Larry Beinhart’s Body Politic

The Myth of the Free Market

by Larry Beinhart, February 24, 2010

What is civilization?

Is it doing business? Exxon, Microsoft, Goldman Sachs?

Or is it the rule of law, social order, clean water, sewers and waste disposal, a reliable food supply, literacy, mathematics, science and technology, art, architecture, public spaces and public forums?

Capitalist theology posits that an unrestricted free market will automatically, necessarily, and magically give rise to the best possible outcomes—in all aspects of society. Virtually anything the government does—taxation, regulation, tariffs, and, worst of all, government-run enterprises—hexes the good magic and stops the free market from leading us to social perfection!

A free market is supposed to produce more than wealth. It is supposed to create peaceful relations and moral behavior. Thus, a true believer thinks that government should not even prosecute fraud.

Alan Greenspan thought that fraud shouldn’t be the worry of regulators. If somebody committed fraud in the business community, the rational workings of the market would be that people wouldn’t do business with that person, and therefore they would die on the vine. And so the free market self-corrects and takes care of fraudulent actors.

—Michael Greenberger, director, Division of Trading and Markets, Commodities Futures Trading Commission on PBS’s “Frontline”

The inherent problem with the social sciences, as opposed to the physical sciences, is that it is difficult it is to do experiments, especially real world experiments. But, in 2003, such an experiment—an attempt to create a free-market utopia—was actually undertaken. After the invasion of Iraq, control was given to the Coalition Provisional Authority (CPA), run by Paul Bremer III.

The CPA set out the following conditions:

Taxes were set at a flat rate of 15% (down from 40% on corporate profits).

Foreign investment was to have no restrictions and foreign investors would be allowed to take all their profits out of the country.

Tariffs, customs duties, import taxes, and licensing fees were abolished.

State-run companies would be privatized.