Wall Street Journal Reviews Harcourt's "The Illusion of Free Markets"

Price And Punishment
James Grant
The Wall Street Journal
December 20, 2010

Free enterprise is not so free, and the prison population is immense. On these indisputable facts University of Chicago Prof. Bernard E. Harcourt builds a disputable theory. Says he: The very idea that markets ought to be unregulated—that they can even be free—is in no small way responsible for America's teeming jails.

You rub your eyes. Chicago was the academic home away from home of Friedrich Hayek, the individualist philosopher and economist who sang the praises of the perfectly free market that Mr. Harcourt says not only doesn't exist—no argument there—but couldn't, hasn't and shouldn't.

Untrammeled, free-range capitalism is a myth, the author contends. Just as the 18th-century Parisian grain market was regulated to within an inch of its life, so is the 21st-century Chicago Board of Trade. The first chapter of "The Illusion of Free Markets" is filled to overflowing with the comparative details of the two regulatory arrangements—you never imagined that there was so much to say about Commissioner Emmanuel Nicolas Parisot, the investigator and examiner for the Saint-Antoine district of Paris in 1739, and his confrères. "In all markets," the author concludes, "the state is present. Naturally, it is present when it fixes the price of a commodity such as wheat or bread. But it is also present when it subsidizes the cultivation or production of wheat, when it grants a charter to the Chicago Board of Trade, when it permits an instrument like a futures contract, when it protects the property interests of wheat wholesalers." So there is no free enterprise, Mr. Harcourt insists, only the fable.

These days more than a few capitalists would partly, ruefully agree. Pick up this newspaper on any given day and see for yourself. Thus on Dec. 16 shares in Visa and Mastercard plunged in response to the possible imposition of a new, consumer-friendly structure of debit-card fees. And who was going to do the imposing? Not the credit-card companies themselves but the Federal Reserve, which regulates them. Between the new financial reform legislation, Dodd-Frank, and its predecessor, Sarbanes-Oxley, the average American CEO must be starting to feel as if he or she were working for the government instead of the stockholders.