Because they have the word free in them, the terms “Free markets” and “free trade” have seduced those of all political colours to treat them uncritically as ideas. They are considered good or bad but their intellectual coherence is rarely questioned.
Neo-liberals believe in a childlike quasi-religious fashion in the workings of Adam Smith’s “invisible hand”, which, moved by enlightened self-interest, supposedly creates the best of all possible material worlds through the operation of the market. Socialists see “free markets” and “free trade” as economic “state of natures” which must be ameliorated by the state before a civilised society can be realised. Conservatives in the traditional sense no longer exist as a recognisable political force in the West, but when they did exist they opposed “free markets” and “free trade” primarily on the grounds of national security and the general disruption to society that they caused. Nationalists of the fascistic kind have traditionally opposed the ideas because they see the nation as a single organism which can only be strong if it is master of its own destiny, something which an only be achieved (they believe) through state direction of both the internal market and of external trade.
There are varying quantities of truth in all these ideological responses, but their utility is seriously tainted by the lack of any objective or even properly defined and permanent prescriptive truth in the concepts of “free markets” or “free trade”. The reality of these ideas is that they are arbitrary chosen bundles of behaviours which are excluded or included at the will of their proponents. Moreover, the bundles of behaviours are not static.
The widespread negligence in examining the coherence of these ideas is all the more remarkable because their incoherence as theories and the arbitrary and dishonest nature of their practical realisation is not only readily apparent but fundamentally undermining of the claims made for them by their champions.
There is a splendid irony in the objection of the self-defined “free marketeers'” and “free traders” to state intervention for the natural end of a truly free market is monopoly – or at least greatly reduced competition resulting in oligopoly and the rule of cartels. All so-called “free market” societies recognise this by passing anti-monopoly laws. The “free market” is in fact a market controlled by the state in the most fundamental way, that is, to prevent its natural workings. It is one of the great propaganda triumphs of history that “free markets” have been successfully sold as being what happens naturally without state intervention. Call a spade a spade and substitute the truthful “state regulated non-monopolistic market” for “free market” and the psychological shape of the idea changes dramatically. (Some casuistical “free marketeers”might argue that the “free” in free market applies to the workings of the market rather than the market as a natural phenomenon. That explanation falls because “free marketeers” invariably make the blanket claim that markets only work efficiently without government interference. Their honest position would be to state that they want state regulated markets to prevent monopoly. They will not do that because it would be an acknowledgement that state regulation of the market is legitimate and hence remove any general argument against regulation. That in turn would mean any form of state regulation would be potentially reasonable and consequently each form of regulation would have to be argued down individually on the merits of the case, rather than simply empty-headedly dismissed on the grounds of no regulation = good; regulation = bad.
The state regulated “Free Market” is not even a natural phenomenon made somewhat artificial by rules to exaggerate the natural phenomenon in the same way that we breed animals to exaggerate nature. Rather it is just about as far from being a natural phenomenon as anything can be for it goes against all Man’s inclinations, both individual and social.
Economic history is overwhelmingly a catalogue of market regulation, local and national, from guilds to governments. It would be surprising if it were not because human beings, like all other organisms, naturally behave to secure their own advantage or that of their group. Extended to the nation state, this natural behaviour has commonly resulted in domestic markets being protected against foreign competition. Whether this is a good or a bad thing is another matter – a question I shall deal with later – all I am concerned to do at this point is to nail down that the fact that protectionist behaviour is what is natural.
Historically, whether you were anything from a rich merchant to a poor day labourer it was obviously not in your personal interest to allow others free access to your markets to offer the goods or servicesat a lower price or to work for lower wages. The merchant might bedriven to bankruptcy by competition, the labourer from his job. History also tells us that whatever their previous economic station, such people will probably not be able to find equivalent or better paid employment and often may not be able to find any employment at all where structural unemployment arises. What was historically true not only remains true today, but its effect is much magnified because the opportunities for competition are greatly increased by modern communications and the ease of travel and cargo transportation.
Of course, any individual or sectional advantage causes strains in a society and if the material privilege of any person or group becomes excessive, sooner or later there will be a successful revolt and the wealth in a society will either be shared more fairly through a change in the way the society is structured, for example, through the abolition of tolls, the ending of state monopolies or even through a removal of the rich as a class without any increase in the wealth of the majority.
But wherever wealth distribution through social change has occurred it has normally been done with the express intention of benefiting a particular group or even an individual in the case of monarchs. The odd thing about “free marketeers” is that what they ostensibly advocate is not to privilege any particular individual or group but to benefit society as a whole. Whether free markets do so is another matter, but that is their claim.
The “free marketeer” says to a population, do what I say and in time society will become richer. He does not say this person or that group will become richer or even all will become richer, but merely that the society as a whole will become richer. This is an extraordinary thing to ask people to trust in. It is also the most wonderful blank cheque ever written to a politician because not only does it absolve him or her of any need to take the responsibility for regulating the economy, it also means that he or she can never be held to account for dishonesty by any individual if that individual is personally worse off. All a “free marketeer” politician has ever claimed is that his economic way will make society richer. Provided society overall is richer, he has met his met his promise.
It is also telling for their intellectual credibility and honesty that “free marketeers” will oppose government interference in such matters as subsidies, quotas, embargoes, wage rates and working hours and grumble about tax rates and public expenditure, but are generally quite happy to see other gross distortions of the market deriving from government action. They not only tolerate patents, copyright and trademarks, but often defend them as property in themselves and asdevices which actually improve economic performance because they encourage invention, investment and expansion. In addition, those who constantly bleat about Adam Smith’s “invisible hand” sorting out the business wheat from the chaff insist that limited liability is necessary. This of course is also a violent interference with the market because it means that the individual shareholder never takes full responsibility for their investment. (It is worth noting that the British industrial revolution – the one and only bootstrapped industrial revolution – took place before limited liability became legally possible (Limited Companies Act 1862) and at a time when patent rights were insecure and in practice limited to the domestic British market.)
It is true that none of these things are actually part of what the concept of a “free market” is and that they are inimical to such a market, but the fact that almost all modern “free marketeers” have tacitly incorporated them into their vision of what a “free market” is demonstrates their intellectual confusion (or dishonesty if you prefer).
The “free market” as its proponents conceive it
Let us put aside for the moment the fact that “free markets” are state regulated markets and ask the question what is a “free market” as it is conceived by “free marketeers”? A jolly good question. Even if market distortions which appear acceptable to “free marketeers” such as patents and limited liability did not exist, that would leave many other things which prevent unfettered domestic competition. In an advanced modern economy these include:
Taxes
Non tax fiscal measures, eg control of interest rates
The state of the currency
Exchange controls
Overall Government expenditure
State Subsidies
Industry and trading standards, official and otherwise
Public sector employment
Transport costs
Public ownership
Defence
Direct and indirect Government intervention
Copyright, trademarks and patents
The moral and social climate, eg, a tradition of Welfare The feeling of the people, eg, the national feeling of Japanese Practical cultural barriers such as the difficulty of a language
Dumping
Transport costs
Working hours
Trading laws
Labour laws
Wage rates
Bureaucratic differences
Company laws – particularly the attitude towards foreign ownership
Banking laws
Banking system
Social policy – welfare, health etc
Physical infrastructure
Honesty of public servants
Foreign policy
National strategic considerations
Education – The amount spent, school leaving age, curriculum,
Limited Liability
Environmental laws
Some of these things such as subsidies, patents, quotas and limited liability could be obviously and legitimately ruled out of order by a “free marketeer” because they are deliberate state interferences with competition, but what of items such as the provision by the state of education or the physical infrastructure of a country? They are undeniably distortions of competition at some level, but they are not deliberate attempts by the state to distort competition. A purist “free marketeer” could just about say such things were no business of the state and still be intellectually coherent because it is possible to conceive of a society without such state provision. But however purist they might be, sooner or later the “free marketeer” will run into features which undeniably restrict competition but which must exist simply because they are an inescapable part of society. The most obvious is tax.
Any modern state needs a large tax revenue to sustain itself, the only questions to determine being how large should be the revenue and what it should be spent on? Some things such as defence and policing are inescapable expenditures for any state, although even there the amounts to be spent are debatable and elastic. Items such as education and welfare are more subject to variable expenditure. Nonetheless, substantial amounts are as a matter of contingent fact invariably spent on such items by all advanced states. Such countries also engage to a lesser or greater degree in all the forms of regulation listed above.
In theory, and even more in practice, the notion of a “free market” seems to rest on little more than anti-monopoly laws, wages and prices set by the market (although in practice this does not happen purely through the market because of welfare provision, tax regimes etc) and a lack (or at least a minimum) of state interference in such areas as health and safety, employment law and company law.
The inclusion of these narrow criteria are merely a subjective choice made from a much larger menu of man-made distortions of the market. Consequently, there is no objective coherence to the concept of the “free market” as it is conceived by the “free marketeers”. It is an arbitrary ideology based on subjective choice.
Living In A Madhouse 