Initially it was only a policy option, but later laissez-faire became something of a philosophy
It will be readily granted that the operational slogan of the age of globalisation has been the dictum: “Leave it to the Market”. The big push that Ronald Reagan in the United States and Margaret Thatcher in the United Kingdom gave to the market economy has not been forgotten either. What was the personal philosophy of a few leaders in the 1980s became the widely accepted doctrine of those in power in the 1990s ably assisted by the manner in which economists, many of them getting Nobel Prizes, championed the claims of the market as the natural mechanism to evolve and implement economic policies. True, the global meltdown of the closing years of the first decade of the new millennium muted these claims somewhat, but the slogan appears to be: “The market has failed: Long live the Market”.
But when and how did this creed of the Free Market emerge? This is the question that Burgin raises and tries to answer. The book is a revised version of his doctoral dissertation. Some of the professional requirements of the original are still there, such as the efforts to convince the examiners that the candidate is familiar with the literature. The text of 226 pages is followed by 60 pages of end notes, over 1000 of them. Impressive, but unfortunately the text is cluttered with quotations and inverted commas. But to the credit of the author it must be conceded that many of the quotes are from personal memoirs and private correspondence, not readily available in libraries.
‘Reinventing Free Markets since the Depression’, as the subtitle suggests, is the author’s aim. He points out that initially ‘free market’ was not a doctrine or dogma, but a policy option, the opposite of protectionism. But a closely related academic debate, confined to a few select scholars and centres ensued on the question of liberty of individuals as against restrictions and regulations imposed by authorities, especially the state. “Laissez-faire” was becoming something of a philosophy.
But the 1920s and 1930s brought out these discussions and debates into the open arena. Sporadic actions by the state to deal with economic slow-down that soon turned into the Great Depression had started. But actions of the state in the economic sphere were viewed with suspicion because of what had been going on in the Soviet Union and the fascist tendencies emerging in Nazi Germany. On the other hand, Keynes’s General Theory provided enough theoretical rationale for state action when unemployment was becoming acute. And President Roosevelt had launched the New Deal programmes. Once again state action versus laissez faire became a live issue.
It is against this background that Burgin introduces Milton Friedman, for long of the University of Chicago, and later of the Hoover Institution, as the main defender and real hero of the free market ideology in the second half of the 20th century. Chicago University’s Department of Economics was long noted for its philosophical orientation broadly defending individual freedom. The author of the still widely known The Road to Serfdom (a warning against socialism), Friedrich Hayek had moved to the Department from the London School of Economics soon after the Second World War and had almost immediately emerged as something of a celebrity because the Reader’s Digest had carried a condensed version of the book. It caught the attention of politicians, journalists and business leaders and soon was the rallying point of those who had strong convictions about personal liberty. Friedman who joined the Department around that time was drawn close to Hayek and became an active member of the Mont Pelerin Society which Hayek had founded in 1947 to provide an international gathering place for leading philosophers, economists, journalists and philanthropists who supported the market economy and ideology. Early in the 1960s when Hayek virtually retired from public life, Friedman took up the leadership of the Society. His influential Capitalism and Freedom was published in 1962 and, according to Burgin: “If The Road to Serfdom had presented a defensive manifesto for an ideology in a state of retreat and disarray, Capitalism and Freedom provided a platform for a movement that was prepared for an aggressive offence”.
Friedman claimed to be a “zero-government libertarian” but agreed that a society with no government was not a feasible social structure. However, he would do everything possible to roll back the government from the economic sphere leaving it to individuals via the market to achieve what they wanted. His writings attracted the attention of Ronald Reagan who used his services in his campaigns for governorship in California and for the presidency later, and admitted that he could not resist Friedman’s “infectious enthusiasm”. Late in the 1970s Friedman won the Nobel Prize and became the acknowledged champion in the U.S. and beyond of private enterprise and the free market.
However, by concentrating on Friedman, first by ‘inventing’ him and then crowning him, Burgin ignores another stream that currently, but perhaps subtly, lends support to the free market doctrine. It is the ‘scientific’ economic tradition, first started by the French engineer-turned economist Leon Walras who demonstrated the market as a way of simultaneously solving a set of demand and supply equations. This mathematical approach was later picked up by Anglo-American economists who put forward ‘theorems’ of the efficacy of the price system to bring about what were claimed to be ‘institutionally neutral’ efficient allocation of resources leading to an optimality such that no one in an economy could be made better off without making someone else worse off. Attention then turned to this scientific theorem about the welfare potential of the price system. If the free market ideology has once again come to the fore, it is largely because of this technocratic demonstration of its virtue and the ‘scientific’ demonstration of its claims than any philosophy that links it to freedom. Burgin, possibly, is not familiar with this latest avatar of the free market dogma.
THE GREAT PERSUASION — Reinventing Free Market Since the Depression: Angus Burgin; Harvard University Press, Cambridge, Massachusetts.