Market regulation really about consolidating power
The social science of economics became distinct when several French intellectuals and Scottish moral philosopher Adam Smith isolated the field for special study. For a long time thereafter certain assumptions underpinned the discipline, mostly about human behavior. These assumptions arose from the work of English philosopher Thomas Hobbes, who believed that all people, not just market agents, are motivated to act so as to seek power over their environment. The reason Hobbes held this view is that he considered human behavior just a manifestation of the behavior of all material things that populate reality. (For him reality had nothing but material content and was ruled by the laws of classical physics.)
Even the contemporary idea that everyone is a profit or utility maximizer, taught in most introductory economics courses, derives from this basic notion, one that is credible even apart from Hobbes’ use of it because the goal of prosperity is quite normal for most people. Of course, there are now different schools of economics and they each have modified the assumption somewhat, but the basic idea is still prominent, namely that people have an innate drive to seek wealth or some other form of satisfaction. This is something they cannot help — it’s part of the psychology of every human being. The assumption is used to explain what happens in the marketplace — if the market is free, unimpeded by government or criminals, market agents will move ahead, quite predictably, to seek to enrich themselves, and prosperity will result. The role of law is merely to make sure that these market agents do not intrude on each other by theft, robbery and other violations of people’s rights. It is all a bit like a marathon race; everyone will move forward provided they aren’t permitted to trip up each other.
The race in the marketplace, however, is endless. If something stops or interrupts it, the overall economy is going to suffer. So many economists who support free markets dislike government intervention, think it mostly means trouble, rarely helps. But there are a whole lot of other type of economists, too, like those who have been influenced by Karl Marx or John Maynard Keynes. These tend to believe in a decisive role of government in economic affairs. They think the unregulated, free market is cruel, ruthless and destructive of many human values. So they favor regulating market agents even if those agents haven’t harmed anyone — in a sense they believe in something that is often rejected in the legal system of a free country, namely prior restraint. And the support for the authority to regulate comes from democratic theory, although it resembles, also, the older economic tradition of mercantilism (wherein the agents of the king saw themselves as authorized to meddle in the economic lives of their subjects).
In today’s fiasco there is a lot consternation about whether the free or the regulated market produced the mess. But there has not been a free market in place anywhere for many decades, and even before then it has had only a limited scope in the economies of most countries.
Politicians always took it for granted that they may manipulate the market, regiment market agents, both in small localities where they passed blue laws and curfews, and in the larger community where they passed protectionist laws and subsidies for faltering industries.
Many other examples could be listed, but the main point is that no free market has ever existed, not under Lincoln, nor Wilson, nor Hoover, certainly not FDR, or Eisenhower, Reagan or Bush. And it certainly isn’t likely to exist under Barack Obama.
When politicians and bureaucrats intrude on the work of market agents they cause serious distortions, but market agents will most often adjust to these and try to profit from them. They will anticipate such intrusions and bank on them, invest accordingly, at least in a country where striving to prosper is something quite acceptable if not outright admirable. And this leads to even greater distortions.
Many market agents do not bother supporting a fully free market but simply work with the regulated market in which they find themselves. But because this does involve serious distortions on how a genuine free market is supposed to operate, their behavior will often come off as excessively greedy, oblivious to principles of proper market conduct. They tend to go with the flow, for example, by aligning themselves with various political interests.
One thing is certain. The idea that the mess we now face was produced by the free market is preposterous, and those economists and politicians who make that claim are almost certainly engaging in demagoguery. They wish to gain power from the fiasco by discrediting a system that some may support in theory but which is only spottily included in the country’s actual economy, one that requires politicians to stay out of economics just as they must stay out of religion and journalism.
ABOUT THE WRITER
Tibor Machan holds the R.C. Hoiles Chair in Business Ethics & Free Enterprise at Chapman University’s Argyros School of B&E and is a research fellow at the Pacific Research Institute and Hoover Institution (Stanford). He advises Freedom Communications, parent company of this newspaper. His most recent book is "The Morality of Business, A Profession for Human Wealth-Care" (Springer, 2007). E-mail him at TMachan@link.freedom.com.