Sstrange things are brewing in the world of economic policy these days. Liz Truss is, by her own admission, Margaret Thatcher’s biggest fan and a big fan of economic liberalization. Yet the first act of the new Prime Minister was to announce the biggest government intervention in UK history: a price cap for retail energy markets that is expected to cost the Treasury more than the entire NHS budget.
This is not an isolated case. The flagship fiscal policy of Truss’s predecessor – “race up” – was essentially an admission that free markets cannot be left to their own devices to distribute investment across regions. In the world of currency and finance, the era of quantitative easing has effectively nationalized much of the world’s major bond markets. Internationally, the United States has become the world’s leading protectionist power – while communist China is grilled in Davos as the last great champion of free trade. Forget Stranger Things – it’s more like Stranger Things, and global economic policy seems to have stumbled into the Upside Down.
Yet how surprised should we really be by these glaring reversals and glaring inconsistencies? The Free Market – a light-hearted new history of economic liberalism by renowned intellectual historian Jacob Soll – argues that if we understood our own economic tradition a little better, the answer would be: not really. Indeed, as he explains in a frantic gallop through more than 20 centuries of economic thought, the whole concept of a totally free market is an extremely recent invention. The idea that such an arrangement alone can ensure stability, growth and social justice is even more of a historical error.
Instead, Soll shows that what exactly constitutes a liberal economic order, and what it can achieve, has always been hotly contested, even by its staunchest defenders. An example is the question of whether freely functioning markets can substitute for proactive social policy. Conventional histories of economic thought often begin with Anglo-Dutch theorist Bernard Mandeville’s 1714 poem The Fable of the Bees, which pioneered the then counterintuitive argument that, in a market economy, a purely self-interested individual behavior leads to a benign social outcome. “Private Vices, Public Advantages,” as Mandeville’s pithy subtitle put it.
Yet Soll explains how a much older tradition of liberal economic thought almost supports the opposite view: markets only perform well when they are built on a solid ethical framework. Its intellectual history therefore does not begin in eighteenth-century England, but nearly two millennia earlier, at the end of republican Rome. For Soll, On Duties – the great orator Cicero’s attempt to articulate the Stoic moral code he saw as the foundation of prosperity – is the founding text of the market economy.
Then there is the practical question most directly relevant to the staggering policy reversals of recent years: what kind of government intervention is needed to promote sound economic development? Here too, Soll demonstrates that the tradition of free market thought is much more nuanced than is generally accepted.
Every PPE graduate at Westminster knows the greatest hits of British liberalism: Adam Smith’s warning that it is foolish to “attempt to instruct individuals how they should use their capitals”, for example, or the verdict of James Mill that “light taxes and good laws, nothing more is wanting to national and individual prosperity throughout the world. Soll carefully demonstrates that there has always been another side to liberal economic thought, however – one that is particularly important in countries that found themselves within walking distance of the original industrializers.
His hero here is Louis XIV’s great finance minister, Jean-Baptiste Colbert. Tasked by the Sun King with responding to Britain’s remarkable economic take-off, Colbert dismissed the English doctrine of free trade as a special plea – a policy that only works when a country already has a superior industrial and commercial base. . According to Colbert, what catch-up economies needed to build their own market economies was tariff protection, state-directed investment, and militant industrial policy. It’s a phrase that has echoed down the centuries – from Hamilton’s America and Bismarck’s Germany, to the theoreticians who dominated Latin American politics in the 1960s, to the architects of greatest economic development success the world has ever known: China since 1979.
Overall, the free market offers a rich and valuable antidote to the narrower, more traditional narratives of the liberal economic tradition. The only caveat I would give is that this is decidedly a work of intellectual history, not economics. This manifests itself in a reluctance to assess what really happened when competing schools of liberal economics thought the catalogs had been so skillfully put to the test. Some readers may find this frustrating. It is important to know that the new Colbertism of our current government has historical precedents. But whether the new business secretary Jacob Rees-Mogg will be Britain’s Deng Xiaoping or his Juan Perón is also a pressing question.
Nevertheless, providing a more nuanced historical understanding of the ideas underlying Western economic systems is very helpful in itself. John Maynard Keynes wrote that “practical men who believe themselves to be quite free from intellectual influence are usually the slaves of a dead economist.” The free market explains which dead economists our leaders are slaves to – so we can feel a little less confused when they abandon their supposedly eternal truths and announce that after all, there is an alternative.