Regardless of whether we think about individual liberty as the absence of obstacles, barriers or constraints (negative liberty) or we consider collective liberty as the possibility to take control of one’s life and fundamental purposes (positive liberty), there is no doubt that freedom must be defined in relation to the availability of options. However, since options may be incompatible one must frequently balance them. For instance, we have a tradeoff between privacy and safety or between individual and collective wage negotiations.
Equally, when analyzing the relationship between capitalism and freedom, one needs to consider the freedoms essential for capitalism as well as the way it contributes to the many freedoms. Indeed, capitalism is an economic system that requires two fundamental freedoms – private property and freedom of exchange – and these two types of freedom enhance further other forms of freedom, namely the freedom of association required by joint ownership and free consumer choice and the freedom of information necessary for free trading.
Overall, by promoting individual wealth, capitalism contributes to the creation of more options and individual choice thus overcoming one of the major obstacles to liberty. But, through its principles, it also promotes many other fundamental freedoms not directly related to material goods.
For instance, freedom of thought, belief, opinion and expression is promoted by the capitalist’s drive to advertise its products and services. This commercial interest can only be achieved with freedom to choose the channels to reach clients and a free media.
Freedom to contract and exchange is indispensable for competitive markets and it can only be achieved by freedom of movement, absence of coercion and access to information. Freedom of information, like the freedom of expression is crucial for commercial as well investment decisions. Since asymmetric information is a major source of market inefficiency, capitalism thrives better under free markets.
Likewise, free peaceful assembly is a requirement of capitalism so that employers, employees and consumers can discuss their relative interests both in private and in public places, such as conferences, fairs and exhibitions. This freedom extends also to the right to establish unions and peaceful union picketing to persuade other parties to a wage bargaining.
Freedom of association is crucial under capitalism not only for representation purposes, but also to pool private property into forms of joint ownership, namely joint stock companies. Moreover, by separating personal from corporate responsibility through limited liability, capitalism manages a substantial reduction in risk which is essential to foster entrepreneurship.
Most importantly, capitalism generally promotes peace because all forms of social unrest and war destroy assets, production and profits. The profit motive requires all the above mentioned liberties and, not surprisingly, all totalitarian regimes (whether pro or anti-capitalism) are usually searching for new excuses and ways to control capitalism.
To resist such attacks on freedom, it is important to understand when the fundamental freedoms that capitalism requires and promotes can be subject to some restrictions. For instance, freedom of expression does not mean that corporations are free to lie and manipulate consumers and investors. Likewise, freedom of assembly does not mean that such assemblies may be used to collude on illegal and anti-competition practices. Just like the right of association does not mean that it can be used to establish cartels or the right to information allows them to procure insider information from privileged parties.
The definition of such limits on business freedom is usually controversial and difficult to delimit. In particular, there is a widespread tendency to consider that the role of the state is to protect individual freedom against business practices. This is erroneous, because the state and capitalism should not be adversaries but allies in the promotion of freedom. To avoid this dangerous error it is important that regulators understand the differences between market capitalism and other “distorted” versions of capitalism because only the first guarantees the pursuit of liberty.
To conclude, we should not assume that people are either extremely naïve or evil. All restrictions to freedom must be carefully assessed and, if needed, the error should be on the side of liberty.