Achievements of the Free Market
This article is part of the Basic Liberalism Course -> Module 6: Free Market Economy
Last updated: 2026-06-03
NOTE: To understand the concepts mentioned in this article, it is required to have read at least the articles from Module 6: Free Market Economy
The capitalism (free market) —understood not as “crony capitalism”, but as the system of private property, voluntary free exchange, entrepreneurship and free prices— is one of the greatest achievements in the history of humanity.
The historical context: breaking the “Malthusian trap”
For thousands of years (from the Neolithic Revolution until approximately the 18th century), humanity was trapped in a Malthusian equilibrium: any increase in production translated into more population, but real per capita income barely moved.
Extreme poverty was the norm for the vast majority (around 75-90% according to historical reconstructions). Life expectancy averaged 25-35 years globally, and existence was precarious, with recurrent famines and low productivity.
The emergence of modern capitalism (with roots in the Commercial Revolution, the development of property rights in the Netherlands and England, and explosion in the Industrial Revolution) broke that ceiling. Suddenly, sustained and intensive economic growth appeared (not just extensive).
This was not due to central planning, but due to the Dispersed Knowledge and Spontaneous Order described by Friedrich Hayek: millions of individuals acting according to their dispersed knowledge, coordinated by prices and the pursuit of profit.
Massive reduction of extreme poverty
It is probably the greatest humanitarian triumph in history.
Historically, poverty, poor health, and vulnerability to nature were not "problems that arose", but the default condition of humanity. The true historical miracle has not been the existence of poverty, but the systematic generation of wealth.
When contrasting the historical evolution from the Industrial Revolution to the present, it is observed that the percentage of the world population trapped in extreme poverty went from exceeding 90% to being below 10%.
According to data from the World Bank and Our World in Data, the proportion of people in extreme poverty (less than ~2 dollars/day adjusted) went from around 75-90% in 1820 to less than 10% today.
Since 1980-1990 alone, more than 1,000-1,300 million people have escaped it, especially with market reforms in China, India, Vietnam, and other emerging countries.
Economic growth explains the vast majority of that reduction (often 70-85% according to studies), not just redistribution. Countries and periods with more economic freedom show much faster declines.
The empirical contrast against constructivism:
History demonstrated that while experiments in centralized planning (such as Lenin's War Communism in 1918 or Stalin's Gosplan) resulted in catastrophic informational collapses that cost the lives of millions of people from starvation (such as the Soviet Famine of 1921 or the Holodomor), the regions that adopted, even partially, market institutions, experienced an immediate flourishing of their food and productive resilience (as occurred with the restoration of prices in the New Economic Policy - NEP).
NOTE
Here we are talking about extreme poverty, taking as a base the normal state of poverty in the 18th century. There are today other (debatable) indicators of world poverty that place it at higher values (between ~20% and ~50%), since they consider that to be above the poverty line requires access to more and better products and services.
These other indicators show that to not be poor, one needs not around "2 dollars per day", but between "3 and 10 dollars per day" to not be poor. The problem with these indicators is that they are not comparing the same conditions of the 18th century, they compare "apples with oranges".
Here we compare current extreme poverty with extreme poverty of the 18th century. We are not asking what is required according to 21st century cultural thinking to not be considered poor.
Explosion in life expectancy and quality of life
Global life expectancy went from around 30-32 years at the beginning of the 19th century / 1900 to more than 71-73 years today. This is not only due to medicine (which also advanced thanks to market incentives), but due to nutrition, sanitation, housing, and accumulated knowledge that only capitalist productivity could finance and disseminate on a massive scale.
Infant mortality, hunger, and poverty-related diseases fell dramatically where capitalism was allowed.
Unprecedented technological innovation and productivity
Capitalism frees human action and entrepreneurial discovery. The profit motive and competition act as an evolutionary selection process: it rewards solutions that improve the lives of others.
The result: electricity, antibiotics, the internet, high-yield agriculture, cheap global transportation, smartphones... Things that would have seemed like magic 200 years ago are now accessible to billions.
World per capita income multiplied more than 10-15 times in two centuries in real terms.
From biology and evolutionary ecology: The mutation of the human adaptive niche
From a purely biological perspective, the evolution of living beings is inexorably marked by the Malthusian scarcity of calories and territory, which usually triggers destructive Darwinian competition (violence, starvation, or punitive natural selection). Capitalism altered this constant.
Substitution of violence by cooperation:
Through free markets, humanity discovered that biologically infinite desires for expansion could be channeled peacefully through Ricardo's Theory of Comparative Advantage described by Mises in Human Action.
Individuals stopped seeing the "other" as a biological competitor to be exterminated to take away their sustenance, and started seeing them as a cooperative partner in the division of labor.
The free market is, in essence, the greatest mechanism of pacification and symbiosis ever developed.
From Political Philosophy and Iusnaturalism: The Shielding of Individual Liberty
Capitalism is not merely a technical system of goods allocation; it is the direct economic correlate of an ethical philosophy based on rational iusnaturalism and the inalienable rights of the person.
Consumer sovereignty versus political power:
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In a pure market economy, power is centered on the individual.
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Business profit does not derive from institutionalized coercion (typical of mercantilism, corporatism, or crony capitalism), but from the capacity to serve as best as possible the subjective needs of consumers.
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A great capitalist only retains his position if civil society validates his decisions daily by buying his products.
The emergence of spontaneous order (Cosmos):
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The greatest philosophical and institutional achievement of capitalism is demonstrating the viability and superiority of Spontaneous Order over designed order (Taxis).
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Human civilization has reached its greatest heights of artistic, scientific, and moral complexity not thanks to the dictates of a central junta of bureaucrats or benevolent dictators, but due to the free interaction of autonomous individuals governed by general and abstract rules of conduct (justice, property, and non-aggression).
Conclusion
Capitalism is not perfect (no system made by humans is), but it has been the most powerful engine that humanity has discovered to turn scarcity into relative abundance, misery into opportunity, and precarious survival into flourishing. It has allowed billions of people to live longer, healthier, more educated, and freer lives to pursue their ends than in any other era.
This article is part of the Basic Liberalism Course -> Module 6: Free Market Economy
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Last updated: 2026-06-03
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