There Is No Such Thing As A Free Market

File:American Stock Exchange Building in New York.jpg
New York City Stock Exchange (by LeoTar, via Wikimedia Commons)

In mainstream economics free markets are considered the linchpin of a free and prosperous economic and political system. As the CATO Institute, a think tank "dedicated to the principles of individual liberty, limited government, free markets and peace", explains in his website:

"To survive and to flourish, individuals need to engage in economic activity. The right to property entails the right to exchange property by mutual agreement. Free markets are the economic system of free individuals, and they are necessary to create wealth. Libertarians believe that people will be both freer and more prosperous if government intervention in people’s economic choices is minimized."

However, the concept of "free market" is nothing but a construct created by ideologues more interested in abstract theories than in practical analysis. Indeed, what are "free markets"?

As economist Chang Ha-joon explained:
"[M]arkets – the domain of economics – are political constructs themselves. Markets are political constructs in so far as all property rights and other rights that underpin them have political origins.  
"The political origins of economic rights can be seen in the fact that many of them that are seen as natural today were hotly contested politically in the past – examples include the right to own ideas (not accepted by many before the introduction of intellectual property rights in the 19th century) and the right not to have to work when young (denied to many poor children).  
"When these rights were still politically contested, there were plenty of ‘economic’ arguments as to why honouring them was incompatible with the free market. 
"Given this, when neo-liberals propose de-politicizing the economy, they are presuming that the particular demarcation between economics and politics that they want to draw is the correct one" (Chang Ha-Joon, Bad Samaritans: The Guilty Secrets of Rich Nations and the Threat to Global Prosperity, pp. 175-176).

For example, in 1819 the British Parliament debated a law regulating child labour. Some members of the House of Lords opposed the law, arguing that "labour ought to be free" (ibid., Chapter 8, note 28). 

Almost a hundred years later, in 1916, the United States Congress passed a law regulating child labour under the authority granted to it by the Commerce Clause (Article I, Section 8 of the Constitution), which gives Congress the power to regulate "commerce … among the states." 

The law forbade the delivery or shipment in interstate commerce of any article produced or manufactured by children who worked more than a certain number of hours per day, more than six days a week or worked at night (Eric J. Segall, Supreme Myths: Why the Supreme Court Is Not a Court and Its Justices Are Not Judges, 2012, p. 35).

Congress believed that its law would not be invalidated, as the Supreme Court had already upheld similar laws prohibiting the interstate shipment of lottery tickets, meat that had not been inspected by federal authorities, mislabelled eggs, and women transported for purposes of prostitution. 

However, in Hammer v. Dagenhart the Supreme Court struck down the anti-child labour law on grounds that in previous cases the laws had dealt with goods and products that were themselves dangerous to interstate commerce, whereas products made by child labour were "of themselves harmless." 

In his dissenting opinion Justice Oliver Wendell Holmes pointed out that Congress did have the authority to regulate interstate shipment of products that are bought and sold without any limitation except for other constitutional limitations, such as those related to the First Amendment (ibid., p. 36). 

"The notion that prohibition is any less prohibition when applied to things now thought evil I do not understand," Holmes wrote. "But if there is any matter upon which civilized countries have agreed ... it is the evil of premature and excessive child labor ... The national welfare, as understood by Congress, may require a different attitude within its sphere from that of some self-seeking State. It seems to me entirely constitutional for Congress to enforce its understanding by all the means at its command."

Between 1900 and 1935 the Court overturned more than 200 state and federal laws regulating prices, wages, and working hours, as well as labour laws protecting trade unions and children (ibid., p. 38).

Why was child labour unregulated in the past, while today we consider it obvious that it should be? Obviously, what was considered "free market" one or two centuries ago is not that "free" nowadays.

Another example of why "free markets" don't exist are narcotics. According to free market principles, humans are rational beings who can make decisions for themselves and who will achieve the best possible outcome as long as they are free to exchange goods and work without state interference. Why, then, do humans consume narcotics and why do we need laws to prohibit them? 

And how about copyright and patent laws? Why does the government impose such forms of protection of intellectual property? 

Free market ideologues might argue that these are extreme examples, or just exceptions. This is wrong. These cases show that markets are artificial entities, created and regulated by humans. 

Corporations like copyright and patent laws, because they protect them. But they hate labour protection laws, because they are harmed by them. When the state endorses one side and punishes another by selecting one kind of protection for a group and denying it to others, it is making a political decision. And we should stop pretending that those are not political and moral decisions.  

The concept of a "free market", an entity that exists outside of human regulation, is not only a lie, but it is a tool of interest groups to present their self-interest as "objective" and unquestionable, while denying other groups' demand for rights and protections. 

The first step towards a better society and a better economic policy, is to understand that markets are political. Therefore, the question of how the market should be regulated must be based on the notion that we should strive to find, through experimentation and gathering of data, the best possible rules for the best possible outcomes and for the benefit of the largest number of citizens.