Epstein Nelson1

Benjamin Epstein Nelson

Ms. Caruso
UWRT 1103
12 April 2016
Capitalism and the Free Market
Before the completion of the original Inquiry Project, I had given in to the deception of
the liberal media and allowed myself to believe that elements of the free market, such as large
financial institutions, were criminal in nature and unjustly favored by the law due to their
monetary influence on society. My original goal, therefore, was to investigate the means by
which these institutions were able to cripple the economy due to their own failure during the
2008 financial crisis, and yet be subject to no real consequences thanks to the charity of
government bailouts. However, in completing the original Inquiry Project, it became strongly
evident that the driving force of the United States economy is the power of the free market to
spawn and support prosperity, and that government interference in this process is detrimental to
the free markets ability to yield such powerfully pronounced results. This interference, not the
actions of the banks, was what singlehandedly devastated the economy on a global scale when
the housing market crashed. So, the goal now is to further examine the potential of capitalism,
investigate the toxic influence on the free market that the government implies through their
immersion in the process, and analyze a free market alternative to such federal involvement.
Capitalism has unlimited potential to provoke sensational economic prosperity. The
dynamism of the free market is elaborated on by the following account:
The capitalization of money therefore sets the stage for a relentless process of economic
growthnot only in the sense of increasing productivity, as is often said. Capitalist

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growth is not confined to the quantitative increase of the output of a given set of products
and services per unit of time. It is characterized instead by the continuous invention of
new products, services and technologies and the corresponding elimination of
conventional ones creative destruction, as Schumpeter called it. Capitalist growth has
a quantitative and a qualitative dimension that manifests itself in incessant revolutions
of technologies, systems of organization and logistics and patterns of consumption. The
core aspect is not the increasingly efficient satisfaction of a given set of wants, but the
continuous creation of new wants, technologies and forms of social coordination.
(Deustchmann 90)
This statement expounds on the free market encompassing more than just the simple notion of
free trade. It elaborates, rather, on the invigorating influence it has on entrepreneurship. The
influence implies an endless amount of consumer demand for new products, which is
consistently met with entrepreneurial response, thus constantly stimulating the free market. In
the absence of government regulations and suppression, this flourishing cycle can yield powerful
economic results.
The role of government in the free market should be completely nonexistent, as is so
eloquently put by Mr. Adam Smith, who says:
Little else is requisite to carry a state to the highest degree of opulence from the lowest
barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest
being brought about by the natural course of things. All governments which thwart this
natural course, which force things into another channel, or which endeavour to arrest the
progress of society at a particular point, are unnatural, and to support themselves are
obliged to be oppressive and tyrannical. (Otteson 139)

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A strong emphasis must be placed on the importance of the phrase natural course that is used.
This expression is key, as it implies that the economy be allowed to run its course without
interference from governmental establishments such as the Federal Reserve. The implication
here is that government interference in the free market system is comparable to tyrannical
oppression of the system, which is stated as the result of unnatural forces at the hands of any
government entity. Thus, it is clear that federal overreach into the free market is an unacceptable
action of the government that should be vigorously repudiated.
To exemplify the toxicity of the governments involvement in the free market system,
consider the scenario of the 2008 financial crisis. Rather than allowing the free market to take its
course and react naturally to the events that occurred during the falling out of the housing
market, the government chose to allow the the national bank, the Federal Reserve, to step in and
supply artificial monetary support to the crumbling market. Instead of interfering, the
government should have utilized a laissez faire approach and allowed for the implementation of a
free market alternative. In this alternative situation, creditors would assume responsibility for
their investments, specifically, in this case, their investments in large financial institutions (Bagus
414). As such, they would have the opportunity to either have faith in the viability of their
institutions and proceed to weather the economic storm, or to liquidate them if the likelihood of
success seemed low and their chances of fiscal survival seemed slim (Bagus 414). In this
situation, if companies did indeed experience the pitfalls of bankruptcy, their collateral losses
would be directed exclusively to their creditors, rather than to the rest of society who were in no
way involved in the actions of these large financial institutions (Bagus 414). Such a system of
creditor accountability would be proper, as the creditors had the potential to profit off these
institutions times of success, so it is only fair that they also suffer the consequences during times

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of failure. Those consequences should not be passed on to the members of society who never
had the opportunity to profit off the successes of these institutions, and who therefore should also
not have to suffer the consequences of their failures. Such unjust consequence to the masses is
further exemplification of the toxicity of the governments involvement in the free market. In
addition, the federal injection of artificial support into the market makes it impossible for
investors to foresee the ebbs and flows of the market (Bagus 414). The resulting uncertainty
discourages investment, due to investors fear of the economic unknown. This uncertainty is a
huge factor in the markets inability to recover, as the flow of currency is very minimal. In a free
market alternative, this uncertainty would be nonexistent, and the ensuing continuation of
investment from creditors into the market would aid in a swift market recovery (Bagus 415).
The positive benefits of the capitalistic free market are clear. Consumer demand is met
with entrepreneurial market response. Entrepreneurs are rewarded with capital, thus encouraging
unremitting innovation and accompanying trade. The destructive drawbacks of governmental
interjection into this process are also clear. Rather than allowing consumers to take
responsibility for their own investments, the government pushes the mistakes of the few onto the
many, who are in no way responsible. Further, the government injects artificial monetary
support into the market, preventing investors from being able to spend with confidence, thus
limiting investment in the market and obstructing the capitalistic flow of trade. The potential of
free market alternatives to be effective means of recovery from economic crises are clear as well.
Creditors could be sanctioned to suffer from the consequence of their investments just as they
were allowed to profit off of them, in which case the market would not be so hampered by the
failure of financial institutions. Further, investors could invest with confidence due to an
absence of federal injection of synthetic capital into the market that makes market predictions

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unreliable, and would consequently rectify the destitute state of the economy. Indeed, it can be
factually stated that capitalism is a prosperous system with immeasurable potential, that it would
be beneficial for the free market to be truly uninhibited by federal interference, and that free
market alternatives have the ability to work properly and can invoke timely and proficient
recovery from economic crises.

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New Works Cited
Bagus, Philipp, Juan Julian, and Miguel Neira. A Free Market Bailout Alternative? Springer
Link. Springer Science+Business Media, LLC, 19 June 2012. Web. 4 Apr. 2016.

Deustchmann, Christoph. A Pragmatist Theory of Capitalism. Socio-Economic Review. Oxford

University Press, 5 June 2010. Web. 9 Apr. 2016.

Otteson, James R. The Inhuman Alienation of Capitalism. Springer Link. Springer

Science+Business Media, LLC, 19 Jan. 2012. Web. 4 Apr. 2016.

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Original Works Cited
Works Cited
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Gerhard, Gregory. "Falling Giant: A Case Study of AIG." Investopedia. Investopedia, 6 Nov.
2015. Web. 17 Feb. 2016.
Investopedia Staff. "Case Study: The Collapse of Lehman Brothers" Investopedia. Investopedia.,
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Nielsen, Barry. "Economic Meltdowns: Let Them Burn or Stamp Them Out?" Investopedia.
Investopedia, 06 Nov. 2015. Web. 22 Feb. 2016.
Singh, Manoj. "The 2007-08 Financial Crisis in Review." Investopedia. Investopedia, 28 Oct.
2008. Web. 12 Feb. 2016.
"Subprime Meltdown Definition." Investopedia. Investopedia, 02 Sept. 2007. Web. 22 Feb.
2016.
The Big Short. Dir. Adam McKay. Perf. Christian Bale, Steve Carell, Ryan Gosling, and Brad
Pitt. Paramount Pictures, 2015. Film.
Wesbury, Brian S. "The Real Truth about the 2008 Financial Crisis." YouTube. Tedx Talks, 3
Dec. 2014. Web. 17 Feb. 2016.