READING: Phil Coggan Review of Jake Soll: “Free Market: The History of an Idea"

2022-10-20 Th

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Free Market — the boundary between state and the economy

A timely and erudite history traces our ambiguous attitudes towards moneymaking and laissez faire trade

Philip Coggan

OCTOBER 20 2022

How much of a role should the state play in a nation’s economy? And how should society view those who seek to profit from selling goods and services? As Jacob Soll shows in his intellectual history, these two questions have puzzled philosophers and economists for more than two millennia. And very much in the news today as an attempt by the British government to reshape the economic role of the state has led to political and financial turmoil.

An ambivalent attitude towards moneymaking can be traced back to Cicero, the great Roman orator, who was an enthusiast for agricultural trade but deeply suspicious of the merchant classes. The same ambivalence can be found in the New Testament where Jesus tells a rich man to “sell whatsoever thou hast and give to the poor”. But in the parable of the talents, a master berates the servant who buries his savings, rather than investing them wisely. The early history of the Church is marked by tension between those who, like the Franciscans, believed in vows of poverty and the steady wealth accumulation of the Church establishment, which benefited from donations from nobles hoping to buy their salvation.

China achieved the most striking growth performance of the past 50 years with heavy state participation

As Soll, a professor of philosophy, history and accounting at the University of Southern California, demonstrates, the concept of a “free market” has also been used in an ambiguous fashion. Ancient empires, from the Romans to the Mongols, recognised that greater trade led to increased taxes, which helped to finance their military machines. But the overriding aim was to service the state; there was nothing libertarian about this philosophy. The Medieval towns and professions of Europe were granted privileges by their rulers, but effectively the monarchs granted them monopolies in return for tax revenues.

The early modern era followed a similar pattern. Trade expanded as European nations extended their reach into the Americas and Asia. But state-owned businesses, such as the Dutch and English East India companies, led the way. Adam Smith may be the patron saint of libertarian economists but he was a great enthusiast for the Navigation Acts, which attempted to enforce an English shipping monopoly.

The term “laissez faire” was coined in the 18th century by Jacques Claude Marie Vincent de Gournay, a French economist. But French governments more regularly followed the approach pioneered by Jean-Baptiste Colbert, Louis XIV’s first minister, who believed the state should support and protect the nation’s industries. Colbert’s advice was enthusiastically adopted by Alexander Hamilton, the Treasury secretary of the infant US republic, and by most European nations as they industrialised in the 19th century. Britain may have followed a “free trade” model in the second half of the 19th century but Victorian governments were happy to intervene elsewhere in the economy, regulating the hours of factory workers and restricting child labour.

Soll’s book is both erudite and incisive and his aim is to emphasise that the libertarian free-market school which emerged in the 20th century, in the writings of Friedrich Hayek and Milton Friedman, was an intellectual aberration. Indeed, despite the attention paid to such campaigners, the author points out that “most advanced industrial economies follow a relatively similar recipe of liberal social democracy with general free-market mechanisms and wide government oversight and participation in the economy”. China achieved the most striking growth performance of the past 50 years with a model that involved heavy state participation in the economy.

In his final chapters, Soll might have benefited from a discussion of where the boundaries of successful state intervention might sit. The Swedish government spent 67 per cent of gross domestic product in 1993; was that too high? And which industries does it make sense to nationalise (utilities, for example) and which sit best within the private sector? Sadly none of these questions are answered in Free Market.

States are bound to play a huge role in national economies over the coming decades; electorates in democracies will demand it and authoritarian governments will insist on it. Finding the right balance between the state and the private sector may be the key to economic success.

Free Market: The History Of An Idea by Jacob Soll, Basic Books $36/£25, 336 pages

Philip Coggan is the author of ‘More: The 10,000-Year Rise of the World Economy’