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FDL Book Salon Welcomes Bernard Harcourt, The Illusion of Free Markets: Punishment and the Myth of Natural Order

Welcome Bernard Harcourt, and Host George Grantham (known to FDL as “Knut”).

The Illusion of Free Markets: Punishment and the Myth of Natural Order

Host, George Grantham:

It is a pleasure and an honour to introduce Professor Bernard Harcourt to the Lake for a discussion of The Illusion of Free Markets: Punishment and the Myth of the Natural Order. The book advances several claims that go to the heart of libertarian ideology. For FDL readers probably the most important claim holds that belief in the efficacy of unregulated markets naturally to secure maximum economic and social well-being has as its counterpart the assertion that the role of government is properly confined to the spheres of criminal justice, national defense, and the protection of private property. Harcourt considers it no coincidence (Comrade, as we used to say in my cell), that the nation where free-market ideology is most pervasive has the world’s highest rates of penal incarceration by an order of magnitude, and that the rising incarceration rate since the mid-1970s is synchronous with the ascendance of an exceptionally rabid free-market ideology.

There is a deeper set of intellectual issues at play, however. What exactly do we mean by ’free markets’? In what specific sense are they free? What logical or empirical grounds warrant the belief that market outcomes are ’natural’ in the sense of being consequences of the operations of Natural Law? (Those of you who have done a basic philosophy course will recall that the distinction between Natural Law and man-made law is a distinction between laws making it illegal to jay-walk and a law that prevents you from walking on water). The thing about Natural Law is that it is a fixed point in discourse. If market outcomes are natural we are not permitted to place value judgments on them, just as we are not permitted to place a value judgment on the law of gravity. It follows that government interventions which interfere with the workings of the natural law of markets produce logically inferior outcomes, and should therefore be eschewed.

Harcourt argues that this view of the free market as “natural” in the above sense is categorical confusion, that the distinction between ’free’ and ’regulated’ markets is impermissible because all markets are regulated.   [cont’d.]To illustrate this point he contrasts the eighteenth-century Parisian grain and bread markets, which were heavily regulated by the state to ensure ‘fairness’ in trade and a modicum of price stability in times of crisis, and the Chicago Board of Trade options market. Both are in fact deeply regulated, with rules determining who can trade, when they can trade, and what they can trade. Yet history has determined that the Paris market was ‘regulated’ and ‘unnatural,’ while we consider the Chicago options market to bean exemplar of a ‘free’ market. Why is this? How did this happen? The book works through an intellectual history that reaches from the writings of the French Physiocrats through Beccaria, Bentham, and the Chicago School of Law and Economics to show that the development of these categories over two centuries has deep roots.

Rather than summarize the book, I will set out a few quotes to provide context for discussion. I begin with a quote from (Judge) Richard Posner to set out the conventional free-market ideology.

“The major function of criminal law in a capitalist society is to prevent people from bypassing the system of voluntary, compensated exchange — the “market” explicit or implicit–in situations where, because transaction costs are low, the market is a more efficient method of allocating resources than forced exchange. … When transaction costs are low, the market is, virtually by definition, the most efficient method of allocating resources. Attempts to bypass the market will therefore be discouraged by a legal system bent on promoting efficiency.” (cited at p. 138)

Now to Harcourt.

“The punitive society we now live in has been made possibly by–not caused by, but made possible by–this belief that there is a categorical difference between the free market, where intervention is inappropriate, and the penal sphere, where it is necessary and legitimate. This way of thinking makes it easier both to resist government intervention in the marketplace, as well as to embrace the criminalization and punishment of any “disorder.” p. 41

“The point is not more or less regulation; the issue is how regulatory mechanisms and regimes distribute wealth. And the categories ‘free’ and ‘regulated’ are simply not useful when evaluating different forms of economic organization and their distributional consequences.” p.48

‘Let me emphasize, it is not just that the categories [of “free” and “constrained” systems of exchange] are not useful. They have been affirmatively detrimental. The logic of neoliberal penality has made possible our contemporary punishment practices by fuelling the belief that the legitimate and competent space for government intervention is the penal sphere. The logic of neoliberal penality has facilitated our punishment practices by weakening any resistance to governmental initiatives in the penal domain….’ p. 52

And a final response to the position set out by Posner

‘The question in the end is not whether to favor “freedom” or “constraint” — in both cases we are both freely and coercively imposing a legal regime with or without options. The question instead is to determine exactly who benefits and by how much, and most importantly, to assess politically and normatively the justice of those distributional outcomes. It is precisely that normative assessment that is prevented by faith in natural order and market efficiency. So long as the distributional consequences are viewed as the natural outcome of a natural order, they become far more normal and necessary. Their assessment becomes practically futile, or at least beside the point. …It is only when we let go of the illusion of natural order that we truly open the door to a full and robust political assessment of those distributional consequences …” p. 194.

Welcome to the Lake, Professor Harcourt. Let’s dive in.

[As a courtesy to our guests, please keep comments to the book. Please take other conversations to a previous thread. – bev]

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George Grantham is an Associate Professor. His doctorate is from Yale University. He is studying the development of the French economy in the 18th and 19th centuries, particularly the nature of agricultural change and interactions between agricultural and industrial growth.