I like to ask my economics students whether competitive free markets are a good thing. Despite the fact that many of them want to go into business as a career, they mostly agree that competition and free markets are universally desirable. I try to remind them that absence of competition is what most helps businesses stay alive – never mind rake in abnormal profits – but they are not easily persuaded. Further discussion with them reveals a widespread and ingrained belief that our economy mostly is competitive. From where does the notion that ours is a free market economy originate?
Celebration of free markets arguably dates back to Adam Smith. In his classic, An Inquiry into the Nature and Causes of the Wealth of Nations, Smith rips to shreds a mercantilist belief system that advocated heavy state influence in economic matters. As is well known, he argued that the competitiveness fostered by a free market economy should serve the greater good. But over the next two and a half centuries we have seen his brilliant and highly nuanced account of late 18th century economics become increasingly distorted. Some today even dismiss Smith as a naïve libertarian.
Have competitive free markets ever really existed in practice? Businesses surely confronted far fewer economic restrictions in the 19th century than they do today. Yet that is far from saying that markets were “free.” It often goes unremarked that Alexander Hamilton, U.S. Treasury Secretary early in the 19th century, was a strong advocate of tariffs to protect the fledgling U.S. industries in the North. Our country’s repeated pronouncements in favor of free trade naturally make it easy to forget that our country’s economic development was largely based on protectionism. If anything, it was the Confederacy that favored free markets a century and a half ago, for the obvious reason that they wanted to freely export their cotton to England.
And yet the idea (ideal, for some) of free market competition persists. Thrives even, with the helping hand of late-19th century economics which, in essence, translated the ideas of Smith and his successors to the language of mathematics (thus providing it a veneer of scientific legitimacy). It was left to Keynes to cast doubt over the appropriateness of laissez-faire economics, mostly as a consequence of the ravages of capitalism during the Great Depression. Yet the debate that Keynes engendered ended up (certainly through no fault of his) being a uniquely pernicious smokescreen. Undue attention to the market-versus-government dispute has enabled propagation of a widely cherished but false tenet: That capitalism and competitive free markets are one and the same, and that capitalism and government are therefore incompatible.
Far from being an economic system based on free markets, capitalism has endured as a system that perpetuates the good fortune of those born with wealth advantages. National governments have, moreover, long existed to assist in the process. Antitrust rhetoric notwithstanding, market concentration has been the norm in most industries, especially over the past few decades. As everyone knows, economic concentration facilitates concentration of power, and it is wielded in a way that perpetuates and intensifies the resulting inequality through lobbying and the “revolving door” relationship between legislators and industry leaders.
How to distract the public’s attention from such abuses? By pitting the “market-friendly” Republicans and the “big government” Democrats in a spurious debate. The mainstream media has been extremely effective in sustaining the myth that our two pro-corporate parties offer people meaningful choices. It is only in the last few years that the general public is growing aware of the farce, largely due to the success of Bernie Sanders and others in his camp and the pressure they have placed on mainstream Democrats.
Yet the ideological sleight of hand performed by the country’s pro-business press over the past 40 years has been nothing short of brilliant. Not only has the Corporate-Government Conglomeration not been called out in the press and popular discourse, but the Federal budget challenges resulting from sizable tax cuts and subsidies to the wealthy were successfully portrayed as a consequence of inefficient, wasteful, and redistributive bureaucracy.
I have in principle always been somewhat agnostic about the desirability of government economic planning. But watching outsized corporate influence over a sizzling stock market while a depression looms for everyone else is enough to make anyone yearn for an authentic free market economy. The very idea that our economic system might actually force inefficient, corrupt, and sclerotic businesses to fail and go out of business is positively quaint.