Richard Abrams: debunking free marketarianism

by Linda Beale
crossposted with Ataxingmatter

Richard Abrams: debunking free marketarianism

I’ve often written here about the problems of the naive, black-or-white view of economics that has been fostered by the Chicago School and Milton Friedman acolytes who talk of “free markets” as though markets exist in vaccum tubes unaffected by the social, cultural and legal context around them. Debunking that “free market myth” is important, because without understanding the mythology of it most ordinary Americans will continue to be misled and fooled by those who devise and enact policies that affect our everyday lives. From “tea partyers” to Congress, from “the national association of manufacturers” to the US Chamber of Commerce, the “free market” is spoken of with almost reverent tones as though the market works on its own, as though businesses always do everything better than government, as though human liberty were intimately connected with letting mutlinational corporations set their own standards and make their huge profits without protections for the little guys along the way. Wrong, wrong, wrong–this pseudo-concept of free market has little to do with human liberty and lots to do with corporate profits for managers and shareholders. Time that ordinary Americans understood that.

So it is nice to see another academic talking sense on “free markets. See Richard Abrams, historian, on the Berkleley Blog (newly added to the progressive sites of interest blog roll), as he writes “Of ideology, recession and policy paralysis” (March 4, 2010). Here’s a useful excerpt offering “a little history” of our romance with competitive capitalism (and our failures to recognize how uncompetitive corporate capitalism ordinarily is):

For a relatively short span of years in our country’s history, mostly in the middle third of the 19th century, governmental policy withdrew from large areas of economic activity that traditionally had been regulated, leaving it increasingly to the price-and-market system to control the distribution of most resources and rewards. That is, traditionally in the U.S., going back to the start of the nation and continuing well into the 19th century, government – especially at the state and local levels – closely regulated much economic behavior, including of course labor relations, employer liability, and even the price and quality of goods for sale. By the second quarter of the 19th century, government began pulling back, reducing its mediating role between buyers and sellers, and between employers and employees, and yielding to private contract as the main governor of such economic relationships. By mid-century, the American economy did in fact closely resemble the model of “free,” competitive enterprise; i.e., competitive capitalism did work relatively well in regulating most markets and producing something close to a fair and level field among buyers and sellers and other competing interests (but not labor).

But along came the Industrial and Corporation Revolutions. More than a century ago, that is by the last quarter of the 19th century, the transformative growth and mergers of large corporations sharply limited private-sector competition as an effective and fair regulator of markets. As the late dean of American legal historians (James Willard Hurst) put it: “The corporation was the most potent single instrument which the law put at the disposal of private decision makers. In making it available, the law lent its weight to the thrust of ambitions which reshaped not only the business of the country but also its whole structure of power.”

The populist and progressive movements of the late 19th and early 20th century rose in response to the changed structure of power in the country. That is, various commercial and producer interests called on government to intervene, to regulate, to redress the disadvantages that the transformation of the economic scene had brought upon them.

Still, it took almost another half-century before some of the more important economists came to acknowledge that oligopolistic rather than free competition had corrupted their models of the so-called free market system. One such belated acknowledgment came in 1936. That was when economist Arthur Burns, who would later become chairman of the Council of Economic Advisors for President Dwight Eisenhower and then chair of the Federal Reserve Board during the Nixon Administration, made the remarkable discovery that, as he put it: “The widening use of the corporate forms of business organization are bringing, if they have not already brought, the era of competitive capitalism to a close.” That was half a century after the Corporation Revolution had occurred. (It would seem that economists are slow learners.) WE, of course, having experienced the arrival of the megacorporation, and of the conglomerate and multinational corporation revolutions of the past 50 years – WE could have said to Mr. Burns, hey! you ain’t seen nuthin’ yet!

Remarkably, the dominant economic theorists of the past 35 years have continued promoting public policies as if “competitive capitalism” remains vigorously functional. As one dissenting economist (John Munkirs) wrote several years ago, “The enduring belief in the existence of competitive market-structure capitalism is partially explained by the fact that basic economic beliefs are religious in nature, and being so, are difficult to modify.” “Partially explained.” The rest of the explanation has to do with how well the theology serves powerful entrenched interests with privileged access to the media and to politicians. And that privilege has grown all the greater with the recent Supreme Court’s decision overruling more than 100 years of congressional and state legislation designed to limit the power of large corporations to influence elections, and awarding corporations nearly full First and Fourth Amendment rights as “persons.”

(along the same lines, you might also enjoy reading Mark Thoma’s Proponents of a Failed Philosophy” in which he again shows that Fannie and Freddie and the CRA are not the source of the financial crisis, in spite of all the effort by GOP stalwarts to make them so.)