we so enthralled by it? For we have not always been captivated by this
philosophy. It was not that long ago, during Franklin Roosevelt’s presidency,
that we abandoned laissez faire in favor of Keynesian interventionism. We did this
not because of ideology but because laissez faire had failed so miserably.
According to free market orthodoxy, Roosevelt’s abandonment of the
ultimate economic truth had to be a mistake. Yet this period, characterized by
aggressive government intervention, was marked by an economic resurgence.
Also contrary to free market orthodoxy, as we have moved back toward a purer
free market, our economic growth and productivity growth have slowed.
Why did we return so eagerly to a philosophy we had rejected because it
had failed? Why have we persisted with it despite its failure?
One reason for our revival of laissez faire stems from our confrontation with
global communism and our attempt to prove, to ourselves as well as others, the
superiority of our economic system. The success of our struggle, the spontaneous
collapse of the U.S.S.R., was widely advertised as proof of the invincibility of the
free market.
Given the invincibility of laissez faire and also the perception that it has been
the economic system of Western countries since the Industrial Revolution, it
was but a short step to argue that free market policies have been the ultimate
source of our progress of the past two centuries. (This makes for good
mythology, but it is not borne out by the facts.)
Independently, the superiority claimed for laissez faire dovetails with
personal interests. The taxes collected by government hit close to home. We can
easily figure out how much more disposable income we would have if we didn’t
have to pay taxes. By contrast, the benefits provided by government are often
indirect and we cannot measure how much they affect us. It is too easy to argue
that we are net losers, we don’t get fair share for our taxes, and we would be
better off without government.
Professional economists have their own incentive to support laissez faire.
Most work for large financial corporations. These corporations employ
economists to increase their profitability. A laissez faire environment, free of
government regulation, is conducive to maximizing profits. So it is to be
expected that most economists should argue for laissez faire.
Finally, the mathematics of pure free markets is simpler than the
mathematics of complex systems of constraints. Reflecting this, academicians
tend to pursue models based on pure laissez faire. Economics departments at top
universities have become pulpits for preachers of laissez faire and breeders of free
market disciples.
There is a stale joke about the University of Chicago, one of the bestknown
disseminators of free market orthodoxy.
Q: How many University of Chicago economists does it take to change a
light bulb?
A: None. They all sit in the dark and wait for an invisible hand to change it.
Whether or not this provides a fair caricature of the Chicago School, it is
only reasonable to consider a rejoinder by the laissez faire economist: “It may be
frustrating to sit in the dark. But if you talk to people who have tried to change
the bulb, there is a consistent pattern. They have caused a short circuit and then
called the electrician. Not only has he charged an arm and a leg, but in the
process of fixing the short circuit he has broken the main water line. The
plumber, in fixing the water line, has left huge holes in the walls. The mason, in
repairing the walls, has shorted the electrical system. Sitting in the dark may be
inconvenient, but trying to fix things only makes them worse. Waiting for the
invisible hand of the free market to fix economic problems may be frustrating,
but government interference is worse.”
Such a response has become an article of faith for many who have forgotten
the Great Depression and the utter impotence of free market policies to
stimulate growth or employment. By the time Franklin D. Roosevelt took office,
real GNP had declined 30%. Industrial production had fallen more than 50%.
Iron and steel output had dropped nearly 80%. Investment had plummeted 95%.
Measured unemployment had risen past 20%. And there was no sign of
imminent stabilization, much less improvement.
Our faith in the beneficence of the pure free market has not been examined,
nor would it stand up to scrutiny. Rather, it has gained popularity as
government has grown, as the arrogance, unresponsiveness and sheer stupidity
of government agencies have spawned frustration and bitterness, and as shrewd
politicians have exploited this alienation. As a result of often justified emotions,
many long to return to the days when government was smaller and private
enterprise was able to be both private and enterprising. Since the 1980s America
has been gripped by nostalgia for small government and “true” free market
economics.
There may be reason to address this nostalgia in historic, as well as
economic, terms. Especially in periods of change and uncertainty it is common
for individuals to romanticize and long to return to the good old days — no
matter how bad they were.
There are still those who yearn for the days of mediaeval chivalry, for the
rustic simplicity and closeness to nature of peasant farmers. No wonder many in
today’s society want to see a return to the good old days of unconstrained
capitalism, with government off the backs of entrepreneurs so free enterprise
can “do its thing.”
The problem with this longing for the past is that it has always been
selective to the point of blindness. Mediaeval chivalry may have been tolerable
for the extreme upper crust. The rest were reduced to lives of animals, lives
blighted by chronic malnutrition and punctured by disasters, both natural
(recurrent famine, the Black Death and a host of epidemics) and man-made
(large and small wars, banditry and civil unrest).
Ignoring history, we romanticize this period just as we idealize the life of
the cowboy, not realistically portrayed in Hollywood movies.
With respect to our vision of the good old days, when free market
enterprise was able to “do its thing,” it is necessary to retain a critical faculty and
avoid romanticizing, lest we be seduced by popular mythology. For one thing,
there were no such days. In our enterprising colonial days government had the
power to fund public projects, regulate prices and wages, set standards, and
grant monopolies. Nor did the American Revolution diminish government
power. It was New York State, not private industry, that underwrote the Erie
Canal. It was Alexander Hamilton who enunciated our first industrial policy.
Jefferson, too, supported the public construction of roads and canals and
government subdivision of new lands for small tenant farmers.
Even the good old days of the Industrial Revolution fall short of the
imaginations of free marketers seeking our lost paradise. For one thing, the
picture of capitalism driven by small entrepreneurs and inventors vigorously
competing against each other on a flat playing field is badly distorted. It is more
fiction than exaggeration. “[E]ighteenth-century manufacturers only launched
their large-scale enterprises with subsidies, interest-free loans, and previously
guaranteed monopolies. They were not really entrepreneurs at all...” (Braudel,
The Wheels of Commerce, p. 193)
In addition, the golden age of capitalism was hardly a boon to most people.
The Industrial Revolution achieved a dramatic acceleration of measurable
economic growth, and the political system, having disenfranchised the lower
and middle classes, posed little threat to the autonomy — and tyranny — of the
free market. Despite such an ideal laissez faire environment, historians note the
terrible poverty as well as the environmental degradation. Great novelists of that
era, Dickens and Zola, took pains to depict the squalor and the breadth and
depth of suffering.
Read More :MYTHOLOGY OF EARLY LAISSEZ FAIRE
