Fantasy Island

Free Market: The History of an Idea, by Jacob Soll

It’s as though the 1980s never happened. For many Gen Xers like me, until the 2008 financial crisis, the free market was the only game in town.

Adam Smith's invisible hand (African labourer remix). Borgo Filadelfia, Torino.

From today’s unionization chic to The Economist’s accolades for Karl Marx, it’s hard to imagine a time when even the slightest mention of socialism would elicit frowns.

Both in Europe and North America, the last decade of the Cold War was dominated by the worst kinds of libertarian orthodoxy. 

For Ronald Reagan and Margaret Thatcher, the discipline of the self-regulating market was the only guarantor of a free society.

The patron saint of the era, Capitalism and Freedom author Milton Friedman signalled the change to free market fundamentalism as early as 1966 in a letter he wrote to Time magazine: “In one sense, we are all Keynesians now; in another, nobody is any longer a Keynesian.” 

The purveyors of capitalism-or-else are wont to offer a number of defences for the desirability of the market.

Adam Smith’s concept of the invisible hand is taken to be the operative principle of laissez-faire economics. Ironically, the phrase “free market” appears only once in the 1200-plus pages of Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations (1776). 

This does not detract from its significance per se. But it does highlight the degree to which free market boosters take what fits their needs and discard the rest.

It is much harder to make Smith a patron of capitalist orthodoxy when one looks at the big picture: his dislike of mercantile capitalism, his preference for agriculture, his publication (in 1759) of a treatise on ethics centred on empathy, and his recognition of the deleterious consequences of accumulation unregulated by the state. 

In a later section of The Wealth of Nations, Smith wrote:

“Wherever there is great property there is great inequality. For one very rich man there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many. The affluence of the rich excites the indignation of the poor, who are often both driven by want, and prompted by envy, to invade his possessions.”

The general failure to understand the historical and intellectual contexts in which ideas of the market have emerged illustrates the importance of the niche filled by Jacob Soll’s Free Market: The History of an Idea. 

Free Market starts off with Cicero and moves forward through two millennia of thought about markets or about philosophy, where it touches on economic questions. 

This is not a long book, so its coverage of individual thinkers can seem breathless. Nonetheless, Soll provides a rough picture of how capitalism has been idealised in European history.

Jacob Soll’s goal is to debunk the idea of the market as a free-standing entity capable of self-regulation. And his point is certainly well-taken. 

The attempt to turn the free market into a guarantor of just outcomes, as well as a sempiternal feature of society, has been a key element of rightwing ideology for more than a century.

What Free Market makes clear is that the idealisation of the economy as “free” is of relatively recent origin. 

For centuries, markets were conceived as being embedded in societies. They might generate just outcomes, or they might not. But it was not until the 17th century that the idea arose that they might be an institution that could function outside the purview of the state.

Once the idea was mooted, it was, for a long time, marginal. This is hardly surprising. In the era of governmentality, control over the economy has been seen as one of the means by which states can establish and legitimate their power. 

For instance, the idea of free trade was a creature of the 19th century and, to a great extent, promoted by Great Britain since it fit the needs of the British empire at the time.

It seems fair to argue, although Jacob Soll does not do this, that the obsession with free markets after World War I has as much to do with the rise of communism as anything else. 

Both Keynes and his Austrian opponents were desperate to make capitalism work in an era where it seemed prone to failure.

In the wake of the Second World War, the project became even more explicit. 

The failings of free market economics during the Great Depression played an important role in the genesis of fascism and National Socialism, which seemed to reject liberal capitalism – although the degree to which they actually did so is open to debate.

An important strain of postwar conservative thought (from Friedrich Hayek to Milton Friedman) viewed the Depression as resulting from a failure to allow the market to self-regulate. 

If one wishes to see the profound shock that the Great Depression dealt to economists, one need only look at Ben Bernanke’s speech at Friedman’s 90th birthday party in 2002. 

Regarding the Great Depression. You’re right, we did it,” said Bernanke. “We’re very sorry. But thanks to you, we won’t do it again.”

Soll’s book does much to offer a corrective to the idea that the free market has been a perfect institution, existing in nuce throughout history, waiting to be left to its own devices. 

The treatment is almost exclusively theoretical. Where historical events intrude, they’re only a backdrop for the thoughts of the figures involved.

This is Free Market’s main flaw. What needs to be shown is not that the market has seldom been conceptualised outside the bounds of the state but that it can’t be done. 

An argument along this line might look more closely at the long history of market failures to assess the degree to which state interference was either the cause of economic crises or the cure.

Still, what is presented here adds to the discussion of laissez-faire capitalism in important ways. 

Understanding how markets have been conceptualised over the course of centuries provides an important fillip to understanding how to think of them going forward. 

For the first time in half a century, that discussion has taken on an urgency that it lacked when the superiority of free markets was viewed as a fundamental and unalterable doctrine.

This is not to say that this era is definitively behind us. The free market is still the choice of the political mainstream. 

Still, one can’t help but wonder whether, given recent experiments with loosening budget discipline and moving away from austerity in the EU, there might be room for more serious changes.

Free market fundamentalist Boris Johnson’s attempt to abandon libertarian orthodoxy and go back to ‘big government’, in this regard was particularly fascinating. 

One can’t help but feel the capitalist establishment questioning its own economic conventions, if not for ideological reasons, at least ones that could be harnessed for socialist ones later.

Photograph courtesy of Joel Schalit. All rights reserved.