Ok let’s start with basics: Just because there is competition does not mean there is a free market.
Nope.
There once was a “free market” in slaves. The price of a slave was determined purely by supply and demand. Free market principles do not require that everyone be free.
Our present-day American definition of a free market requires that most working people be free only to quit - rendering them economically unfree.
Yeaaahhhh… I worked for a hardware/software company that eventually tore itself down because each division thought it was the “real” company and the other guys were just support.
Hell, I work for a company where the sales guys think of themselves as the “real” company and the entire rest of the organization is just support.
What I think is key, and that too many policy-makers don’t realize, is that the free market is a tool. It’s a very powerful and versatile tool, and quite often the best tool for the job, but no tool does anything unless a user wields it. When you sit back and let the economy take its course, you don’t end up with a free market. You have to actually use the free market for it to do any good.
For example, PastTense mentioned pollution as an example of the free market. But the problem there is actually more a lack of a free market than its existence. As long as there is no cost to the producer of pollution, there is no free market on it. Introduce a cost, like with the cap and trade that worked so well on sulfur emissions, and you now have a free market, which does actually work very well. But for that free market to exist, the government had to actively pass the cap-and-trade legislation.
Chronos makes several important points. It’s intriguing that cap-and-trade was invented and enacted by 20th-century libertarians but is now denounced by 21st-century Congressional “libertarians” as well as, of course, the Hyperlibertarians from YouTube. (What’s your stand on cap-and-trade, Will ?)
Also worth noting is that Adam Smith, the great early proponent of free markets, made some of the points Chronos makes and specifically denounced monopolies, cartels, and joint-stock companies, all of which are central to modern capitalism.
Smith understood there’s a difference between a free market economy and a capitalist economy. (A distinction which eludes a lot of modern pundits.)
Some organizations which were highly capitalist, like the De Beers diamond syndicate for example, had no desire to participate in a free market. The reality is it’s easier to achieve the capitalist goal of making profits if you don’t have any competition.
Monopolies and cartels are most definitely NOT central to modern capitalism. Indeed they work against it.
Are you, by chance, a Microsoft spokesperson? 
Apple understands that hardware matters.
Microsoft, for a while, had an overwhelming market share of the operating system world, but that “monopoly” enabled a huge amount of competition among hardware manufacturers as multiple companies build video cards, processors, motherboards, etc, that were all compatible with Microsoft’s OS.
A Microsoft spokesman wouldn’t have said this:
As for hardware vs software, I stand by what I wrote. There may be a small segment of buyers who care about the hardware but for most buyers it’s like televisions: people care about the shows they watch not the set they watch it on. Content sells platforms.
The free market generally requires a lack of collusion among producers and suppliers. I agree that labor is and should be an exception to this rule it has been justified by generations of economists with concepts like countervailing power and stuff like that but I think people aren’t simply another factor of production. I can’t think of any other factor of production where the supply curves back on itself.
In almost every other case I can think of, as prices increase, so does supply. And this is true of labor as well, up to a point. When prices get high enough, the supply starts to shrink. People decide that they don’t need that marginal dollar, they would rather spend some time with their lover/their family/their hobby/their dog. Labor represents people and people are different than widgets and this is just one example of why. There is another thread about the labor theory of value where everything is valued in terms of how much labor is associated with its production. Its closer to the truth to say that things are valued in term of how much human demand is associated with a particular product. Caterpillar bulldozers are only valuable to the extent that people want to live in the homes that are built by the bulldozer, if noone wanted anything that could be made by a bulldozer, bulldozers would be relatively useless except at monster truck rallies. We very well may reach a point where human effort is no longer necessary for production but human desire will always be an important element of production. Our desire to travel to mars will drive production when the machines run out of things to do. Our desires will direct where value exists and where production is focused.
The folks who treat humans as simply another factor of production don’t understand economics. People are a much more complicated element of the economy than any other factor of production because they drive demand and if you starve them, you starve demand.
Perhaps I needed to put “capitalism” in quotes — I was referring to present-day American “capitalism.” (Many other industrial countries have a system similar to the American one.)
The U.S. banks are too large to fail, have enormous power and market share, and constitute a practical cartel in any case. For example, about two years ago, this cartel was found guilty of rigging Libor rates.
Many sectors have just a few big players, or even just a single big player collecting rents off prior innovations. Some monopolies, e.g. tech stocks, may be relatively benign: the most malignant rent seekers are in the financial sector.
And of course, this is all based on the joint-stock companies Smith warned against. His main warning is well-echoed today: the Company’s managers run the company in their own interest, not that of shareholders. Returning to the private prison example, recall the scene in Orange is the New Black, where dad practices golf while explaining the facts of life to his son: They’re serving a CEO who intends to be gone after 3 or 4 more quarters.
TLDR: Whatever “modern capitalism” means, monopolies, cartels and joint-stock companies are ubiquitous in the modern economy; they do work against Smithian markets. (If that’s what you’re saying Quartz, we’re in agreement.)
Oh dear. You’d think that was true but unfortunately not with the big stuff.
Consider the small nation of New Zealand. A few years ago the Police contracted with IBM for a new super duper computer system called ISIS. For $84 million.
Fail. It never worked and was never completed. A friend of mine in Police HQ says that IBM paid a sum to cancel the contract although this isn’t commonly known.
Later the Ministry of Education contracted with Australian computer experts to ramp up their payroll software. It was called Novopay.
Fail. It was too late to go back to Databank the NZ software originator so they had to live with the new system. Cleaners were paid as if they were full-time teachers and teachers were not paid at all. It was an utter fiasco.
Yes they do. That’s why you had to put the words “free market” in quotes.
There is a total anarchist free-market on one side and a total command economy on the other. Slavery is very far to the command side of that spectrum.
I realize it is the American statist’s delight to tie free marketeers to slavery, but it’s really not accurate.
No, I am in no way tying free markets to slavery. But when you say "There literally cannot be a free-market in locking people up against their will. " Its entirely appropriate to point out that : “There once was a “free market” in slaves. The price of a slave was determined purely by supply and demand. Free market principles do not require that everyone be free.”
Its just a fact that free market principles operate regardless of whether we have justice, democracy or equity.
Correct. Free Market principles only require the buyer and seller to be free. The merchandise doesn’t have to be. A Free Market in Slaves is not a contradiction.
Serious question for Libertarians and Free Market enthusiasts: What’s your view on the recent price hike of EpiPen ?
What the private prison example misses is the idea of emergent order. The thing that makes the private sector inherently more effective than the government sector is not that the government workers are lazy or evil and private sector workers are good and industrious. It is that the private sector is flexible and the government is rigid.
There is fable about Eisenhower when he was president of Columbia and they were building a new part of campus that needed sidewalks. He said lets wait a year to build the sidewalks and then build them along the paths of where students actually walk. That is an emergent order, it allows more useful sidewalks to be built but first things get messy as students have to walk through grass and mud the first year.
Another example was cell phones. To vastly oversimplify, at one point there were two competing standards of cell phone, GSM and TDMA. In Europe the EC ruled that cell phone companies had to use GSM, which was the superior technology. In America some companies used GSM and some used TDMA, and as a result cell phone service quality in the US lagged Europe. However, one cell phone company found a way to change TDMA to CDMA which was vastly superior to both technologies. Because of this Europe was stuck for a while with an inferior type of cell phone and had to spend huge money to change its system.
This is the advantage of free markets, after a period of relative chaos, the best companies emerge and dominate a market until something better comes along. The advantage of government is they can take the best way of doing things right now and make it mandatory. It skips the period of initial chaos but the problem is that locks in a solution that does not evolve.
In the private prison example, some companies are going to be good at it and some are going to be bad at it. The next step is to let the bad companies die and give their contracts to the good companies. Keep doing this until only good companies exist and then the system as a whole is greatly improved.