The Cult of the Free Market


During a discussion of Indiana Harbor Belt Railroad Co. v. American Cyanamid Co. in Prof. Prichard’s Torts class last semester, liberals and conservatives alike expressed concern that, if a chemical company were made strictly liable for spills of a chemical it produced, the price of products would (“artificially”) go up. The chemical had spilled from a rail car in an area surrounded by low income housing. Judge Posner finished his argument against strict liability by saying, “Brutal though it may seem so say it, the inappropriate use to which land is being put in the Blue Island yard and neighborhood may be … residential living.” These indigents had inexplicably decided not to live in Judge Posner’s neighborhood.

This discussion illustrates five tenets of the growing faith in free market ideology: (1) a free market does or could exist; (2) unregulated free markets “work”; (3) our economic system’s legal and social backdrop is “natural,” and any change to the former would be a “market distortion”; (4) a free market is desirable; (5) free market “principles” have normative value and should apply to noneconomic arenas such as education, health care, elections and culture.

The suggestion that the United States has a free market economy does not bear serious scrutiny. Many if not most major industries are controlled by an oligopoly of two to five companies, many of whom own large shares in one another, and most of whom have monopolies in at least some local markets.

Federal and state governments heavily subsidize favored industries, directly and indirectly. For example, the federal government performs 80 percent of the testing done for drugs that the pharmaceutical industry releases. In the drug, high tech, fossil fuel, extractive and other industries, the government “socializes” costs and privatizes profits, creating a welfare state for the rich and requiring market discipline for everyone else.

Things could hardly be otherwise. A government must be large indeed to regulate the corporate behemoths that threaten to make the nation one of monopolies, and will therefore have sufficient largesse to subsidize. Even if we had a campaign finance system where big business could not purchase the executive, legislative and, increasingly, the judiciary branches of government, calculations of the “public interest” and seeking of local advantage would make elimination of government subsidies all but impossible.

Furthermore, neither the free market apologists in government nor the businesses they regulate actually believe in the free market. Ronald Reagan, for example, did more to increase protectionism than the previous six presidents combined, and his corporate welfare programs (particularly of the pentagon variety) are legendary. None of the beneficiaries complained.

Beyond short term self interest, the reluctance of business and government to embrace free market principles arises in large part from their correct belief that unregulated free markets lead to disaster. Laissez-faire capitalism plunged our country into the Great Depression, and it took substantial government intervention in the economy, both through the New Deal programs and the rise of the military industrial complex, to restore the economy. No industrialized nation would tolerate the “structural adjustment” programs that the IMF and World Bank force on third-world countries (causing deep cuts in already small education, health and food budgets), and no industrial power has ever risen to prominence through observance of free market principles. Each of them grew through heavy protectionism, state intervention in the economy and military conquest when necessary.

Whatever one calls our economic system, its legal and social foundations are anything but “natural.” Prof. Horwitz has documented how the common law (and, in large measure, Constitutional law) transformed throughout the nineteenth century to subsidize industrial development, at the public’s expense, and then consolidated these gains by turning to the “neutral” doctrine of formalism. It is no secret that the U.S. economy is built on a foundation of African slave labor, slaughter and dispossession of Native Americans, and oppression of American workers, all funded by the U.S. Treasury, enforced by militias and armies and endorsed by the judiciary.

The limited liability corporation is the end product of a legal system that promotes private profit, whatever the public cost. Corporations are not only expected, but required to pursue profit by all legal means. Corporate agents can evade responsibility for social harm by pointing to the profit requirement, and corporate owners can argue both their legal protections and their remoteness from the decision making process. Thus we have Exxon Mobil equipment digging mass graves for uppity natives in Aceh, and Phillip Morris explaining to the Czech government how tobacco sales will save the government money by killing off people before they grow old and unproductive.

While the fruits of our system are clear enough, liberals and conservatives both think free market “values” should be applied to all areas of our existence. Children attend schools plastered with advertisements, where they will spend an entire day doing activities related to Coca Cola (I swear I’m not making this up). When the environment is fortunate enough to be considered more than an “externality,” it is valued by how much an individual would pay to keep a plot undeveloped, rather than according to its economic and/or noneconomic value to the community. Forty million of our citizens lack health insurance because it is not profitable to insure them.

Judges increasingly base their decisions on the often perverse dictates of “law and economics.” The belief that normative principles should be removed from public policy, and replaced with utility considerations, itself assigns normative value to utility.

It is perhaps time to look up from our golden calf worship and consider whether we believe in rights or morality any longer. We can serve God or Mammon, but we cannot serve both.