No Free Markets?

A local progressive blog, Left of Aggieland, has a post up on Ha-Joon Chang's new book, 23 Things They Don't Tell You About Capitalism:

We have been told that markets need to be free. We have been told that if government interferes with it creates inefficiencies. We have been told that we must be “free to choose.” Except that there is one thing. “The free market doesn’t exist.” Ha-Joon Chang makes this assertion as the first of the twenty-three things that they don’t tell you about capitalism. His argument is that every market has basic rules and regulations that it is govern by, and that the only reason that people think that a market is free is because those rules and regulations have become so accepted that they are no essentially invisible. Chang makes the case that “how ‘free’ a market is cannot be objectively defined. It is a political definition.” When free market fundamentalist argue that government intervention into the market is political motivated, they themselves also have political motivations.

One of the examples that Chang cites to illustrate his point is the ban on child labor. Opponents of the of the 1819 Cotton Factories Regulation act which banned employment of children under the age of 9 was opposed by free market proponents, but today even the most ardent free market proponents would not advocate repealing child labor laws. Chang states that “if the same market can be perceived to have varying degrees of freedom by different people, there is really no objective way to determine how free that market is…If some markets look free, it is only because we so totally accept the regulations that are propping them up that they become invisible.”

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I would go further than Chang, and say that the only way in which a market can be free is through government regulation. This is because supporters of free market fundamentalism rely on simplistic models of how markets work. In order for a so-called free market to operate it must have a perfect competition, perfect information, no barriers, equal access, and no monopolies. But, it is often the case that these factors can only be maintained through government regulation. The fact is that free market fundamentalist care less about the freedom of the market and more about the freedom of business over the freedom of the consumer.

I like Left of Aggieland a lot. It has some great original reporting on local elections and good analysis of state and local politics. This is just silly, though.

Depending on how you define your terms, a completely free market is practically nonexistent in the historical record. Likewise, it would be difficult to define the term "free market" in some absolute sense so that we could firmly demarcate the "free" and the "unfree." However, it is relatively easy to conceptualize market freedom in relative terms and to think of this economy as more or less free than some other economy. Venezuela is less free economically than Egypt which is less free than Italy which is less free than the United States.

More importantly, though, neither the absence of a firm categorical definition of market freedom nor the absence of complete market freedom in any case justify government regulation of economic activity in any particular instance or indict general arguments in favor of more freedom.

To see this, apply the same line of reasoning to personal liberties:

We have been told that people have rights. We have been told that men and women have the right to "life, liberty, and the pursuit of happiness." We have been told that a free society is critical for political, economic, and personal development. Except for just one thing. There really is no such things as a free society. All societies regulate personal behavior in some ways, and the only reason you think your society is free is because the rules and regulations that govern our behavior have become so accepted that they are functionally invisible. No one argues against or even thinks about laws banning murder, limiting the speed at which cars may be driven, requiring adults to wear pants in restaurants, or preventing pornographic movies to be shown in public places. There is no way to objectively determine "how free" a society is, it is merely a political definition; that is, personal rights are merely an illusion that reflects  a political processes that "decide" to protect this or that right.


I would go so far as to say that free societies depend on government limitation on freedom to protect personal safety and public morality. This is because supporters of personal freedom rely on simplistic assumptions about human behavior. In order for personal freedom to peaceably exist with an orderly society, you must have benign human nature, social harmony, and universal goodwill. But, it is often the case that these factors can only be maintained through government regulation. The fact is that personal liberty fundamentalists care less abut the public good and the general welfare than about their freedom to do whatever they please.

Nothing in these two paragraphs is less true than Left of Aggieland's comments. There is no completely free society, and we would be hard pressed to develop a comprehensive definition of "free society" in the first place. Yet, we can tell the difference between societies that have more or less respect for basic civil liberties. We know that Iran is less free than Turkey which is less free than France which is less free than the United States. Moreover, the absence of natural metrics or clear definition of personal freedom or individual liberty don't justify restrictions on free speech, free association, or a free press. For example, the existence of laws banning selling pornography to minors does not automatically condone other laws to protect public morality such as laws banning "obscene" books from public libraries. Likewise, the existence of laws that prevent businesses from hiring small children does not automatically justify the entire edifice of modern labor law.

The crux of the matter is that economic and civil liberties are both often subject to social regulation through political processes. Reasonable regulations to preserve public good and limit negative externalities in the marketplace are fine in principle. Likewise, reasonable regulation of personal freedom to preserve the peace and public decency are fine in principle. The argument is not (generally) about whether any regulation should be allowed but whether a particular regulation on personal or economic freedom is socially useful.