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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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Any national calculation shows a sad storyWHY WE FALL FOR LAISSEZ FAIRE MYTHOLOGY OF EARLY LAISSEZ FAIRE If laissez faire has performed so poorly and constitutes such a threat, why are 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 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 Why We Fall for Laissez Faire 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). Any national calculation shows a sad story. France, by any standards a privileged country, is reckoned to have experienced 10 general famines during the tenth century; 26 in the eleventh, 2 in the twelfth, 4 in the fourteenth, 7 in the fifteenth, 13 in the sixteenth, 11 in the seventeenth and 16 in the eighteenth. While one cannot guarantee the accuracy of this eighteenth-century calculation, the only risk it runs is of over-optimism, because it omits the hundreds and hundreds of local famines... The peasants lived in a state of dependence on merchants, towns and nobles, and had scarcely any reserves of their own. They had no solution in case of famine except to turn to the town where they crowded together, begging in the streets and often dying in public squares, as in Venice and Amiens in the sixteenth century.” (Fernand Braudel, The Structures of Everyday Life, p. 74-5.) 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. Of course, there were some who saw only good in the new economic paradigm, but their views seem more suffused with the radiant glow of fantasy than connected to the often grim details of reality. Take, for example...Dr. Ure, who immortalized himself by an account of the “lively elves” who found so much sport in being useful in factories, those “magnificent edifices” that were so much more ingenious and profitable than the boasted monuments of ancient despotism. The elves had to keep lively, since they were commonly beaten when they slowed up because of fatigue. They worked harder in mines, though nobody could pretend that these were magnificent establishments; here boys and girls were chained and harnessed to coal trucks like horses, except that they were not indulged with horse collars. On their day of rest they might build up their character in Sunday schools by contributing a penny a week toward their funerals, arranged by burial clubs.” (Muller, Freedom in the Modern World, p. 54.) Until the mid-nineteenth century and government action to restrain the unbridled free market, most were no better off than they had been 400 years earlier. The claim: “The affluence of the rich supposes the indigence of the many,” is due not to Karl Marx, but to Adam Smith (The Theory of Moral Sentiments). It was the extent and depth of the misery generated by unbridled laissez faire that inspired the more radical social and economic proposals of the nineteenth century. This is sketched in Sir Karl Popper’s critical discussion of Marx: ...his views on liberalism and democracy, more particularly, which he considered to be nothing but veils for the dictatorship of the bourgeoisie, furnished an interpretation of his time which appeared to fit only too well, corroborated as it was by sad experience… this shameless exploitation was cynically defended by hypocritical apologists who appealed to the principle of human freedom, to the right of man to determine his own fate, and to enter freely into any contract he considers favorable to his interests. Using the slogan “equal and free competition for all”, the unrestrained capitalism of this period resisted successfully all labour legislation until the year 1833, and its practical execution for many years more. The consequence was a life of desolation and misery which can hardly be imagined in our day. Especially the exploitation of women and children led to incredible suffering... Such were the conditions of the working class even in 1863, when Marx was writing Capital; his burning protest against these crimes, which were then tolerated, and sometimes even defended, not only by professional economists but also by churchmen... (The Open Society and Its Enemies, vol. 2, p. 121-2.) Considering this picture of the free market doing its own thing, unconstrained by government interference, is this really the environment to which we long to return? It is not that the Industrial Revolution was an unmitigated disaster. It did not invent grinding poverty, child labor, or environmental degradation, scourges that had been known for centuries. At the very least, it — and related revolutions in agriculture and science — provided the foundation for a dramatic improvement in material well-being that has benefited much of the world. It may have been necessary for this improvement. But the notion that laissez faire was the uniquely beneficial source of this improvement is fantasy. We forget that the present economic status of the vast majority was attained only with the help of government interference specifically designed to restrain free enterprise. Legislation limiting or ending child labor, enforcing minimum standards in the workplace, and setting up a primitive social safety net ameliorated the worst excesses of the industrial revolution. Programs geared to broad sectors of society enabled the development of a middle class and benefited even the rich. While the most visible of these were public education, public health, and social security, other programs, vigorously opposed by free market forces, are now taken for granted as the most basic services. It was the gradual creation of an effective bureaucracy which brought an end to all this filth and disease, and the public servants did so against the desires of the mass of the middle and upper classes. The free market opposed sanitation. The rich opposed it. The civilized opposed it. Most of the educated opposed it. That is why it took a century to finish what could have been done in ten years. Put in contemporary terms, the market economy angrily and persis tently opposed clean public water, sanitation, garbage collection and improved public health because they appeared to be unprofitable enterprises which, in addition, put limits on the individual’s freedom. These are simple historic truths which have been forgotten today… (Saul, Voltaire’s Bastards, p. 239.) Our mythology that our economic progress of the past two centuries is due to laissez faire is just that — mythology. From the beginning, government tilted the playing field in favor of a chosen few. Decent standards of living associated with today’s industrial societies were achieved only as a result of government interference with the free market. Until that interference, most were no better off than they had been in the fifteenth century. Yet the mythology remains intact — to the extent that we fail to recognize it as mythology. How has this mythology survived? |
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