Host, George Grantham:

It is a pleasure and an honour to introduce Professor Bernard Harcourt to the Lake for a discussion of The Illusion of Free Markets: Punishment and the Myth of the Natural Order. The book advances several claims that go to the heart of libertarian ideology. For FDL readers probably the most important claim holds that belief in the efficacy of unregulated markets naturally to secure maximum economic and social well-being has as its counterpart the assertion that the role of government is properly confined to the spheres of criminal justice, national defense, and the protection of private property. Harcourt considers it no coincidence (Comrade, as we used to say in my cell), that the nation where free-market ideology is most pervasive has the world’s highest rates of penal incarceration by an order of magnitude, and that the rising incarceration rate since the mid-1970s is synchronous with the ascendance of an exceptionally rabid free-market ideology.

There is a deeper set of intellectual issues at play, however. What exactly do we mean by ’free markets’? In what specific sense are they free? What logical or empirical grounds warrant the belief that market outcomes are ’natural’ in the sense of being consequences of the operations of Natural Law? (Those of you who have done a basic philosophy course will recall that the distinction between Natural Law and man-made law is a distinction between laws making it illegal to jay-walk and a law that prevents you from walking on water). The thing about Natural Law is that it is a fixed point in discourse. If market outcomes are natural we are not permitted to place value judgments on them, just as we are not permitted to place a value judgment on the law of gravity. It follows that government interventions which interfere with the workings of the natural law of markets produce logically inferior outcomes, and should therefore be eschewed.

Harcourt argues that this view of the free market as “natural” in the above sense is categorical confusion, that the distinction between ’free’ and ’regulated’ markets is impermissible because all markets are regulated. To illustrate this point he contrasts the eighteenth-century Parisian grain and bread markets, which were heavily regulated by the state to ensure ‘fairness’ in trade and a modicum of price stability in times of crisis, and the Chicago Board of Trade options market. Both are in fact deeply regulated, with rules determining who can trade, when they can trade, and what they can trade. Yet history has determined that the Paris market was ‘regulated’ and ‘unnatural,’ while we consider the Chicago options market to bean exemplar of a ‘free’ market. Why is this? How did this happen? The book works through an intellectual history that reaches from the writings of the French Physiocrats through Beccaria, Bentham, and the Chicago School of Law and Economics to show that the development of these categories over two centuries has deep roots.