The Market Is Never Free

It is common to hear people call for the removal of the government from the market or launch defences of the ‘free’ market. It is asserted that governments always get things wrong and that regulations only make things worse. Conservatives proclaim that if the economy was only left in the hands of the free market everything would be better. However there is no such thing as the free market. It doesn’t exist and probably never did. Every market has some rules and regulations that even conservatives admit are necessary. We have grown so use to them that we don’t see them but they are still there. The market is never free.

The examples of this are so numerous you’d be surprised you didn’t think of them before. For example child labour laws. Every so called free market has these laws restricting the actions of business. This is clearly a government regulation hampering and hindering entrepreneurs and probably creating market inefficiencies. But not even a diehard free marketer would call for their abolition. But how can the market be called free if the government decides who businesses can and cannot hire?

There are a huge number of areas in which the government has decided the market cannot enter. (The list and indeed the whole post is inspired by Ha-Joon Chang’s excellent book 23 Things They Don’t Tell You About Capitalism) For example it is illegal to buy or sell government jobs, politician’s votes or judges’ decisions. Government regulation greatly hampers the sale of alcohol, medicine and firearms. That is to say nothing of the seemingly obvious examples of prohibitions on the sale of humans (i.e. slavery) or drugs. It is illegal to sell toxic or rotten food or pollute the environment to the point that people die.

When conservatives argue that the market should be free is this what they mean? You might not take this point serious claiming no sensible person would argue for the legalisation of all of the above. But why not? Each one in its self is government intervention in the free market. If the freer the market the greater the benefit for all, as conservatives such as Milton Friedman argued, then surely abolishing these prohibitions would leader to greater economic prosperity? Every argument against government intervention in healthcare or education could be used against government intervention in drugs or votes or organs. If unions and labour laws distort the market creating inefficiencies that harms us all then so does child labour laws. What’s the difference between health and safety laws and child labour laws? Both distort the market so surely to have a “free” market we must get rid of both of them.

Then there is government intervention in what job you can have. Many if not most jobs require a licence of some sort. For example doctors, pilots, pharmacists, police officers, lawyers, teachers, bankers, accountants, engineers and electricians all need licences of some sort to perform their job. You can’t walk in off the street and be hired as a surgeon. These are all examples of restrictions imposed (usually by the government) that hamper the free market. Should they be abolished? Why should some bureaucrat decide what job you should have? Then again would you feel save flying in a plane knowing the pilot has no qualification? Would you feel satisfied being treated by a doctor who walked in off the street and set up a clinic? There are also consumer laws like the right to return faulty merchandise. Interest rates are not set in the free market rather they are decided by the government for political reasons.

You might be surprised at how much government intervention decides your wage. As Chang points out, if the market was truly “free” everyone in the First World would have a wage that would be 80-90% lower. This is because if it wasn’t for the government there would be an influx of immigrants from the Third World. The wage gap is so large that immigrants would keep coming until wages were equal in Europe and Africa. Instead government intervention artificially protects First World workers wages and keeps them far above those of the rest of the world. When conservatives claim they want the market to be “free” somehow I don’t think this is what they mean. The entire “free” market so praised by conservatives is actually based upon massive state intervention. But what right does the government have to interfere? Why should it interfere with the sole aim of driving up wages and labour costs? Isn’t that socialism?

Thus the debate on the “free” market is less about economics and more about politics and morality. For example no conservative (I hope) wants to return us to the way economies were 100 and 150 years ago, where most people worked 60 hour weeks in dirty and dangerous conditions for starvation wages. Yet changes to this were opposed as they interfered with workers right to work as long as they want in whatever conditions they want (that was the excuse used).

There is no such thing as the free market. There never was and never will be. The next time you hear someone argue against interference with the “free” market or that only under the “free” market we will prosper, ask them what they think of government restrictions on child labour or slavery or mass immigration. If they want a truly free market without any intervention by bureaucrats they should be opposed to this. Instead you’ll probably find they are merely stating a personal political opinion. Not even a conservative really wants a truly free market.

13 thoughts on “The Market Is Never Free”

  1. Clearly you are right – there is no free market. But there is a reasonable debate to be had about how much we should approach a free market. My understanding is that some regulations can be quite burdensome and affect the rate of economic growth (imagine, for example, the impact on hiring of a law that required each new employee to be certified separately by municipal, regional, and national authorities, with multiple pieces of documentation that differed by agency), but other regulations can facilitate economic growth (imagine, for example, a law standardizing the type of train tracks that could be installed, ensuring that goods could be transported across regions efficiently).

    Overall, I think it is not wrong to speak of a continuum between full communism and complete anarchy (i.e., the theoretical free market). Obviously, economic growth will be optimized somewhere in the middle of this continuum, but there may be specific laws that have effects that contradict the general tendency.

    The problem is when the free market becomes an object of worship, something religious or ideological. The goal should be to maximize the rate of economic growth while minimizing negative externalities, and we should take a pragmatic, evidence-based approach to achieving this. No need to resort to ideological debates…

  2. “The next time you hear someone argue against interference with the “free” market or that only under the “free” market we will prosper, ask them what they think of government restrictions on child labour or slavery or mass immigration.”

    Amen. If it’s marketable, it will end up on a “free market”. “Why don’t you get a job” slides into “get a better job”, sell your organs, borrow against them, put your kids to work, solicit your body, etc.

    And “free market” thinking ignores the “echo (or shadow) government” of the influential, as you put it in pointing out that the “free” market never really existed.

  3. Interesting blog, I have a few exceptions.

    Child labor laws: Something not often mentioned is that back in the day when children worked, families were struggling to eat. A lot of families were able to survive because children helped. Now that American families are better off, it’s absurd to think if you didn’t have the laws that kids would be back in the mines. No parent would want that. Last time I checked a corporation can’t just come snatch your kid and put them to work. Parents would object. Thinking that you need the child labor laws suggest that you think parents want to put their kids to work.

    When you mentioned jobs that require a licence of some sort:
    You operate under the assumption that if government didn’t mandate the licenses, hospitals, banks, law firms, et cetera wouldn’t still require them. If you get to choose, would you use a hospital with registered surgeons or not? Obviously you would use the certified surgeons. Don’t you think hospitals would know this and make sure to have certified surgeon or face being put out of business by hospitals that do?

    You say, government intervention artificially protects First World workers wages and keeps them far above those of the rest of the world. Are you talking about the minimum wage? If so, you may think that without it wages would be driven to to the lowest wages possible. I think thats wrong because companies have to constantly compete for good labor. The question should be asked, if you think minimum wages keeps wages up, why doesn’t everyone make minimum wage? The answer is simple, you have skills that demand more money in wages. Minimum wage does accomplish one thing. Pricing the lowest educated, lowest skilled most vulnerable workers out of the market. Not allowing them to get their feet in the door to learn skills.

    I think the argument could be made to remove a lot of government regulation. If you were able to sit down and read them all, you would find a lot of them useless and damaging to the economy. The ones you cited are good ones to use for your argument, I wanted to give an opposing view. Some examples of bad ones could be the medallion regulation to drive a cab in New York. The medallion regulation makes it nearly impossible to own your own taxi, unless you have over a million dollars laying around for the medallion. Shouldn’t I be allowed to just slap a taxi magnet on my car and start driving people around? How about having to go through hours and hours of courses and pay several thousands of dollars to be able to cut hair in this country? There are so many stupid, useless regulations, it’s hard to count them all.

    1. Child labour made families better off but only in the short run. Children missed out on further education and some were stunted by their work, which kept them in low paying jobs for life.

      If everything becomes privatised how can I know which licences are genuine? If the government doesn’t regulate universities how can I tell which ones are good and which are garbage? If someone can buy a degree how can I tell if they earned it or just paid for it?

      I’m actually referring to immigration controls. If there was mass unlimited immigration wages would drop to Third World levels. I discuss the minimum wage here

      Here in Ireland we have recently removed limits on the numbers of taxi drivers. It has lead to a large increase in supply of drivers and plummeting incomes. It has caused a lot of hardship and I wouldn’t call it an ideal situation.

      1. I wasn’t saying child labor is good or wasn’t harmful in the past. I’m just saying that people are better off now. Therefore if we woke up tomorrow without the laws. Parent wouldn’t be ushering their kids into the coal mines.

        As far as knowing good hospitals and universities, there are numerous examples of private companies that give consumers good info about products and services examples would be consumer reports and underwriter labs. Both private companies that rate and review everything. Companies loath a bad review from consumer reports and no company wants to put out a product without the UL stamp. No doubt private companies like this would flourish and give the consumers the info we need to make the right decisions.
        My point about the medallions in New York for taxis is this. Because of government intervention only the wealthy people can afford to own taxi services. The medallion regulations stifles up coming taxi owners because normal people who want to have a taxi business can’t afford millions of dollars to purchase the medallion. Therefore people are forced to work for the wealthy taxi owner over owning it themselves.

        You have a point about immigration controls but as far as America goes, that’s one of the constitutional duties of the federal government. One the American government doesn’t do but should
        I’ll read your minimum wage blog

        1. About companies reviewing companies. My cousin works for a major accounting firm. She told me that the accounts say whatever the business wants them to say. If they didn’t they business wouldn’t rehire the accounting firm. Also as the accounting firm is dependent of the business for the figures it is quite easy for a business to hide malpractice. Think of Enron and its accounting firm.

          1. I’m not talking about accounting firms. Underwriter labs is a private company that reviews and test products. There not for sale. If they were they wouldn’t be in business because the public wouldn’t trust their reviews. Companies desire to have an underwriter lab label on their products because underwriter labs are unbiased, highly regarded by the public, and very thorough.

            If i might add, since you mentioned Enron, it wasn’t the SEC (government regulators) that brought Enron down. It was the free market and whistle blowers in the market place that sunk Enron. Enron conducted their crimes right under the government regulators noses for years. The government regulators were impotent and completely useless in the Enron case.

            There’s a wonderful chapter in Timothy P. Carney’s book “The Big Ripoff” about how useless the government regulators were at stopping Enron

          2. I wasn’t talking about accounting firms. Underwriter lab is an independent company that reviews and test products. Underwriter labs approval isn’t for sale, if it were they wouldn’t be in business. Companies desire the underwriter lab label on their products because underwriter labs is unbiased, highly regarded by the public, and very thorough.

            Since you mentioned Enron, it was the free market and whistle blowers that brought down Enron, not the SEC (government regulators) Enron conducted their crimes right under the government regulators noses for years. The government regulators were impotent and completely useless at stopping Enron. Thankfully the free market brought Enron down.

            There is a great portion of Timothy P. Carney’s book “The Big Ripoff” that shows you just how useless the government regulators were in the Enron case. If you want to make a case for more government regulations, I wouldn’t use Enron as an example. It was a huge government failure to regulate.

            1. True the government regulators were inefficient with Enron and banks in general but just because they’re weren’t good at their job doesn’t mean we should abolish the job. for example there are numerous examples of police officers being corrupted by gangs. That doesn’t mean we should give up trying to stop crime.

              Also part of the failure of regulators was because they subscribe to the ideology that market works best if left to its own devices.

              1. First let me say, I really enjoy reading your economic blogs. While I probably won’t agree with much of what you say, I still enjoy them and I enjoy the debate.

                I reject your analogy of the police officers. Of course you wouldn’t give up on law enforcement because they’re actually conducting their appropriate duties. It isn’t the role of the federal government to involve itself in the economy or personal contracts. Unless there is a contract dispute, then government should do it’s constitutional duty of adjudicating the dispute.

                1. Cheers thanks. I too wouldn’t agree with your viewpoint but its good to have a debate.

                  I think what is and is not the governments role is a matter of opinion. On a side note just because something is or is not in the constitution doesn’t make it right or wrong. The world has changed, we are no longer living in the 18th century. I would see the role of the government to ensure the best life for its population. If the free market cannot do this then the government should intervene. Unregulated markets leads to poverty and mass inequality. The government should counter balance this. Then again this is only my opinion.

  4. Reblogged this on Who Plans Whom? and commented:
    I think this post properly criticizes what Roderick Long calls right-conflationism, the logical mistake of thinking that the ideals of an unhampered market system justify the status quo. For example, a right-conflationist might argue in favor of child labor on the basis that it’s the best (or least worst) option for a desperate family. Meanwhile, the right-conflationist ignores the ways in which government interentions for privileged businesses have put people in such a vulnerable position that they have to accept wage labor as their only reliable source of income in the first place.

    To speaking meaningfully of regulation, we need to distinguish between regulatory interventions1 into the market system for favored businesses and the regulatory restraints on those political privileges2. Conservatives use free-market rhetoric when talking about removing restraints on political privileges. I would think that removing restraints on political privileges that would represent a greater degree of intervention into the market system. The proper thing to do would be to abolish the political privileges that prop up existing economic privileges that give rise to child labor, poor working conditions, and poor product quality standards.

    With that said, the most important reforms to be made aren’t about removing restraints on big businesses, most of whom got that way because of political pull, but by removing the controls on you and me.

    1 Minor point as I understand it: Not all regulations are interventions into the market system, since some regulations (like the prohibition of fraud) would be necessary for the market system to function.

    2 By political privilege, I mean control of the use of another’s property in such a way that is only made possible by the force of law.

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