“Free markets” and “free trade” as a religion

Free marketeers fancy themselves to be rational, calculating beasts. In reality, their adoration of the market is essentially religious. They believe that it  will  solve all economic ills,  if  not immediately, then in the medium to long term. Armed with this supposed objective truth, they  proselytize about the moral evils  and inefficiencies of public service and the  wondrous efficiency and ethical outcomes of private enterprise regardless of the  practical effects of their policies or the frequent misbehaviour of those in command of large private companies. Their approach is essentially that of the religious believer.

Like the majority of religious believers, “free marketeers and traders” are none too certain of the theology of their religion. (I am always struck by how many of them lack a grasp of even basic economic theory and are almost invariably wholly ignorant of economic history). They recite their economic catechism sublime in the concrete of their ignorance.

The religion has its roots in the first half of the 18th century when there were occasional attempts to suggest tariff reform, but the idea only became a serious political policy in the 1780s with the advent of Pitt the Younger as Prime Minister in 1784 who long toyed with “economical reform”.

The 18th century also provided the religion with its holy book, The Wealth of Nations by the Scottish philosopher and economist Adam Smith. This strongly argued for “free markets” and “free trade”, but Smith also recognised the  demands of national security, the need for government to engage in social provision such as road building and maintenance which would not otherwise be done and, must importantly, the nature of a society and its economy.  Here is Smith on the Navigation Acts: “…the Act of Navigation by diminishing the number of buyers; and we are thus likely not only to buy foreign goods dearer, but to sell our own cheaper, than if there were a  more perfect freedom of trade. As defence, however, is of much more importance than opulence, the Act of Navigation is, perhaps, the wisest of all the commercial regulations of England.” (Wealth of Nations Bk IV. ch ii)

But Smith and his book suffered the fate of all those who found religions, secular or otherwise. As the decades passed Smith’s cautious approach  was redrawn in the minds of his disciples to become a surgically “clean” mechanical ideology in which all that mattered was the pursuit of profit and the growth of trade and industry through the application of the “holy edicts” of open markets and comparative advantage.  The disciples,  like other religious believers, avidly quoted the passages from their holy book which suited their purposes and ignored those which did not. They also found a further holy text in Thomas Malthus’ Essay on Population of 1802, whose predictions, although unproven by events,  could be used to demonstrate that economic expansion was vital if widespread starvation was not to occur.

The clinical, soulless and inhuman nature of the laissez faire idea as it evolved is exemplified by the English economist David Ricardo. Here is a flavour of his mindset:”Under a system of perfectly free commerce each country naturally devotes its capital and labour to such employments as are most beneficial to both. The pursuit of individual advantage is admirably connected with the universal good of the whole. By stimulating industry, and by using most efficaciously the peculiar powers bestowed by nature, it distributes labour most economically, while increasing the general mass of the production it diffuses general benefits, and binds together by one common tie of interest and intercourse the universal society of nations”.  (David Ricardo in The fall of protection p 174).

The Napoleonic wars largely foiled Pitt’s wish for broad reform and placed “free trade” in suspended animation as a serious political idea until the 1820s, when cautious attempts at tariff reform again were made. But underneath the political elite was a radical class who were very much enamoured of wholesale economical reform. With the Great Reform Act of 1832 they were given their opportunity to become part of the political elite. They took it with both hands, their most notable and extreme proponents being John Bright and Richard Cobden backed by the intellectual power of David Ricardo – all three became MPs.

Within a dozen years of the first election under the  Great Reform Act’s passing, Parliament had been captured by the disciples of Adam Smith and the pass on protection had been sold by of all people a Tory prime minister, Sir Robert Peel, an action which kept the Tories from power for most of the next 40 years.

 Such was their religious credulity that the “free traders”  advocated not merely opening up Britain’s markets, both at home and in the colonies, to nations who would allow Britain equivalent  access to their markets, they advocated opening up Britain’s markets regardless of how other nations acted. The consequence was, as we have seen, disastrous for Britain.

 Disraeli in a speech on 1st February 1849 cruelly dissected this insanity:” There are some who say that foreigners will not give us their production for nothing, and that therefore we have no occasion to concern ourselves as to the means and modes of repayment. There is no doubt that foreigners will not give us their goods without exchange for them; but the question is what are the terms of exchange most beneficial for us to adopt. You may glut markets, but the only effect of your attempt to struggle against the hostile tariffs  by opening your ports is that you exchange more of your own labour each year for a less quantity of foreign labour, that you render British labour less efficient, that you degrade British labour, diminish profits, and, therefore, must lower wages; while philosophical enquirers have shown that you will finally effect a change in the distribution of the precious metals  that must be pernicious and may be fatal to this country. It is for these reasons that all practical men are impressed with a conviction that you should adopt reciprocity as the principle of your tariff  – not merely from practical experience, but as an abstract truth. This was the principle of the commercial negations at Utrecht  – which were followed by Mr Pitt  in his  commercial negotiations at Paris – and which were wisely adopted and applied by the Cabinet of Lord Liverpool, but which were deserted flagrantly and unwisely in 1846″. (The fall of Protection pp 337/8″).

Ironically, the “free traders” make the same general errors as Marxists. They believe that everything stems from economics. For the neo-liberal the market has the same pseudo-mystical significance that the dialectic has for the Marxist.  Just as the Marxist sees the dialectic working inexorably through history to an eventual state of communism (or a reversion to barbarism to be exact), so the neo-liberal believes that the market will solve any economic problem and most social ills. Neither ideology works because it ignores the reality of human nature and its sociological realisation.

The one track economic mentality of the early “free traders” is well represented by the father of J S Mill, James Mill:”The benefit which is derived from exchanging one commodity for another arises from the commodity received rather than the from the commodity given. When one country exchanges, or in other words, traffics with  another, the whole of its advantage consists of the in the commodities imported. It benefits by the importation and by nothing else. A protecting duty which, if it acts at all, limits imports, must limit exports likewise, checking and restraining national industry, thus diminishing national wealth.” (The fall of protection p 174). And to Hell with any social or strategic consideration or changing economic circumstances.

After the Great War and the fall of “free trade” as public policy in 1931, the religion went underground for nearly fifty years. When it re-emerged as a political idea in the 1970s the politicians who  fell under its spell were every bit as unquestioning and credulous as those of the 1840s. Tony Blair’ statement on Globalisation, ie, free trade, at the 2005 Labour Party Conference  shows that it is alive and kicking today. Scorning any attempt to discuss Globalisation, Blair said of those who wished to oppose it “You might as well debate whether autumn should follow summer”. (Daily Telegraph 1 10 2005.)

 None of this would matter very much now if those who believe in “free markets”  and  “free  trade”  were  without  political  power. Unfortunately, theirs is the elite ideology of the moment and the past 25 years. In Britain, the Tories may be more fanatical in their devotion to the market as panacea, but Blairite Labour have caught more than a mild dose of the disease. A good example of this is their response to house price hyperinflation where they desperately and futilely attempt remedies within the constraints of what they perceive to be “free market” disciplines rather than opting for the obvious state generated remedies such as restricting immigration, building a great deal of social housing and forcing developers to release land for building.

 Both the traditional Left and Right have been duped by globalisation. The Left initially welcomed globalisation as a dissolver of national sovereignty, but they are discovering by the day just how restrictive international treaties and membership of supra national groups can be. As things stand, through our membership of the EU and the World Trade Organisation treaties, no British government could introduce new socialist measures because they cannot nationalise companies, protect their own commerce and industry or even ensure that taxpayers’ money is spent in Britain with British firms. A British government can have any economic system they like provided it is largely free trade, free enterprise.

The Right are suffering the same sickness with different symptoms. They find that they are no longer masters in their own house and  cannot  meaningfully appeal to traditional national interests because treaties make that impossible.

But there is a significant difference between the position of the two sides. The traditional Right have simply been usurped by neo-Liberals in blue clothes: the traditional Left have  been betrayed by a confusion in their ideology which has allowed their main political vehicles to be surreptitiously by the likes of Blair.

The left have historically objected to “free-trade” on the grounds that it destroys jobs and reduces wages. But what they (and especially the British Left) have rarely if ever done is walk upon the other two necessary planks in the anti-“free trade” platform: the maintenance of (1) national sovereignty and (2) a sense of national cohesion.  The consequence is that the Left has been and are still struggling with two competing and mutually exclusive ends: internationalism and the material improvement of the mass of the people.

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Comments

  • Tony Hewson  On January 13, 2011 at 9:51 pm

    “…their adoration of the market is essentially religious”. This assumes adoration, and by implication creates from thin air a corollary; that it is blind faith alone which motivates free marketeers.
    Where is this adoration, the worship, the idolatry, the Divinity even? Does agreeing with some general principles of economic life, principles which I have had repeatedly confirmed by long experience, equal adoration?
    The argument fails, even without the lamentably superficial race through English history.
    Ricardo exemplifies the “clinical, soulless and inhuman nature of the laissez faire idea”. He apparently does this by advocating that “each country devotes its capital and labour to such employments as are most beneficial to both.” Mutual benefit is soulless? “universal good of the whole” is inhuman. As it is to diffuse “general benefits, and bind(s) together by one common tie of interest and intercourse the universal society of nations”? Inhumanity should be made of sterner stuff.
    I simply do not understand what this means; “the pass on protection had been sold by of all people a Tory prime minister, Sir Robert Peel”. Does it mean that …No, I’m sorry, I can’t begin to formulate a meaning.
    “The consequence (of opening up Britain’s markets) was, as we have seen, disastrous for Britain.” Would that be the disaster of world economic primacy, growing personal and national wealth, increased leisure and lengthening life expectancy?
    Disraeli, engaged in a clause 4 type fight and spinning like a Mandelson, blew wherever he saw political advantage. I do not know what he was arguing in this quote, but I’ll bet he was not making a principled plea in the national interest.
    James Mill as “one track economically minded”! Does he know anything about the Mills?
    “… in 1931, the religion went underground for nearly fifty years.” Followed by fifty years of prosperity and universal brotherly love?
    “Unfortunately, theirs (the free marketers) is the elite ideology of the moment and the past 25 years.” Hence the lack of business regulation we now enjoy and the reduced size of the State?
    “the obvious state generated remedies such as restricting immigration [a cause of house price hyperinflation???], building a great deal of social housing and forcing developers to release land for building.” Forcing? Threats of imprisonment? Torture? At the point of a gun? Seems we don’t have a monopoly on soulless and inhuman. Oh I forgot, they are only developers.

    • Robert Henderson  On January 15, 2011 at 9:29 am

      Most people who say they support laissez faire economics have little understanding of economics and, more importantly, no understanding of economic history. Listen or watch presenters on radio and TV programmes interviewing politicians about economic matters and you will find examples of this every day.

      Comparative advantage is not only a soulless idea, it is a positively dangerous one for those who pursue it. This is because it assumes that (1) hostility between countries will never arise and the international supply of goods and services will always be assured and (2) that the goods and/or services a country or region specialises in will remain both wanted by other countries and regions and that the comparative advantage of a particular county or region will not be eroded by other countries or regions.

      The traditional Tory view was to support the Old Colonial System. It was the Whigs who supported free or at least freer trade. Peel betrayed his party on this, just as he did over Catholic emancipation – on both issues he made firm promises not to support change and then did.

      As for growing wealth etc, you forget that the industrial revolution occurred under the Old Colonial System – the heaviest of protectionism with the Navigation Acts – and such interferences with the market as magistrates setting wages . Britain became wealthy because of the industrial revolution not laissez faire. After the economic changes of the period 1840-60 Britain’s economic dominance declined rapidly.

      “Disraeli, engaged in a clause 4 type fight and spinning like a Mandelson, blew wherever he saw political advantage. I do not know what he was arguing in this quote, but I’ll bet he was not making a principled plea in the national interest.”

      Disraeli was simply giving the true Tory line.

      ‘James Mill as “one track economically minded”! Does he know anything about the Mills?’

      You are claiming that James Mill was not a laissez faire worshipper?

      “… in 1931, the religion went underground for nearly fifty years.” Followed by fifty years of prosperity and universal brotherly love?

      WW2 occurred primarily because of the consequences of (1) the peace settlement of 1919 and (2) the Great Depression which was largely caused by a failure to control speculation, a consequence of laissez faire. Take those two factors away and Hitler would never have gained power. What the banishing of laissez faire did give Britain and the developed world for 30 odd years after 1945 was a period of great stability.

      “Unfortunately, theirs (the free marketers) is the elite ideology of the moment and the past 25 years.” Hence the lack of business regulation we now enjoy and the reduced size of the State?

      You make the mistake of assuming that economic policy has to be black or white. Like most things, it is grey. We do not have complete laissez faire, but we have enough of it to cause massive damage to the long term interest of Britain as we become ever more dependent on foreigners and ever more socially dislocated through mass immigration. You also need to understand that the extent to which the state intervenes in life is not a cut and dried issue amongst libertarians or other laissez faire supporters.

      “the obvious state generated remedies such as restricting immigration [a cause of house price hyperinflation???], building a great deal of social housing and forcing developers to release land for building.” Forcing? Threats of imprisonment? Torture? At the point of a gun? Seems we don’t have a monopoly on soulless and inhuman. Oh I forgot, they are only developers.

      Sigh. No, merely stopping people coming into the country for permanent settlement, using tax revenues to build social housing and using compulsory purchase to take land from developers.

  • efgd  On January 15, 2011 at 4:52 pm

    Interesting as is your blog on the UK Libertarian site regarding monopolies.

    Having read your blog and the one above and the replies to the one on the UK Libertarian site I was amazed at how inept they were at arguing against you – a kind of criticise but not tackle the question or the premise.

    I am totally new to both economics and Libertarian theories, so I keep an open mind to try to grapple with the subjects. In view of the above blog it is that indeed some, if not most, Libertarians are so obsessed to principle that they are unwilling to count anything different or understand that politics and economics is the art of compromise, and there seems to be failure to understand where the limits of possibility lie in terms of understanding the word and the world of monopoly in terms not of ideology and principles but reality of action. A monopoly is a monopoly whether it comes about through the stat or private enterprise. It happens. Is it a good or bad thing? It is that question, through my learning curve, I ask. Cheers.

    • Robert Henderson  On January 15, 2011 at 9:14 pm

      I am afraid the response on the LA blog was typical of what happens when laissez faire supporters are called upon to debate. Like all elite ideologies, laissez faire gains adherents who understand little of the ideology. When called upon to debate these people are unsurprisingly bereft of any argument.

      Those who do have a grasp of the ideology are crippled by the fact that all ideologies are inadequate descriptions of guides to the world. The more intelligent laissez faire adherents realise this and avoid debate because they realise their ideology will not stand up to close examination. That is particularly true of secular ideologies because, unlike religious creeds, they can be tested against reality.

      There are plenty of entries relating to economics on this site. Just go to categories and click on economics to bring the list up.

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