Free markets exist not in spite of the government, but because of government.


By Joe Campbell
March 6th, 2009


 
One thing many Republicans today do not seem to understand is that the free market is not a natural phenomon. The free market exists not in spite of the government, but because of government.

Reading this white paper by a broadband front group (pdf) which purports to described the “ideology behind net neutrality” which it dubs neutralism and connects it to a lack of respect for private property and an undermining of capitalism, the above sentiment was driven home. As they described the “private property” rights that net neutrality would undermine or take away, it seemed clear to me that they had a fundamental misunderstanding of capitalism – and upon reflection, this fundamental misunderstanding of capitalism seems to have animated a great deal of the perversion of the free market that Republicans1 have promoted for the past thirty years.

The impression one gets from the quasi-libertarian Republican rhetoric of the past two decades is that “government is the problem – not the solution” – and that the free market is the solution. The government and the market are understood to be fundamentally at odds – and so, Republicans have supported a government retreat from any interference in markets. They are in favor of a relaxation of regulations in various areas including from financial industry to the environmental impact of industry; they favor a government that provides as few services as possible – from wanting Social Security privatized to opposing government interference in the health care industry; they want government to allow more mergers and avoid breaking up large companies; they want to reduce taxation; they do not want government to interfere to help labor unions; they oppose rules limiting media ownership; they oppose any laws or regulations enforcing net neutrality.

In short, the Republicans oppose virtually any government “interference” in the free market – and where they cannot plausibly roll back government programs and regulations, they seek to undermine them and to reduce them.

This point of view is often described and justified as a defense of capitalism and free markets – but it truly is an assault on our system of capitalism and free markets in favor of corporate interests. One of the chief roles of the government is the creation of a free market – and many, though not all, of the regulations, programs, and services of the government are designed with this in mind. Sometimes these government interventions do more harm than good – wage and price controls during the New Deal, for example. But the Republican assault on government has not been confined to attacking these harmful programs, but to attacking the role of the government itself.

Many Republicans these days are calling Democratic efforts “socialism,” “Communism,” and “Marxism” – but in reality the Democratic Party has mainly been trying to defend the American economic system which has been under assault since the second of the twin revolutions of late 20th century America. (First was the sexual/cultural revolution of the 1960s that overturned the social and cultural mores; then came the counterrevolution which masked the financial revolution of the 1980s which overturned political and economic values.) They use these broad brushes to attack the very concept that the government has a proper role in a free market – rather than to merely disagree about the effectiveness of certain measures.

The lie to this rhetoric is demonstrated by those limited instances in which Republicans have encouraged government involvement in the marketplace – to extend copyright far beyond its initial scope; to offer tax cuts to favored corporations; to have an extremely large military development budget, etcetera. Each of this policies follows what George Will described as “the supreme law of the land…the principle of concentrated benefits and dispersed costs.” In other words, each of these benefits big corporations rather than helping to maintain a free market.

A society creates a government to establish a process for making and enforcing group decisions. One group decision is to maintain a free market. A free market is not what happens when a government doesn’t interfere – if it was, then the lawless nation of Somalia would have the freest market on earth. Instead, a free market is a nurtured thing, created and shaped by government and society. The creation of a free marketplace in America meant investing in infrastructure and roads to allow for easy transport of goods and people; it meant the regulation of large corporations to ensure they did not become monopolies; it meant creating an independent judiciary to ensure that business disputes could be legitimately settled; it meant a relatively open and transparent government; it meant regulations concerning consumer safety and protection and environmental impact; it meant regulations regarding the stability of the economic system; it meant providing for the basic needs of citizens, especially the elderly, the disabled, and the young; it meant preventing the concentration of too much power; it meant protecting certain rights for minorities and individuals; and more. 

Today, it means protecting net neutrality. Net neutrality is one of the foundational principles of the internet – and as such must be a principle protected by the government. Imagine how our economy would have changed if there were fees required to travel along any roads – fees which could be waived if you were traveling to certain stores. It would reinforce the dominance of large corporations and serve to continue to concentrate power. Imagine if I would have to pay a fee to travel to my local hardware store, but could go for free if I went to Home Depot. Broadband industry advocates insist that not only should consumers pay broadband companies for access to the “roads”, but that websites should also have to pay broadband companies to get their potential viewers there. They propose to undermine and limit the decentralized market that is the internet to favor big companies. 

It is government’s proper role to protect this market – to enforce the rules that have made it such an effective and innovative force. 

The internet has spurred so much innovation because it is a free marketplace. Large corporate interests seek to control and limit this innovation – to ensure their power and profits are not threatened. The Republican party now seems to be going along with these interests. But they should not be allowed to do so under the pretense of protecting “private property” and “free markets.” In reality, their efforts to stop net neutrality are yet another assault on the freedom of the marketplace, another attempt to undermine the American economic system.

  1. I use this term although it is a rough one. Some Democrats seem to agree with the Republican points discussed – but they have mainly been associated with the Republican party. []

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4 Responses to “Free markets exist not in spite of the government, but because of government.”

  1. Economics, Fairness, & Stability - 2parse Says:

    […] sometimes seems to me that conservatives forget that the free market exists because of – not in spite of – government interventions. And that some percentage of an individual’s success is due to the society and market created […]

  2. glory Says:

    hey, just checking out more of your posts 😛 good stuff!

    btw, i also like delong’s formulation http://www.marginalrevolution.com/marginalrevolution/2009/01/brad-delong-speaks-at-a-cato-event.html – “The modern American liberal economist’s view of libertarianism is much the same: libertarianism is false in theory, but it is very much worth figuring out a set of limited, strategic interventions that will make the libertarian promises roughly true in practice.”

  3. v Says:

    markets are not a government created entity. People on this blog do not understand economics. The government always regulated and controlled society tightly. Markets were created when government let people be free from regulations in the 18th century.

  4. Joe Campbell Says:

    @v:

    It’s self-evident that a prerequisite for a functioning free market is a functioning government. Otherwise, Somalia, which is anarchic, would be the ultimate free market. You and I may disagree about how much government is needed, or what it should do. You may think that free markets are more fragile than I do — and can be more easily destroyed by different sorts of government involvement. But the fundamental point is near indisputable — or at least, you choose not to dispute it with any argumentation.

    Your statement that “The government always regulated and controlled society tightly” is also wildly ahistorical. Governments simply did not have much power until technological advances in the 1800s to control or regulate markets. Markets in this time were by some standards more free than markets today. There were no safety regulations or government oversight, etc. (Or, there was very little and it was often only enforced as desired by the local power.) But there were religious restrictions. And roads were slow. And robbers a problem. And competition was much laxer. Etcetera, etcetera. Markets had far fewer governmental restrictions and more practical and technological ones. But government then brought a system of justice which allowed for commerce over longer distances; infrastructure was improved, largely by government or with the active support of government; law and order was enforced.

    Your conception of the relationship between the government and the market is pure fantasy.

    -Joe

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