The ideal of the free market obscures the reality of an economic system that perpetuates a strict division between worker and owner that also perpetuates systemic inequality.
The nature of capitalism may have the appearance of an economic system used to express the freedom of the individual, but it is also a system that strives to reproduce itself across space and time. Capitalism has a general characteristic and a particular characteristic. In general, the freedom of choice that might be perceived is in fact a local pocket of no restriction that is always embedded in a global restructuring of an ideology that presents capitalism as the only choice. On the other hand, capitalism in particular is an immanent structure created by humans like any economic system that eventually becomes a transcendent structure. It moves from being a specific tool to a universal law. When capitalism becomes this universal law, there is an inverting of the relationship between the social and the economic. The economic is expanded from its original use as a subset of a society to a containment of all social relationships. Capitalism therefore establishes a procedure of social control in the economic sphere as it grows and becomes a transcendent system.
The extensive growth of capitalism is directly tied to the rise of the corporate form as the main business model of capitalism. The corporation is an economic centralization that needs to be undercut by an economic decentralization in order to prevent exploitation and the structural reproduction of power. The economist Ronald Coaseproposed that large corporations naturally arise in order to internalize transaction costs and conduct business more efficiently. This internalization of costs that would exist between individual businesses is an internalization of economic action. This action is reorganized within individual corporations for the initial sake of efficiency, but since there is no internal democracy within the corporate form there is the formation of an internal hierarchy within each individual business as it grows. The corporation, presented as the natural form for businesses, proceeds through a structural reproduction by way of the transcendent category of the corporation. The corporation, with its internal hierarchy, wants only to perpetuate itself. At this stage of development, there is a new externalization of costs into the social fabric which is an externalization of risk. The lack of a democratic process within corporations makes the status of “corporate personhood” completely artificial and in strict opposition to the democratic processes that exist in society. When the corporation is seen as the only way for business to be conducted within capitalism, and capitalism is imposed as the only choice for social relationships, then there is a degeneration of democracy and citizen empowerment within the social field. When democracy, on the other hand, is able to control corporations as they try to externalize costs then one will find the formation of external relationships with the social that demand internal democracy within corporations. Corporations, as part of the economic subset of society, must be transformed into cooperatives in order to be in synchronization and coordination with the democratic principles of an overall society. As workers are also citizens, they must be in the same democratic relationship with the larger economic structures as they are with the larger social structures. With this economic democracy there would also be the creation of structural novelty through the immanent totality of the cooperative.
The divergence between capital and labor is a major characteristic of capitalism and is the source of appropriation, alienation, and exploitation that is intrinsic to the system. Any voluntary exchange that occurs without the surplus value generated through labor can appear to be a free interaction among individuals, but this exchange is between owners rather than workers. This voluntary exchange is the formation of exchange value through the distribution of products, but it is a voluntary exchange based on the capital ownership of the means of production. Therefore, voluntary exchange in this sense is freedom without equality. On the other hand, the surplus value generated through labor without any voluntary exchange reveals the origin of value but not that of the overall economic system with multiple individuals. The surplus value begins as use value through the act of production, which in turn is then generalized as exchange value when set in comparison and communication with other products. This communication of value can obscure the original unique nature of each use value, and thus can exacerbate the gap between labor and capital. Surplus value through labor, as it stands alone, will result in the worker ownership of the means of production. Surplus value through labor is then equality without freedom. Capital and labor posed separately from each other are disruptions of the economic structure. The subsumption of labor by capital is a restructuring that allows free exchange but defines workers as another production cost which must be minimized in the calculation of the market. The subsumption of capital by labor is a restructuring that empowers workers but does not deal adequately with the phenomenon of exchange. Capitalism is best described as this subsumption of labor by capital, and it is obvious that capitalism is an economic system that favors capital over labor.
The repercussions of such a designation makes it possible to understand that the idea of the free market is an abstract ideal that ignores the concrete situations of production. Proponents of the free market have made it the centerpiece of capitalism as a “positive” force while at the same time advocating that there is no alternative and that society does not exist independently of capitalism. This ideal type of the free market can only be possible if each participant were able to independently contract with each other. But because of the internal nondemocratic hierarchy within each business that contains labor within capital, workers are placed in the position where they do not have equal access to the means of production that would allow them to be equal participants in the information network of the market. The free market is not absolutely free, and is a poor substitute for the social field. The social field in itself would have subsets of what could be called agoras where direct trade between equal individuals would occur in particular cases. The agora, as a space and time for voluntary exchange and accurate information communication, would be always limited by an overall social sphere that would insure that the exchange would be both free and equal. The social and the subset of the agora is an environment for original choices and production based on desire. The breaking up of the social is when the market and its subsets of contracts allow only precluded choices and commodities that redirect desire in predetermined ways. There is therefore a great difference between capitalism and economic democracy. The divergence of surplus value through labor and voluntary exchange is a phenomenon of capitalism, and this divergence perpetuates capitalism as a transcendent structure and hierarchy. The convergence of surplus value through labor and voluntary exchange is the nature of economic democracy as a real and substantial alternative to how capitalism organizes the social field. Economic democracy develops immanent structures and justice as a balance between freedom and equality. The democratic process in the economic sphere reconciles the unfulfilled hopes of the free market while empowering workers through ownership of the means of production. Ownership of the means of production is the doorway to a real voluntary exchange between equals. The two elements need each other in order to accomplish the goals of freedom and equality in society.
Capitalism assumes that competition is the best approach to achieve growth and success among participants. But this competition and growth directly leads to the structural reproduction of capitalism much more than success for individuals or groups. If capitalism as an economic system is a subset of society, then its principle of competition is a subset of cooperation that is needed for social cohesion. Competition occurs within scarcity, with the assumption that materials and resources are finite. Scarcity leads to inequality in the fact that finite resources can compel those with the ability to do so to take more than an equal distribution of that resource. Inequality takes on the appearance of being a natural state because of the condition of scarcity. Any attempt at an equal distribution of a scarce resource can easily fail and there will be some within the population in question that will go without. In a situation of scarcity there will also be social uniformity, caused by the needs that must be met by everyone in the population. There would be no room for diversity, and any attempt to have diversity would be severely limited. This inequality that arises sustains a hierarchy of power that takes advantage of the scarcity of resources, and the social uniformity is an inability to adapt to changes. In comparison, cooperation occurs within an abundance of materials or resources. Equality is possible in abundance as every participant has access to all that they need. These participants are not reduced into a lowest common denominator and would have the chance for diversity. Hierarchy would appear to be very unnatural in this scenario and would be difficult to implement. The equality of access that comes with abundance leads to democracy as an equal sharing of power. The potential for diversity is also the ability to adapt. Even in cases where materials are finite, there is still the possibility of maintaining an attitude of abundance in order to prevent the manifestation of inequality and hierarchy. Actors within the society must make a conscious decision to escape from the conditions of competition, scarcity, hierarchy, and uniformity that is found in capitalism when it reproduces itself.
The ideal of the free market that made capitalism seem to be a positive economic system was described by Friedrich Hayek as an emergent spontaneous order. He revived Adam Smith’s original idea that since each individual can only know completely their own self interest, then it is through prices that supply and demand is communicated in a social setting. However, the flaw in this idea denies both the fact that collective interest can be determined through finite groups as well as the fact that the hierarchy of the corporate form excludes the self interest of workers within the free market. Mancur Olson, for example, proposed that people will cooperate in groups if there is a clear group interest rather than an ephemeral universal interest. Within a corporation, the owner who supplies capital will be an active participant in the free market while the worker is defined as a production cost who is disadvantaged by only having his labor to sell. As an alternative, democracy can not only mediate between individual and collective interests in a small group but also communicate these interests on a larger scale of the society. Economic democracy, which includes worker ownership of the means of production and a real voluntary exchange between equal participants, can be the best expression of self interest while also building an environment of cooperation in abundance. This is a challenge to the corporation, the unrealistic ideal of the free market, and the constant goal of growth that is the nature of capitalism.