Markets and freedom

One of the great political changes of my adult lifetime has been the right’s abandonment of free market economics, as illustrated by the government imposing trade frictions within the UK and putting up the tax burden to what the OBR says will be “its highest level since Roy Jenkins was Chancellor in the late 1960s.” Two books I’ve read recently pose a question: might this shift be due in part to an awareness that markets are no longer the foundation of freedom we once thought they were?

To see my point, let’s start with the classical liberals that so influenced Thatcher. They thought free markets were essential for a free society. As Friedman wrote:

Historical evidence speaks with a single voice on the relation between political freedom and a free market. I know of no example in time or place of a society that has been marked by a large measure of political freedom, and that has not also used something comparable to a free market to organize the bulk of economic activity. (Capitalism and Freedom (pdf), p9)

Or, as Hayek said in The Road to Serfdom, “a directed economy must be run on more or less dictatorial lines.”

And a market economy is itself liberating. As Friedman put it:

So long as effective freedom of exchange is maintained, the central feature of the market organization of economic activity is that it prevents one person from interfering with another in respect of most of his activities. The consumer is protected from coercion by the seller because of the presence of other sellers with whom he can deal. The seller is protected from coercion by the consumer because of other consumers to whom he can sell. The employee is protected from coercion by the employer because of other employers for whom he can work, and so on*. (Capitalism and Freedom, p14)

Two recent books, however, challenge this perspective. Here’s Martin Hagglund:

To lead a free life it is not sufficient that we are exempt from direct coercion and allowed to make choices. To lead a free life we must be able to recognise ourselves in what we do, to see our practical activities as expressions of our own commitments. This requires that we are able to engage not only in choices but also in fundamental decisions…This is why capitalism is an inherently alienating social institution. To lead our lives for the sake of profit is self-contradictory and alienating, since the purpose of profit treats our lives as means rather than as ends in themselves (This Life, p299-300).

There are (at least) two distinct problems here. One is that free markets are a cover, behind which lie exploitation and oppression. The labour market, Marx wrote, is “a very Eden of the innate rights of man” wherein “both buyer and seller of a commodity, say of labour-power, are constrained only by their own free will.”  Once the transaction has occurred, though, things change:

He, who before was the money-owner, now strides in front as capitalist; the possessor of labour-power follows as his labourer. The one with an air of importance, smirking, intent on business; the other, timid and holding back, like one who is bringing his own hide to market and has nothing to expect but — a hiding.

Secondly, markets themselves are a form of what William Clare Roberts calls “impersonal domination”:

Because they are dependent for their lives upon the market, as slaves are dependent on their masters, producers of wares for sale must keep a ‘weather eye’ out for changing market conditions, which are, at bottom, nothing but the will and caprices of their customers and competitors. (Marx’s Inferno, p57)

This dependence afflicts capitalists as well as workers. As Marx famously wrote:

Free competition brings out the inherent laws of capitalist production, in the shape of external coercive laws having power over every individual capitalist.

You might think all this is a mere philosophical debate. Far from it. Four big developments since the 80s vindicate Marx, Hagglund and Roberts against Friedman and Hayek.

One was the financial crisis. This showed that mortgage derivatives –products intended to reduce risk – actually increased systemic risk (pdf) and made the financial system as a whole less manageable. Such products were, in the title of Richard Bookstaber’s book, a demon of our own design.

That phrase echoes perfectly Marx’s idea of alienation, of how man-made structures come to exercise impersonal domination over us:

The object which labour produces – labour’s product – confronts it as something alien, as a power independent of the producer…It means that the life which he has conferred on the object confronts him as something hostile and alien.

Secondly, casualization in academia, greater stress among teachers and doctors, the rise of bullshit jobs, falling relative pay in journalism and deadly working hours in investment banking are all facets of a single phenomenon – the degradation of erstwhile good jobs. People in jobs that were once “middle class” experience less freedom at work. Yes, the dark satanic mills have shut and terrible working conditions diminished, but more people now experience labour markets as a front for domination and alienation. And they vote accordingly.

Thirdly, there’s the housing market. In the 80s we young people regarded this as a source of liberation. After just a few years work, we could buy our own place and so free ourselves from the uncertainty caused by dependence upon the rental market. Today’s young people have much less chance. For them, this important market confronts them as an alien force, thwarting their hopes and subjecting them to domination by landlords.

Fourthly, there are globalization and deindustrialization. Many in the US and UK experienced these as causes of and decline, as processes of uncontrolled domination rather than liberation. The vote for Brexit was in large part an expression of frustration by the “left behind.”

That slogan “take back control” tapped in brilliantly to those feelings. To a Hayekian or Friedmanite, the slogan should seem weird: haven’t 40 years of marketization given people more control of their lives? From the perspective that markets aren’t liberating, however, its appeal is clear.

Of course, the slogan took a reasonable feeling and diverted it towards a pointless end. The challenge for our time is to give it more useful expression. How can we increase economic democracy and people’s real control over their economic lives without damaging too much the genuine good that markets do as technologies of allocation? Hardly anybody in politics, however, is interested in this.

* Note that Friedman’s argument only applies to imperfect markets. In the textbook case of perfect competition all sellers and all employers are the same.

Comments

[Boyo]

“ One of the great political changes of my adult lifetime has been the right’s abandonment of free market economics”.

Which elite?

Within the UK there was a civil war between 2 elites; the financier and rentier classes.

It’s maybe a mark of our mature democracy that we didn’t descend into civil war, which can happens when elites fall out.

[rsm]

Isn't the Lockean Proviso necessary for free markets? Shouldn't I always have the option to self-provision on common land? Is basic income the least we can do to compensate us for the enclosure that has taken away our natural right to survive outside of markets?

《This showed that mortgage derivatives –products intended to reduce risk – actually increased systemic risk (pdf) and made the financial system as a whole less manageable》

Are MBS and other derivatives still in the hundreds of trillions of dollars, because we figured out that the Fed can insure any risk?

[Blissex]

«Within the UK there was a civil war between 2 elites; the financier and rentier classes.»

Actually between the allied finance and property rentiers on one side, and the productive business rentiers on the other.

As it turned out that productive businesses were breeding grounds for trade union infections, the finance and property rentiers won as large parts of productive businesses were destroyed to extirpate the trade unions that had infected them, fatally weakening the business rentier interests.

[Gerry Mulligan]

How to organise our economy to the democratic advantage of the people while keeping the positive attributes of “free market” dynamics is the main preoccupation of many of us Labour centralists ?

[Jim]

Maybe it is possible that 'the market' is now much flatter and more open to everybody in the world. Skilled jewellers and mathematicians and financiers can be found anywhere. The only barrier now is how well they are coupled to the global markets. I think one effect of this is to reduce the market price for work in the UK. Worse, high property prices drive away those who might provide work and force those who would live here into uncongenial work. But property prices must be kept high to attract property investors and to keep incumbent mortgagees on side. A cleft stick.

Then there is very little in the world that is new. Research is useful but unlikely to result in astounding breakthroughs, just lots of incremental improvements. No Starships or Time Machines, just rich men's toys and satellite launchers. Improvements that more or less anyone can do anywhere. Further, we face intractable problems with transport and energy. I doubt anyone believes in Johnson's predictions of Net Zero. The name of the game is to lie and obfuscate for the next decade and seek ways to dump the cost on other people before they dump the cost on us. Then more of the same until something (nasty?) turns up.

Flatter markets amd less freedom.

[ltr]

How can we increase economic democracy and people’s real control over their economic lives without damaging too much the genuine good that markets do as technologies of allocation? Hardly anybody in politics, however, is interested in this.

[ Brilliant essay, brilliantly summed. ]

[Blissex]

«But property prices must be kept high to attract property investors and to keep incumbent mortgagees on side.»

I suspect that if there is any substance to the "high wage" talk, it is that a wage boost is needed to enable higher rents and house prices, in effect redistributing from business profits via higher wages to property rents,

Our blogger's talk of the myth of "free markets" a fantasy, many markets are strongly rigged, for example via the BoE credit gusher and control of interest rates.

[ltr]

«But property prices must be kept high to attract property investors and to keep incumbent mortgagees on side.»

Chinese policy is now being expressly designed to limit property prices and attract buyer-occupiers rather than speculators:

https://www.globaltimes.cn/page/202110/1237255.shtml

October 25, 2021

Homeowners sell off extra units following China’s property tax pilot plan
Pilot property tax plan to reduce multiple dwelling ownership: experts
By Qi Xijia and Liu Yang

[Blissex]

«to organise our economy to the democratic advantage of the people while keeping the positive attributes of “free market” dynamics is the main preoccupation of many of us Labour centralists ?»

That "Labour centralists" if one takes literally and generously the "main preoccupation" means "corbynists".

If however "Labour centralists" means "New Labour centrists", the "main preoccupation" is to keep housing cost inflation high and labor wages and pensions low.

[rsm]

《 the "main preoccupation" is to keep housing cost inflation high and labor wages and pensions low.》

Are markets rising higher than housing costs, so investors can afford them?

《the allied finance and property rentiers on one side, and the productive business rentiers on the other.》

Isn't this the big problem for Blissex: who determines what is productive rent and what is socially unuseful rent? Xi Jinping, maybe? Is one man's "socially useful" livestock rent my poison? Do I get a say, or does Blissex get to silence me?

@ltr: do Chinese homes come lockdown-ready these days, so Xi Jinping can lock ppl in at any time, for any reason? (CNN headline: "Fresh lockdowns in China as local Covid-19 infections spread to 11 provinces")

[Blissex]

«the right’s abandonment of free market economics»

Sometimes our blogger's wykehamism seems a bit comical to me, as in the laughable statement that the "the right" (whatever that is) ever really cared about "free market economics" except in the case where their "sponsors" benefited from "free markets".

«as illustrated by the government imposing trade frictions within the UK and putting up the tax burden»

Oh really? Our blogger has mentioned them previously very occasionally, but here 40 years of heavy handed interference in "the markets" to pump up asset prices and the profits of the finance and property sectors, including several hundred billions to refill the bonus pools of the City, seem rather more relevant to me. That "trade frictions within the UK" is a rather small thing, and so are the tax increases on workers, compared to the huge amounts spent on interfering in the property and finance markets,

«an awareness that markets are no longer the foundation of freedom we once thought they were?»

HAHAHAHAHAHAHAHA! Good one! I remember a buy with a big beard writing:

https://www.marxists.org/archive/marx/works/1867-c1/ch06.htm
“The one with an air of importance, smirking, intent on business; the other, timid and holding back, like one who is bringing his own hide to market and has nothing to expect but — a hiding.”

Perhaps markets give *some* general freedoms if the market power of sellers and buyers is equal and small, when they are all "price takers" as in the axioms of neoclassical Economics, but that is rather the exception. In general they give freedom only to the those with market power, for example owners in the UK property markets, or employers in the UK labour markets.

Taking as given that there was a prelapsarian golden age in which nobody had greater market power so that markets were the “foundation of freedom” is a very good joke.

Describing the markets as a “foundation of freedom” is a classic claim by victorian Liberals, who compared them to the many special case restrictions of tory feudalism, so that relatively speaking they were, however unbalanced in favour of big business, somewhat more free. But to make that claim in 2021, rather than in 1821, reminds me of what a "whig" like Peter Mandelson said in 2002:

“in the urgent need to remove rigidities and incorporate flexibility in capital, product and labour markets, we are all Thatcherites now”

[aragon]

And Thatcherism ripped up the Social Contract and accommodating Capital is destroying Social Democracy.

Finance is destroying the West as there greed pursues short-term paper profits.

Corrupting the law, business/accounting and destroying peoples lives outside the financial elite, whom deploy limitless resources until Sterling is totally debased.

The EU labelled the UK and US as centres of money laundering but that will only support the City of London.

It even has a title: "Singapore on the Thames".

[aragon]

Exhibit:

https://www.theguardian.com/politics/2021/oct/26/uk-shares-property-capital-gains-tax

""The chancellor doesn’t just decide how much money to raise, he also has to choose how to do it fairly. So far he has raised taxes on those who work to earn a living, in order to protect those who live off income from wealth," Advani said."

[...]

"The former Conservative chancellor Nigel Lawson introduced parity between capital gains and income taxes in 1988, but this was unpicked a decade later by his Labour successor, Gordon Brown."

So much for New Labour!

[ltr]

"Singapore on the Thames"

Singapore and Ireland have used competitive tax policy to build wealthier and more equitable societies than the UK. Singapore in particular has a remarkably well balanced economy and sharply limits real estates price increases. Ireland too is economically diversifying.

[ltr]

Truly distressing:

October 28, 2021

Coronavirus

United Kingdom

Cases ( 8,936,155)
Deaths ( 140,206)

Deaths per million ( 2,051)

China

Cases ( 96,938)
Deaths ( 4,636)

Deaths per million ( 3)