[This is part II of a II part article about free market economics. Part I was published here.]
In part I, I dealt with what lies behind the economic concepts that have become part of our daily discourse. Above all, price’s focus on exchange of goods and services draws a curtain over who has and who has not. What goes on behind that curtain is a turbulence that is largely unstable with occasional periods of predictability. It is an instability that arises from endemic processes that are capitalism. In this part II, I want to look at those processes. These are generated by the operation of free markets, yet are processes that free marketeers are first to condemn. These are the reality of the paradigm shift that the Heritage Foundation refers to (see part I).
Financial capitalism
What began over forty years ago was a fundamental change within the structures of capitalism that remain as pointers to its own endogenous dangers. Free marketeers have championed deregulation and privatisation. The discernible outcomes of this have been the huge growth and dominance of the financial sector. An indication of this is the size of equity markets.In 1965, equity market turnover was at £3.48bn or 9.7% of GDP. In 1985, turnover was £101.26bn or 28% of GDP. In 1995, it was £646.33bn or 88.1% of GDP. By 2007, it was £4.142tn or 295.6% of GDP [1]. This began with the growth of pension funds, hedge funds and insurance companies’ involvement in insuring risks. By 1998, these groups held 65% of all shares by value [1].
The impact of the financial sector can be seen in the increases of mergers and acquisitions (M&A) that followed capital deregulation. Private equity was behind many of these, but the increase in M&As has been a worldwide phenomenon:

Private equity (PE) firms are primarily concerned with immediate financial gains. They will buy private businesses or take public companies private. They often enforce cuts, layoffs and restructuring to boost the attractiveness of the company then sell it off in parts or in whole (asset striping). PE was behind Taylor Swift having to re-record all her albums and the 2013 buyout of Dell computers for $24.4bn. Because these are private transactions, the public and/or customers will neither know, or required to be informed of the deal [2].
Their main concern is to make money for their investors. In recent years, private equity has grown from a specialized investment strategy to a dominant force, managing trillion dollars ($11.7tn in 2022 [3]) in assets. Institutional investors and wealthy individuals have increasingly turned to private equity firms for greater returns and control. The colloquial term for PE firms is ‘corporate raiders’.
In 2023, private equity was involved in almost 50% of all UK mergers and acquisitions. Private equity buyouts were at a merger market record in the first quarter of 2020 with a total spend of £20.5bn in 132 deals [4]. The reasons behind the rest are part of a tendency following recoveries from recessions or the economic boom. At those times, cash-rich firms will be in a position to swallow liquidity-struck smaller companies. PWC estimated that after the pandemic, companies had $7.6tn in cash and securities available [5]. Also, the chase for short term gains is significant. It can be easier for newly appointed CEOs to merge or acquire competitors than to invest in research and development. With tactical guidance, such acquisitions can boost total assets and lead to increased share-holder value quicker than creating a new product.
With Trump as president elect, there is an expectation that there will be a flurry of mergers and acquisitions in 2025. Steven Barnoff, chair of global M&A at Bank of America is quoted in the FT: “All the conditions that are good for M&A seem to be in place right now. So when you’re in boardrooms talking to CEOs, confidence is high [6].” Clearly this concentration of capital will continue because it is an integral process of competitive, unregulated capitalism.
The banking sector was notorious for M&As through the 1980s and 90s such that by the 2008 Crash, they had become ‘too big to fail’. In the US, between 1984 and 2005, half of the banks were gone. By 2005, the proportion of banking assets held by the ten largest banks had shot up 60% [7]. Ironically the ‘too big to fail’ backdrop has led to greater concentration and risk because the sector knows they will be bailed out by governments [8].
Where did Banking go?
A blind spot in the free marketeers promotions of their model is commercial banking. Free market economics has assumed that banks are only intermediaries between savers and loans that link business expansion and consumption [9]. In this depiction of banks, money taken into banks equates to the money lent out and so can be ignored. However, commercial banks play a crucial part in the expansion and contraction of money supply.
Commercial banks make their money from debt. Almost 97% of the money in our economy can be attributable to commercial banks [10]. Their capacity to do this can distort markets. That capacity led to the 2008 Crash. Since then, the mergers of banks have resulted in ‘too big to fail’ becoming ‘too big to save’. This is factored into commercial banks calculations of risk in their business models. A Financial Services Compensation Scheme is in place in UK and Europe to compensate depositors. This is an effective subsidy, otherwise banks would have to pay much higher interest rates to attract and retain customers.
Simon Johnson, MIT professor and IMF chief economist 2007-8, doesn’t hold his punches and goes on to give examples of the strength of the banking lobby. It is a truly shocking lecture for anyone concerned about the stability of Global North economies:
“Finance is not a market; it’s a subsidy scheme, it’s a distortion. This is an unacceptable concentration of power and a completely distorted system of incentives that encourages too much debt, too much leverage – debt relative to equity – and reckless risk-taking because bankers get the upside when things go well and when there’s a downside, they have a ‘put option’ where they can put their debts on the government. This is the view from those in mainstream finance i.e. those who don’t work for the banks [11].”
Monopolisation & Rentier capitalism
Financialisation and market concentrations are both features that are the outcome of deregulated, free market capitalism. They transgress all the presumptions behind equilibrium economics and laws of supply and demand. It is impossible to have such a concentration of capital and continue to argue that a) this has little impact on market dynamics and b) that it requires no intervention to prevent the Too-Big-to-Fail syndromes. Here are the top ten US corporations with the greatest market power ranked according to profits acquired:

An assessment of their market power is their capacity to distort the US stock market, the largest in the world (the London Stock Exchange is 9th largest). The best assessments of this distortion come from stock market analysts. Here are a few quotes:
“The Magnificent Seven has become larger than the equity markets of entirecountries. Together, the Magnificent Seven has nearly the same market capitalization of the stock markets in UK, Canada and Japan combined. Microsoft on its own is worth more than the entire Canadian stock market [12]”.
Here a financial planning site [13] cautions about how such concentration can distort:
“The weighting could mean that even if most companies included in the index experience a fall, a strong performance from the Magnificent Seven could lead to the S&P 500 rising. As a result, if investors only viewed the headline data, they could form a very different picture of how the market is performing than it is in reality. The effect of the Magnificent Seven could work the other way too. If they suffered a fall in value, it would have a much larger impact on the S&P 500 than if a smaller business experienced a dip.”
Returning to the presumptions behind equilibrium economics, this concentration of the market will impact the access to further capital, the capacity to dominate, the acquisition and patenting of new technologies and the capacity to purchase base materials or other competing businesses. For example, Apple’s market capitalisation is £3.375 trillion. A crash of Apple’s share price would seriously impact world stock markets. In relation to the technology sector, Apple is the only access for developers to distribute apps to iPhones and Apple charge 30% commission on apps purchased through the Apple’s app store. Within the UK, large grocery supermarkets, like Tesco, have significant input to food production. Looking at one food product, recent reductions in the number of dairy farmers in their milk supply pool will impact small, family-run farms disproportionately [14]. With these assets and market share, large corporations dominate, have easy access to capital and new technologies. And in Apple’s case, enough spare cash to buy rivals or prevent them appearing.
This rise of the mega corporation is a change that has been going on within capitalist markets for many years [15]. It is not often that established economic research organisations would quote Lenin, but he has appeared more frequently recently on this topic. This comes from a paper written for the highly respected National Bureau of Economic Research [16]:
“More than 100 years ago, the opening sentence of Lenin (1916) proclaimed that “the remarkably rapid concentration of production in ever-larger enterprises are one of the most characteristic features of capitalism.” Curiously, this statement seems to have merit in the data over the subsequent century [17].”
This tendency towards monopolisation transgresses the perfect competition conditions that no producer dominates and each buyer has similar purchasing capacity. This happens in two ways: The first is the power it gives them to set prices and what they pay their suppliers. In UK food retailing prices are competitive for consumers due to the number of big players (Tesco, Sainsbury’s, Morrisons & Asda make up 70% of the market [18]). In addition, the Competition and Markets Authority reviews in-store pricing displays. However, the sheer size of food retailers impacts what they pay their suppliers. The Food, Farming & Countryside Commission reported that ‘Supermarkets dictate their terms and expectations [19].’ Pricing in the pharmaceutical industry is notoriously unregulated leaving them to set their own prices [20]. Oil producers also are in dominant market positions.
In Trump’s America, indirect economic power now has become direct political power. Many of his nominees are from the elite of company executives or owners. How will this not jar with his supporters when in the past he persistently excoriated the ‘Washington elites’, linking them to the Deep State? Here is part of his line-up:
- Elon Musk, owner of Tesla cars, X, SpaceX. Worth $323bn.
- Vivek Ramaswamy [21], entrepreneur in pharmaceutics. Worth $960mn.
- Howard Lutnick [22], boss of Cantor Fitzgerald, the biggest dealers of US government debt. Worth approx. $1.5bn.
- Doug Burgum [23], sold his software company to Microsoft for $1.1bn, now runs a venture capital company and a real estate development firm.
- Scott Bessent, investor and hedge fund manager. Worth $3bn (Forbes).
- Jared Isaacman [24], astronaut, entrepreneur. Worth $1.9bn.
- Steven Charles Witkoff [25], Landlord, real estate investor. $2.5bn portfolio.
- Warren Stephens [26], investment banker. Worth $3.4bn.
The billionaires in Trump’s administration are estimated to be worth $382.2bn. How are these conflicts of interest to be accommodated? For example, Mr. Lutnick has recently taken an undisclosed stake in Tether, which administers cryptocurrency. Mr. Lutnick, as co-chair of the transition team, will have input into crypto regulation [27]. Elon Musk’s rift with Sam Altman with whom he cofounded OpenAI will have to be dealt with in the race for AI dominance [28].
That market regulators exist is confirmation of capitalism’s tendency towards monopolisation. In the UK, the Markets and Competition Authority’s (MCA) brief is to protect the public interest especially against firms abusing their dominant positions. Similar organisations exist in the US and the EU. Towards the end of 2024, the EU Competition Commissioner scrutinised Microsoft’s $95bn take-over of Activision Blizzard. The US Federal Trade Commission (FDC) and the MCA also had a say and were trying to block it. The FDC was active in opposing Amgen’s pharmaceutics $28.3bn acquisition of Horizon Therapeutics. Without these bodies, markets would be much more distorted than they are. The free market would have created conditions that Free Marketeers would find objectionable. It is paradoxical that free markets require interventions towards the goal of preventing interventions.
The second way that monopolies have power is in marking-up and profit-taking. As inflation began after Covid lockdowns ended this acquired the name of ‘greedflation’. This is when companies use inflation as a cover for inflating profits. A Groundwork Collaborative report found that more than half of consumer price increases in 2023 could be explained by excessive profit-taking [29]. The Economic Policy Institute analysing 2024 data has found ‘corporate profits largely explain the initial rise in inflation’ and have been impacting inflation figures since 2019 [30]. Such practices actually disrupt and distort economies. Just as analyses on profit thresholds were being covered in the media, attentions understandably were wrenched away by the atrocities of wars.
The first suspicions of corporations pushing up prices under the cover of inflation came after reports of enormous profits being generated through the pandemic and beyond. This contrasted with many who were struggling to make their wages meet their outgoings. There were critiques of greedflation which argued that huge profits were the normal outcome of how markets operate. It is Friedman’s banner asserting that the social responsibility of business is to increase its profits. But what are we to make of a society where its members are finding their livings standards falling [31] while the fossil fuel industry and food retailers are making large profits? (Exxon posted $9.2bn profits for second quarter 2024 [32]. In the US, food companies take in $1.03tn [33]. Kraft-Heinz profits increased 448% between 2022-2023 [34]. [In the UK however, some big food retailers’ profits fell]).
What is growing, is a sense of injustice in the huge corporate profits being made in contrast to the struggles that many face in making ends meet. There is a moral case to be made that the communities that helped generate those profits ought to have a greater share in their benefits. Making a profit should be run on ethical guardrails.
The invisible hand of the market is exactly that; it’s invisible. What lies behind the idea of prices created by supply and demand interaction is a dogma. It is a dogma when it attempts to be an answer for every event in capitalism. If the resolution to every deviation from an equilibrium is to allow the market to operate without regulation, it cannot be an answer. Any statement claiming truth status, has to be falsifiable. Free market economics would have us believe that an unrestricted market will resolve underconsumption, overconsumption, underemployment, monopolisation, technological change, crashes, depressions, recessions, booms. All these will be resolved – in the long term. Where is the self-determination in that? Where is the control? For control ask, how do prices arise? What do we buy each time we make a purchase? What proportion of our wages contributes to the profits that generate the inequality in our societies? It is that stark.
What is lacking is openness and transparency. The ground beneath our feet is being moved by an economic system that a dogmatic economics asserts is the magical outcome of individual entrepreneurship. We are all individuals, but we are also a community; When we interact, we are more than the sum of our parts. The aspirations of our economies lay down the conditions for our individual aspirations. Each of us are as innately altruistic as we are selfish. Construct a society whose goal is profit and individual self-aggrandisement and there will be a selfish individualism to accompany it. We are fish swimming in it. It’s not always easy to see that, but when we do, we can change the f**king water.
Gareth Davies-Jones puts into song what I’ve been writing:
References
1 FT Weekend 15/6 Nov 2008. Something Big In the City: Jonathan Ford
2 https://www.theglobeandmail.com/podcasts/lately/article-the-rise-and-rise-of-private-equity/
3 https://www.investopedia.com/articles/financial-careers/09/private-equity.a
4 https://johnstoncarmichael.com/documents/general/Mergers__Acquisitions_on_the_brink_of_a_boom.pdf
5 https://www.pwc.ro/en/services/tax-services/tax-mergers-acquisitions.html
6 FT Weekend 14/15 Dec 2024 ‘Dealmakers scent Trump-led M&A boom’
7 https://www.investopedia.com/articles/financial-theory/banking-crisis-1980s.asp
8 https://en.wikipedia.org/wiki/Too_big_to_fail
9 https://evonomics.com/economists-ignore-one-of-capitalisms-biggest-problems/
10 https://positivemoney.org/archive/how-much-money-have-banks-created/
11 https://www.youtube.com/watch?v=M8HekexIUy8 at 31mins 15s – 36mins
12 https://www.mellon.com/insights/insights-articles/a-closer-look-at-magnificent-seven-stocks.html
15 https://conference.nber.org/conf_papers/f209102.pdf p.1
16 https://mediabiasfactcheck.com/national-bureau-of-economic-research-nber/
17 https://conference.nber.org/conf_papers/f209102.pdf p.5
18 https://foodfoundation.org.uk/sites/default/files/2023-09/TFF_PROFIT%20BRIEFING_Final.pdf
19 https://ffcc.co.uk/field-guide-for-the-future/supply-chains/we-need-regulation-to-ensure-fairness
21 https://en.wikipedia.org/wiki/Vivek_Ramaswamy
22 https://facts.net/history/people/40-facts-about-howard-lutnick/
23 https://en.wikipedia.org/wiki/Doug_Burgum
24 https://en.wikipedia.org/wiki/Jared_Isaacman
26 https://mabumbe.com/people/warren-stephens-age-net-worth-biography-more/
27 FT Weekend 14/15th Dec 2024. P.19
30 https://www.epi.org/blog/profits-and-price-inflation-are-indeed-linked/
33 https://www.forbes.com/sites/errolschweizer/2024/02/07/why-your-groceries-are-still-so-expensive/
34 https://time.com/6269366/food-company-profits-make-groceries-expensive/
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