Is the Capital Market Free?

What an absurd question! The answer obviously is a resounding: Yes! Anybody is free to buy or sell stocks! Indeed. But why don’t we analyze all ‘free market tests’ one by one, before we make a final judgment? If by these standards the capital market is free, we here at ARCO will each eat one whole shoe. Without salt and pepper! So, what according to the pundits (i.e. free market economists) are the tests of a free and fair open market?

They are:

a) barrier free market entry;

b) numerous buyers and sellers;

c) freedom from collusion among market participants;

d) freedom from coercion;

e) negligible transaction costs;

f) correct and complete information.

To eat or not to eat; that is the question

Now, let us see. In the capital assets market in practice 90% of the populace are excluded, for they have no collateral to offer. Therefore they cannot obtain money to buy capital assets. So here is a practical barrier, i.e. lack of collateral. The market therefore is not freely accessible. Test 1 fails.

There are not ‘numerous’ buyers and sellers. In fact, there are only about 10% buyers and sellers. True, they are more numerous than in a communist state. But they are far from being really numerous by any standards, if 90% are practically excluded. In fact, 10% is a tiny minority. So test 2 also fails.


Are you beginning to feel uneasy? I thought you said the question was absurd! Well, let’s continue. There must be and in fact is collusion all the time among the 10% who participate in the market. With the help of government and banks, they keep 90% out of the market. If this is denied, it has to be explained why the market never expands to max. 10%? So, test 3 also fails.

Because 90% are excluded from the capital market, they cannot live off dividends and are therefore coerced to enter the labor market. But it does not end there. Because they are coerced to labor only, they in turn coerce capital owners to redistribute their income from capital. They do so by coerced redistribution through political (e.g. taxation), trade union and social means. Thus neither the capital, nor the labor markets are free from coercion. In fact coercion is the name of the game. True, there is less coercion than in a communist state where it is complete. But in our so-called ‘free market’, coercion is common. In other words, test 4 also fails.

There is more

Transaction costs are not negligible. In many countries governments are taxing capital (assets) transactions significantly. So, test 5 also fails and will fail increasingly in future as capital gains are taxed more and more as well.

And the last test also fails as capital owners (the 10%) have not yet been fully enlightened as to the fact that their near monopoly (10%) hampers economic growth. There is a distributive relationship between capital ownership and economic growth. The wider capital ownership is distributed, the more economic growth will be generated. So by colluding to keep 90% of the populace out, the 10% are hurting themselves. Isn’t it wonderful to see how greed cuts its own flesh? The 10% don’t realize this yet, for they lack information.

Binary economics

This insight we have derived from a book which every economist must read. You just cannot be an economist and fail to read Adam Smith’s ‘The Wealth of Nations’. Well, in these modern times, you must read ‘Binary Economics; The New Paradigm’ by Robert Ashford and Rodney Shakespeare as well. It is that ground-breaking! There is no doubt that soon its value will be generally realized.

Of course, Ashford and Shakespeare are not the first to write on Binary Economics. Louis Kelso was the pioneer. But Ashford and Shakespeare have done a wonderful job in restating and explaining Kelso’s ideas in detail. You can order his book from Amazon by clicking on the image on our main page. Check out Rodney Shakespeare’s website also at: His latest book ‘The Modern Universal Paradigm’ can also be ordered via our main page.