. Moreover it is a status that imparts massive market manipulation by the government.

Why?

Because “incorporation” grants “limited liability”. It keeps you and me from suing or otherwise touching the owners of a company for the true debts and liabilities they may hold. If I were to open a business without incorporation and others were to buy shares in the entity (shares being a form of partial ownership), anything done by that business would fall wholly on myself and the shareholders. If the business ran out of money and owed others, I and the shareholders would be directly on-the-hook for the liabilities of the business.

However, the vast majority of businesses today are incorporated with some form of “limited liability”. That limited liability is granted, enforced ultimately at gunpoint just like taxes, by the government. Donald Trump can own a company, make horrible decisions, even potentially break the law “as the company”, and he’s not on the hook for any of it, the so-called “company” is. All the people impacted have no recourse because the government intervened, that is, interfered in the market here. Were the government not there, then Donald and any shareholders would be liable from now until the liabilities were satisfied, even if that meant their entire lives and everything they had. Instead, the government acted both as an insurance company and an enforcer. Through incorporation the government effectively transferred, just like an insurance company, the liability to a different entity.

What/who was that entity? You, me, anyone Donald owed money to, anyone Donald slighted. If it required cleanup that couldn’t be absorbed by the market (for instance, dangerous environmental damage), the government, so again, you, me.

In short – it was socialized. That is, it is socialism. The very heart of our “capitalist” system is socialism.

Because we believe incorporation allows economic growth and helps the people in general, we tell ourselves that we take on the risks of the few for the benefit of the many. It fuels our economic system. Except of course, if the system isn’t really working, increasingly it seems we the many are taking on the risks of the few, for the benefit of the few.

All of this leads to two questions:

  1. If it’s socialism, why is your socialism ok, and my socialism not ok (say, paying for free college)?
  2. If it’s government interference in the market, why is your interference, better than say my interference (say, forcing banks to hold reasonable reserves)?

You may argue that the system wouldn’t work any other way, which is fine, but what you are arguing then is that government interference and socialism are a necessary part of the system. In that case, I harken to the joke about being a prostitute:

Person 1: If I paid you five million dollars would you have sex with me?

Person 2: Yes.

Person 1: Ok then, if I paid you five dollars would you have sex with me?

Person 2: No! What do you think I am, a whore?

Person 1: We already established what you are, we are just haggling the price.

We have a capitalist system that involves massive government interference and socialism at it’s core. You say it should be one thing, I’m just haggling that that maybe it should be others.

UPDATE:

Obviously owners, even of incorporations, can and do get sued (anyone can get sued!), however their risk is greatly limited by government regulations and protections relating to “incorporation”.

Shareholders, outside the loss of the value of the shares themselves, are entirely protected. The shareholders of Enron, even if Enron owed billions to creditors (which might be as simple as a woman that cleans their offices), are completely clear and free. In that sense, they have no skin in the game in assuring that a company is a good corporate citizen outside of the threat of losing their investment. Perhaps that is enough to make the system work, but the fact is these shareholders, that is “partial owners”, are protected from the true and full liability of ownership through government intervention and socialization of responsibility/risk. “incorporation” greatly eliminates the oh-so-important “personal responsibility”, that is endlessly harped on by Libertarians and Ayn Rand followers.

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