Free Market Capitalism is Sustainable

This is counter intuitive. We are told all the time that markets threaten the planet. That wanton greed (of the capitalist variety) will be nature’s undoing. That markets are unnatural.

I submit that markets are absolutely natural. As sure as the ebb and flow of the tides reflect the underlying order in nature, so too do the ebb and flow of markets.

Not only are free markets natural, they are sustainable and resilient. It is central planning which is inherently unstable.

If the world economy is made of millions or billions of little exchanges each part of a massive whole, but also limited because the exchange is one of a sea of exchanges, there is a fundamental stability to the system. If things go crazy in one part of the market for whatever reason (though a market “going crazy” is a matter of perspective) the possibility of contagion is limited. Because there is no one central hub (a central bank, a government, etc.) the likelihood of widespread “craziness” is mitigated.

If however there is a hub, or central economic node, the possibility of broad trouble is far more likely. If the “command center” is met with catastrophe such catastrophe quickly cascades to everything the command center commands.

Prices find their own level. Usually the biggest problems in the economy happen when this tendency of prices is restricted in some way, usually for political purposes. When things collapse, as they always do when prices are restricted, at some point needless damage is wreaked in the lives of economic participants and upon the Earth. One only need look at China to see what economic planning does to the planet.

Yes the fact that many of China’s rivers are ribbons of chemicals and waste is because of the huge run up in development they have seen over the last 30 years. But it is because this development was planned to a large extent by Beijing and because there is no real system of property rights in China that piles of noxious externalities find their way into the South China Sea and into the lungs of Chinese children. It is because the planners control the levers that China is building dozens of coal fired power plants every year.

Central planning is a destroyer. It is from central planning that we get wars, and things like Chernobyl.

Lack of property rights is also a destroyer (or at least helps facilitate destruction). One only need look at the rape of the world’s rain forests or the destruction of world fish stocks to see this. No one is responsible for these commons, and so they are exploited until they are no longer useful.

Put both planning and lack of property rights together and one has a recipe for disaster. Yet many in the environmental community want both more planning and continued reduction of property rights.

As someone who cares deeply about nature this leaves me frustrated.

Click here for a great article in Reason on free markets and sustainable development. (The inspiration for this post.)