A ‘free’ market? I
Updated on 12 April 2023
Next time a fan of neo-liberalism extols the virtues of “free markets”, just nod approvingly, smile, and tell him that is it an oxymoron – a figure of speech that combines contradictory terms.
And then ask him suavely what the State is for, in his opinion.
If he is close to the libertarian view he’ll tell you “Protection of life and property”. He’ll quote Thomas HOBBES on the horror of the “state of nature”, against which we need the state’s power:
In such condition, there is no place for industry; because the fruit thereof is uncertain: and consequently no culture of the earth; no navigation, nor use of the commodities that may be imported by sea; no commodious building; no instruments of moving, and removing, such things as require much force; no knowledge of the face of the earth; no account of time; no arts; no letters; no society; and which is worst of all, continual fear, and danger of violent death; and the life of man, solitary, poor, nasty, brutish, and short.
So far so good – one can nod approvingly as the snare is laid.
The state protects “property” – says HOBBES (not Karl MARX) hence the state defines what “property” is. In other words, “property right” is not a sovereign or transcendental right, but a social one – it exists within a society only.
If there is no society there is no “property right” – pragmatically the state is both enabler and enforcer. And if the origin of “property rights” is a society, only society can change them – by whatever means it deems fit.
The market operates within a society in two ways. It is a place where (a) “property rights” i.e. social constructs are exchanged, and (b) in accordance to agreed rules (e.g. caveat emptor). It follows that a market cannot be “free”: in fact a market is subsidiary to the prior state-mandated definition of “property rights” and exchange rules. This is a core point, and one worth making time and again. Markets are the child of social institutions and are defined by them.
Most current economic theory ignores the institutions and only speaks of markets as if they existed without them. In fact, the institutions are simply “silent” – they remain unchanged as people act in the market and play by its social rules. Unchanging institutions are a precondition for a market forces to function predictably. It is like in football: when the game starts the rules by which it is played may no longer change. No one may move the goal posts may play – and certainly not at the whim of one of the teams.
(Gustave Doré: The destruction of Leviathan)
In between games we may argue our heads blue as to the appropriate bundle of “property rights” or the “exchange rules”, but the claim to “free” – that “no rules” is the best rule – is spurious. It is an implicit claim to sovereignty – it signifies secession from society (or the state).
Ronald H. COASE received the “Nobel Prize in Economics” for studying the relationship between markets and the law. He taught at the University of Chicago – the stronghold of market economics and conservatism. I’ve long found it amusing (and amazing) that such contradictory views could coexist and ignore each other, rather than engage for mutual enrichment.
Silence leads to forgetting – and myths emerge somehow to mark what was forgotten. Is this process “innocent”, that is, does the myth derive haphazardly from the underlying reality? I’m not sure. Myths tend to have heroes or heroic tales. My hunch is that heroic tales sometimes hide a “dirty secret”, a truth suppressed that tells just the opposite of what the myth purports to highlight.
Take “home advantage” in football games. The myth is that the home team plays better on its home ground because the crowd energizes the players. The reality may just well be that the baying of the crowd cowers referees into favoring the home team.
So you’ll forgive my skeptical attitude about heroic myths – like that of “free” markets. The over-fulsome praise may just hide the grab.
In the second Part of this blog I’ll show how the call for eliminating rules in the name of “efficiency” may in the end destroy markets.
 Ronald H. COASE (1990): The firm, the Market and the law. University of Chicago Press, Chicago.
 See: Elizabeth WAYLAND BARBER – Paul T. BARBER (2006): When they severed earth from sky. How the human mind shapes myth. Princeton University Press, Princeton.
 In what has become a famous experiment in sports-science circles, a sample of 40 referees were exposed to a recording of Liverpool ‘s match with Leicester at Anfield during the 1998-99 season, with half watching the match with all crowd effects included and half watching a silent version. The researchers found that the referees who heard the sound of the crowd were less likely to call fouls against the home team than the ones who saw the game in silence (though, interestingly, the baying of the crowd did not make them more likely to penalise the away team). This preference for the home team coincided with the actual decisions of the match official on the day. The researchers concluded that referees tend to avoid making calls against the home team as a way of shielding themselves from the extra stress levels that come with antagonizing the crowd. It’s not that the officials do what the crowd wants (‘Send him off, ref!’); they just try not to do whatever would direct the crowd’s fury straight at them. The psychologists call this ‘avoidance’. See: https://www.guardian.co.uk/sport/2008/feb/03/features.sportmonthly16