Free Markets Often Fail: Why?
Updated: 5 days ago
This Blog Post is about making Metaeconomic sense of why the Free Market has failed over and over throughout recorded history. Soll (2022) explores such failures going back to Caesar and the Roman Era in the recent book Free Market: The History of an Idea. Historical, empirical experience with variants on a Free Market suggest success --- achieve economic efficiency, contribute to peace and political economic stability, and better ensure happiness --- is possible only if the inherent excesses of both the Market & Government are tempered, as Dual Interest Theory (DIT) in Metaeconomics (Lynne 2020) makes clear. The notion that an unfettered, Free to Do as You Choose Market composed of only self-interest driven people, as described in Single Interest Theory (SIT) in mainstream (Micro)economics, misses that key point: It claims the Market will temper own-self, so Government is not needed to help and otherwise give context. Soll (2022) provides an abundance of historical evidence that the claim the unfettered Free Market works (and, unfettered Government also fails) has little empirical support.
As history demonstrates, and Metaeconomics makes clear, the missed point is that the ego-based self-interest in both the Market & Government must be tempered by the empathy-based other-interest which is shared with the other. The latter reflects the Community (Adam Smith called it the Moral Sentiments), and is represented in a truly inclusive and representative Government. The empathy based other-interest holds the ethical system --- Adam Smith's Moral Sentiments. Said attention to sharing an other-interest ensures ethics --- the moral dimension, the shared moral sentiment, which arises out of being in empathy-with the other --- works to temper the Free Market into something that works for everyone.
Ethics are key. Ethics arising in many Other Forums (including in Government), as well as in operation of a Free Market, are key to a Humane and Free Market Forum, a point missed in mainstream (Micro)economics (as well as in the Public Choice School of Economics which claims the Government, too, is all about self-interest only). It is a point especially missed in the Libertarian branch of Chicago School Economics, a major player in the mainstream: The latter are in both theory and action “…fiercely opposed to any ethical reflection whatever (McCloskey 2019, p. 93).” A truly humane liberal system (as in a better form of classical liberalism than what has actually evolved since the Enlightenment, one true to Adam Smith) cannot be so opposed.
Skipping ahead to the end of the book, Soll (2022, p. 267) sums it up: “If we are to reclaim free market thought and make it truly relevant again, we must redesign it, not only as a democratically oriented philosophy, but as one which accepts that the state is embedded in the market and vice versa … (going back to Cicero) Wealth was only good … insofar as it could be used to support constitutional government, civil peace, and decorum … (more important) than riches were the principles of living in harmony with nature, cultivating learning and friendship, and doing the hard work of ethical stewardship. Faith in the market alone will not save us, but hewing to these old virtues just might.” Metaeconomics agrees, giving analytical substance to the claims.
The notion of being in harmony with nature reflects thermodynamic reality, which is in the foundation of Metaeconomics. A more inclusive, constitutional Government framed Democracy is the only hope for dealing with both thermodynamic and political reality: Like Winston Churchill said, “democracy is the worst form of government – except for all the others that have been tried.” Reflecting on Free Market: History of an Idea, one can also say that a free market is the worst form of economy – except for all the others that have been tried. And, the bottom line: It is ultimately about the virtues, both old and new --- the virtue ethics --- that give context to, and temper, the Market (and, Government, too: Authoritarianism as being revealed in China, Russia, and emerging in the US and too many other democracies, cannot work). So, to build the best system reflected in a joint Free Market & Free (inclusive Democracy-based) Government one cannot be opposed to ethical reflection. Metaeconomics embraces said reflection, through bringing ethics back into view within the analytical system of economics.
Another quick overview of The New Deal Order and The Neoliberal Order that has taken it down, which has contributed in dramatic ways to the current political economic instability, is represented in https://robertreich.substack.com/p/the-state-of-joe-bidens-union-the . As Reich (former Secretary of Labor) argues, the Biden Administration has tried, and has had several substantive successes (like the Infrastructure Act, and the Chip Act), in bringing back the frame of The New Deal Order.
If you wish to go deeper into the Soll (2022) book, click here, for a journal article length paper of about 30-35 pages (short, as compared to the 327 pages in the Soll book) that summarizes while making Metaeconomic sense (using Lynne 2020) of the details in Free Market: History of an Idea as outlined in Soll (2022). In the detailed summary, each Chapter in Soll (2022) is taken in turn.
Lynne, Gary D. Metaeconomics: Toward Tempering Excessive Greed. Palgrave Advances in Behavioral Economics. New York: Palgrave Macmillan, 2020. See the Blog post about the book at https://www.metaeconomics.info/post/just-in-time-for-xmas-presents
McCloskey, Deirdre Nansen. Why Liberalism Works: How True Liberal Values Produce a Freer, More Equal, Prosperous World for All. New York: Yale University Press, 2019.
Soll, Jacob. Free Market: The History of an Idea. New York: Basic Books, 2022.