There Is No Such Thing As A Free Market

At a news conference regarding agricultural policy on the 12th of August 1986, Ronald Reagan delivered one of his most recognisable quips satirising the organisation he had been elected to lead two years prior: “I think you all know that I've always felt the nine most terrifying words in the English language are: I'm from the Government, and I'm here to help”. Given the enduring appeal of this line for so-called libertarians and free-marketeers, the words that followed Reagan’s oft-repeated quote are curious. Despite his apparent aversion to government interference in the economy, Reagan states that “the Government must act compassionately and responsibly… in order to see farmers through these tough times”. After listing a variety of government initiatives designed to support the American agricultural sector, the President reaffirmed his surprising affinity for government intervention by declaring that “America's farmers should know that our commitment to helping them is unshakable… and as long as I am in Washington, their concerns are going to be heard and acted upon”.  

The contradiction here is stark. On the one hand we are implicitly told that the Government can only do harm and is not to be trusted. On the other hand, the Government’s power and influence over the economic realities of its citizens is presented as the solution to their woes. While Reagan admittedly maintains that the goal of the government is “economic independence for agriculture”, it is difficult to determine what this would entail. Could a sector as important as American agriculture ever feasibly be separated from the state’s goals for economic development? Would said independence require American agriculture to supply and maintain its own infrastructure such as roads and electricity? In the case of a future crisis similar to the one referred to in Reagan’s remarks, would the state be expected to intervene or allow the sector to fail? When later pressed by a reporter, Reagan only elicited further confusion by stating that “we're trying to help in a situation that I believe was originally created by the Federal Government, when the Federal Government, back in the days of the Depression, started invading the farm community”. If the government is the source of the problem then, as it almost always is according to Reagan, why the wholehearted support of an interventionist policy which is doomed to fail by virtue of its deployment from Washington?

State/market relations have been a focus of study in the field of political economy for centuries, a field whose vocabulary and analytical rigour has been expanded by a diverse range of monumental thinkers including Adam Smith, David Ricardo, John Stuart Mill, Karl Marx, and John Maynard Keynes. To answer the puzzle posed by Reagan’s defence of state intervention, however, the scholarship of Hungarian economic historian Karl Polanyi is particularly instructive for making sense of Reagan’s ambivalence towards the state. 

In his 1944 work, The Great Transformation, Polanyi set out to critique a particular understanding of economics, and by extension the economy, which was pervasive in academic circles at the time. In The Great Transformation, Polanyi challenges the popular perception of the market and the economy as a natural, self-regulating entity separate from political or social institutions. For Polanyi, the market economy is anything but self-regulating, and its bearing on the social relations between participants of the market order has profound political implications which must be mediated according to a select vision of society.

Take the example (p. 477) of labour as a commodity in the British context. Prior to the early 19th century, the poor generally received social support from their local parishes, a system which had its roots in the Tudor era and which was extended throughout the 18th century. While this may have sustained the living standards of the poor, it crucially reduced the available supply of obedient labour which industrialists could employ in their factories or elsewhere. The disciplining power of unemployment and extension economic destitution could not function to motivate workers to sell their labour at low prices in a world where even the unemployed could enjoy a relatively comfortable life within their local community. In the words of the great liberal John Stuart Mill, if employers could not use the threat of dismissal to energise workers, the only alternative would be “to extract real work from day labourers using the power of the whip”. Indeed, it was government intervention against the ‘free’ market which ensured workers, in the form of slaves, would not have to face such methods of discipline from their employers.

What the poor law reforms of 1834 achieved, therefore, was to reverse this power dynamic between employers and employees by sharply reducing poor relief and making life “so intolerable for the rural paupers as to force them to migrate to any job that was offered” at the expense of social cohesion. Furthermore, these reforms drew attention to the social and political context within which the market economy necessarily operates. First and foremost, they revealed the contrived nature of the market as a political and social institution among many, one that fundamentally relies on state power to engender and sustain. Human beings had to be transformed into a commodity. There is nothing in our DNA as human beings which makes us genetically predisposed to working 14 hour days mass-producing textiles. In this sense, Polanyi argues, “the road to the free market was opened and kept open by an enormous increase in continuous, centrally organised and controlled interventionism”.

To speak of the state and the market as if they were entities in conflict is, therefore, both ahistorical and illogical. As Reagan implies, any effort to make the market ‘independent’ of state intervention ironically requires the state to reform and create institutions to this end. To quote Polanyi, “even those who wished most ardently to free the state from all unnecessary duties, and whose whole philosophy demanded the restriction of state activities, could not but entrust the self-same state with the new powers, organs, and instruments required for the establishment of laissez-faire”.

To use a more modern example of the free-market libertarian cliche and its limitations, consider the following Financial Times opinion column by one of its more unabashedly neoliberal commentators. In a piece titled ‘Labour has all to clear a vision’, Janan Ganesh argues that “In the eternal tussle between the state and the market [Labour] wants to tilt things in favour of the state”, a move he perceives to be misguided. Instead, Ganesh would prefer “the state, especially its welfare and pension function” be “contained”. The incoherence of his position is revealed one line later when he states that “the resulting fiscal room must be used to incentivise the working population”. Thus, the state for Ganesh must be simultaneously enlarged and shrunk in the name of liberating the market. Not only this, the state’s responsibilities must now include the social engineering of the entire British population in a vague reenactment of the justification given for reforming the poor laws at the start of the 19th century. If only Ganesh had read Polanyi, he would realise that “the introduction of free markets, far from doing away with the need for control, regulation, and intervention, enormously increased their range”.

Polanyi is therefore very useful for understanding why pro-market figures like Reagan and Ganesh appear ambivalent about state intervention and control over the economy. More generally, his work can also inform a better grasp of capitalist economic governance. As a starting point, so-called free marketeers wield the state power they so despise when they come to terms with the fact, consciously or unconsciously, that they cannot do away with it altogether. In the case of Ganesh’s column, he advocates for a very specific kind of state intervention among many which, as Polanyi would be quick to emphasise, are all equally politically contrived. For Ganesh, the British state’s fiscal headroom must be expanded by cutting welfare and pensions, not subsidies to multinational private corporations or asset-rich individuals. He readily concedes that “the whole process will create losers, and absolute ones too”, but he doesn't provide an explanation why the losers in question take the form that they do.

Hidden in Ganesh’s authoritative tone is a much more sinister proposition than the ostensibly inane suggestion that the state should intervene less in the market and allow the private sector to flourish under market competition. What Ganesh is advocating for in actuality is the mobilisation of state power in service of private capital; a kind of pro-business authoritarianism if you will. What is the state to do if the general population reject the ‘incentives’ they are offered and move to unionise? Naturally, they must be crushed as Margaret Thatcher displayed during her tenure as Prime Minister and Tony Blair emulated before becoming Prime Minister himself. Given the inherently unstable and socially corrosive nature of the system they are intent on upholding, the pro-business authoritarian thus commits themselves to a greater and greater exercise of state power, on the one hand, to support and strengthen the interests and rights of private capital, and on the other, to suppress popular resistance to the market.

This authoritarian tendency within capitalism, one that has been re-framed and obscured by traditional discourses of freedom and liberal democracy, was sharply identified by Vladimir Lenin more than 100 years ago as the ‘dictatorship of the bourgeoisie’:

Let the bourgeoisie continue to keep the entire apparatus of state power in their hands, let a handful of exploiters continue to use the former, bourgeois, state machine! Elections held in such circumstances are lauded by the bourgeoisie, for very good reasons, as being "free", "equal", "democratic" and "universal". These words are designed to conceal the truth, to conceal the fact that the means of production and political power remain in the hands of the exploiters, and that therefore real freedom and real equality for the exploited, that is, for the vast majority of the population, are out of the question.

Today, Lenin’s critiques of capitalist state power are vindicated by the form in which datacentres are being approved and built across the United States. Despite the fact that 71% of Americans are opposed to datacentre construction near their homes given the damage they cause to the local environment and the resulting higher electricity prices for local residents, more are being built across the country at breakneck speed. Furthermore, these datacentres are usually built in rural towns, where local residents have less power to fight back against the powerful corporations at the centre of the AI boom. This is not helped by the conciliatory position of many local politicians to demands for datacentre construction by said multinationals. As residents of Box Elder county in north-western Utah were protesting the approval of a datacentre more than double the size of Manhattan set to consume more electricity than the entire state, they were told by local lawmakers to “be quiet” and “grow up”. In the case of each datacentre, approval and construction is facilitated by state power more so than the rights of local residents to reject them. Once datacentres are constructed, their protection is once again ensured under the threat of state-sanctioned violence.

The market is, therefore, never ‘free’. The prevalence of the free market cliche has, however, endured in part because the term itself obscures more so than reveals the specific institutional arrangement being advocated for. Both Ronald Reagan and Janan Ganesh’s markets are subject to the control of the state as the mid 19th century market analysed by Polanyi. In both cases, the particular institutional arrangement which brought about and sustained the market was upheld by the state and in particular the state’s monopoly on violence. Somewhat paradoxically, in both instances the ‘freedom’ supposedly enjoyed by entities in the market was achieved and protected by the suppression of alternative interest groups. In other words, laissez-faire has always been a planned endeavour. In the 19th century, these alternative interest groups were primarily the parishes and their aid networks. Now, these alternative sources of opposition to the state’s market take the form of trade unions, activist groups, and the enfranchised masses. The term ‘free market’ attempts to naturalise the particular socially and politically contingent institutional arrangement. One need only ask what such an amorphous arrangement is supposedly free from to pull back the market’s quasi-divine veneer and reveal its vulnerable, contrived, and malleable reality.

Image: Wikimedia Commons/White House Photographic Office (Ronald Reagan Presidential Library, see also the National Archives and Records Administration)

Licence: public domain.

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