Sstrange things are afoot in the world of economic policy these days. Liz Truss is, by her own account, Margaret Thatcher’s biggest admirer and a fanatical devotee of economic liberalization. Yet the first act of the new prime minister was to announce the largest government intervention in UK history: a price cap for retail energy markets expected to cost the Treasury more than the entire NHS budget.
It is not an isolated case. The flagship fiscal policy of Truss’s predecessor – “levelling up” – was essentially an admission that free markets cannot be left to their own devices in allocating investment across regions. In the world of money and finance, the era of quantitative easing has effectively nationalized large parts of the world’s major bond markets. Internationally, the US has morphed into the world’s leading protectionist power – while communist China is toasted in Davos as the last great champion of free trade. Forget strange 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 flagrant U-turns and blatant inconsistencies? Free Market – a sprightly new history of economic liberalism by the leading intellectual historian Jacob Soll – argues that if we understood our own economic tradition a little better, the answer would be: not very. That is because, as he explains in a breakneck canter through more than 20 centuries of economic thought, the whole concept of a completely free market is an extremely recent invention. The idea that such an arrangement might single-handedly deliver stability, growth and social justice is even more of a historical blip.
Soll shows instead that what exactly constitutes a liberal economic order, and what it can achieve, has always been heavily contested, even by its strongest advocates. One example is the question of whether freely functioning markets can substitute for a proactive social policy. Conventional histories of economic thought often start with the Anglo-Dutch theorist Bernard Mandeville’s 1714 poem The Fable of the Bees, which pioneered the then counterintuitive argument that, in a market economy, purely self-interested individual behavior leads to a benign social outcome. “Private vices, publick benefits”, as Mandeville’s pithy subtitle put it.
Yet Soll sets out how a much older liberalizing tradition of economic thought holds almost the opposite view: that markets only produce good results when built atop a robust ethical framework. His intellectual history therefore begins not in 18th century England, but nearly two millennia earlier, in late Republican Rome. For Soll, it is On Duties – the great orator Cicero’s attempt to articulate the Stoic moral code he saw as underpinning prosperity – that is the foundational text of market economics.
Then there is the practical question most directly relevant to the stunning policy reversals of the past few years: what kind of government intervention is required to promote healthy economic development? Here too Soll demonstrates that the tradition of free market thought is far more nuanced than typically allowed.
Every PPE graduate in Westminster is familiar with British liberalism’s greatest hits: Adam Smith’s admonition that it is folly to “attempt to direct private people in what manner they ought to employ their capitals”, for example, or James Mill’s verdict that “light taxes and good laws, nothing more is wanted for national and individual prosperity all over the globe.” Soll carefully demonstrates that there has always been another side to liberal economic thought, however – one especially prominent in the countries that found themselves a few steps behind the original industrialisers.
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 special pleading – a policy which only works once a country already has a superior industrial and commercial base. What catch-up economies needed in order to build successful market economies of their own, Colbert argued, was tariff protection, state-led investment, and an activist industrial policy. It is a formula that reverberated down the centuries – from Hamilton’s America and Bismarck’s Germany, through the theorists who dominated Latin American policy in the 1960s, to the architects of the mightiest economic development success the world has ever seen: China since 1979.
All in all, Free Market offers a rich and valuable antidote to narrower and more traditional accounts of the liberal economic tradition. The one warning I would sound is that it is firmly a work of intellectual history, not of economics. That shows up in a reticence to evaluate what has actually happened when the competing schools of liberal economics thought it so expertly catalogs have been put to the test. Some readers may find that frustrating. That our current government’s newfound Colbertism has historical precedents is important to know. But whether new business secretary Jacob Rees-Mogg is going to be Britain’s Deng Xiaoping or its Juan Perón is also a pressing question.
Nevertheless, providing a more nuanced historical understanding of the ideas behind the west’s economic systems is highly worthwhile in its own right. John Maynard Keynes famously wrote that “practical men who believe themselves to be quite exempt from any intellectual influence are usually the slaves of some defunct economist”. Free Market explains which defunct economists our leaders are slaves to – so we can feel a little less confused when they abandon their supposedly eternal truths and announce that There Is An Alternative after all.