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Friday, November 17, 2023

Harvard Professor Calls Out FEE in a New Book about Capitalism. Here’s What She Gets Wrong

Yet again, the critics of free-market capitalism swing and miss.

Image Credit: World Economic Forum - Flickr | CC BY-NC-SA 2.0

In a new book, Harvard professor Naomi Oreskes and historian Erik M. Conway call out FEE by name as one of the villainous organizations promoting radical free-market ideology. The book is called The Big Myth, and it was published by Bloomsbury Publishing on February 21, 2023.

The “myth” the authors set out to expose is what they call “market fundamentalism,” the idea that markets are almost magical and work better than governments for just about everything. In short, they are taking direct aim at libertarianism, and in particular the radical laissez-faire economic policy it counsels.

In an excerpt of the book published in The Harvard Gazette, the authors discuss the history of the “market fundamentalist” movement and the role that various organizations—including FEE—played in bringing these ideas to the masses.

But they are far from even-handed in their account.

The excerpt is riddled with half-truths and uncharitable interpretations that reveal a dramatic bias against free markets. The authors paint “market fundamentalism” as the brainchild of self-interested businessmen, a crafty scheme that has successfully taken over mainstream politics and which is responsible for many of the major problems we are facing today.

This is quite far from the truth.

Regrettably, many of the mischaracterizations and misunderstandings in this excerpt will have to go unaddressed in the present article for the sake of length. Suffice it to say, this excerpt (and no doubt the book) presents a very one-sided picture. The curious reader is strongly encouraged to learn about the freedom philosophy from those who actually hold to it, such as FEE, and not just from our opponents, who have a vested interest in presenting the straw man version of our arguments. (A great introduction is Henry Hazlitt’s Economics in One Lesson, available for free here).

With that caveat out of the way, let’s look at some of the things the authors get wrong.

Setting the Record Straight on the Past Half-Century

Before getting into the excerpt, there’s a line in the book’s description that deserves scrutiny.

By the 1970s, this propaganda was succeeding. Free market ideology would define the next half-century across Republican and Democratic administrations, giving us a housing crisis, the opioid scourge, climate destruction, and a baleful response to the Covid-19 pandemic.

We can debate the causes of the housing crisis and such, but the idea that free-market ideology “defined the next half-century across Republican and Democratic administrations” is about as contrary to fact as anything that has ever been put in print. Sure, politicians pay lip service to free markets all the time. But if you look at their actions, it is clear that the role of government in the economy has for the most part expanded in the last 50 years, not contracted.

A half-century truly defined by free-market thinking would have seen the complete gutting of everything from doctor’s licenses to zoning laws to social security to tariffs. Yet clearly, these and countless other interventionist schemes are alive and well, and enthusiastically championed by both parties.

A False Idea?

The excerpt itself lays out the history of the free-market movement leading up to the 1970s. Here’s how it begins.

This is the story of how American business manufactured a myth that has, for decades and to our detriment, held us in its grip. It is the true history of a false idea: the idea of “the magic of the marketplace.”

Some people call it market absolutism or market essentialism. In the 1990s, George Soros popularized the name we find most apt: market fundamentalism. It’s a quasi-religious belief that the best way to address our needs — whether economic or otherwise — is to let markets do their thing, and not rely on government…Government, according to the myth, cannot improve the functioning of markets; it can only interfere. Governments therefore need to stay out of the way, lest they ‘distort’ the market and prevent it from doing its “magic.”

The language about a “quasi-religious” “fundamentalist” belief in a “magical” market will be addressed later in this piece. That aside, the authors get one thing right: we absolutely believe that government interference in the economy almost always makes things worse. But why should it be taken for granted that this is false? This is a genuine debate within economic theory, yet it’s being portrayed as if it’s physicists arguing with flat-earthers.

The authors go on to identify three main culprits behind the “myth”: organizations, intellectuals, and money.

Culprit 1: Organizations

The section on influential organizations is where they bring up FEE.

Businessmen helped create America’s first libertarian think tank, the Foundation for Economic Education (FEE), established in 1946 by Los Angeles Chamber of Commerce manager Leonard Read to peddle pro-market, antigovernment ideology. They also funded the Hayek-aligned Mont Pelerin Society, a cadre of mostly European economists, cultural commentators, and political theorists promoting a renewed commitment to free-market principles under the aegis of what became known as neoliberalism.

The use of the word neoliberalism here is missing some important nuance. As Jeffery Tucker explains, the term was popularized by Alexander Rüstow at the 1938 Walter Lippmann Colloquium in Paris, and it was intended to apply to Lippmann’s vision as described in his famous 1937 book The Good Society. Notably, that vision was a departure from laissez-faire liberalism, not a renewed commitment to it.

Lippmann “believed that ‘liberalism must seek to change laws and greatly to modify property and contract’ in a way that rejects laissez faire, a term and a system he completely counterposes to his own,” Tucker notes. “Neoliberalism includes public provision of education, health care, environmental protection, financial regulation, fiscal policy management, monetary control, and more.” While many at the first Mont Pelerin Society were hardcore laissez-faire liberals (including Leonard Read), the “neoliberals” at the meeting favored such compromises. Ironically, the authors of The Big Myth probably have more in common with such “neoliberals” than they realize.

The term has evolved in the decades since, however, and it has now been applied to so many things that it’s no wonder people have forgotten its earlier meaning. Phil Magness thus comments,

Neoliberalism is essentially an intentionally imprecise stand-in term for free market economics, for economic sciences in general, for conservatism, for libertarians and anarchists, for authoritarianism and militarism, for advocates of the practice of commodification, for center-left or market-oriented progressivism, for globalism and welfare state social democracies, for being in favor of or against increased immigration, for favoring trade and globalization or opposing the same, or for really any set of political beliefs that happen to be disliked by the person(s) using the term.

Culprit 2: Intellectuals

In addition to highlighting organizations like FEE and the Mont Pelerin Society, the authors also mention key economists who promoted free-market ideas.

Another strategy was to recruit sympathetic intellectuals to help give the myth credibility. For this, American businessmen relied on imports: the economists Ludwig von Mises and Friedrich von Hayek, leaders of the Austrian school of economics. In the 1940s, a group linked to NAM [the National Association of Manufacturers] paid for Mises and Hayek to come to America, arranged for them to be hired at New York University and the University of Chicago, respectively, and worked assiduously to promote the economists’ ideas, both in business circles and among the American people generally.

To hear the authors of The Big Myth tell the story, proponents of market fundamentalism were a powerful interest group that had deep ties to elite institutions and whose ideas had considerable sway in the economics profession. The reality is quite the opposite.

First of all, Mises was not paid to come to America. He was fleeing the Nazis, and only got his position at NYU after arriving.

As for Mises’ implied sway on economic opinion, Lew Rockwell sets the record straight. Consider his account of the same story above, specifically of Mises coming to NYU.

In 1940 Hazlitt helped—with the late Lawrence Fertig—to raise funds for a job for Mises at New York University. At a time when every second-rate European Marxist and historicist was getting a professorship at Harvard or Princeton, Mises was blackballed by U.S. universities as “dogmatic,” “intransigent,” and “right-wing.” Eventually Hazlitt and Fertig were able to persuade NYU—where Fertig was a trustee—to allow Mises to teach as an unpaid visiting professor.

“Hayek’s position at the University of Chicago was similarly subsidized out of private funds,” notes Jörg Guido Hülsmann in his biography of Mises.

As we can see, the idea that Mises and Hayek had a marked impact on economic thinking in elite institutions is simply erroneous. The universities wouldn’t even give them a salary, and it was hard enough just to get permission to teach on campus. A handful of private donors were the only ones making it happen.

The fact that Rockwell mentions Harvard by name is particularly amusing, because there’s a parallel between what happened in the 1940s and the present discussion. The excerpt of The Big Myth currently under consideration was published by a Harvard professor in The Harvard Gazette, after all, and basically amounts to dismissing free marketers as “dogmatic, intransigent, and right-wing.” Some things never change, I suppose.

But there’s an irony here, too. The very fact that a derisive anti-free market manifesto is being promoted by Harvard in 2023 is perhaps the greatest evidence that mainstream institutions have not been captured by market fundamentalism. The very existence of this book testifies against its own thesis.

Culprit 3: Money

In addition to organizations and intellectuals, the authors also point to money as a factor behind the rise of market fundamentalism. They argue the marketplace of ideas was essentially rigged in favor of this view by the business interests promoting the ideology.

Well into the 1940s, NAM produced books, pamphlets, radio programs, lecture series, and documentary and feature films (and later television programs) designed to influence what newspapers had to say about the economy and American life, what teachers taught in the classroom, and, above all, what the American people believed…

Few of Friedman’s readers knew that the book’s success was not the product of open competition in the marketplace of ideas: “Capitalism and Freedom” had been financed and nurtured by American businessmen, and it was the most public part of a much larger project…

Meanwhile, a network of libertarian think tanks, heavily funded by industries selling dangerous products including tobacco and fossil fuels, had been established to promote these views in schools, in universities, and in American life writ large. Among other things, these think tanks distributed free of charge millions of copies of Hayek’s and Friedman’s (and Ayn Rand’s) books….

[By the later decades of the 20th century] many Americans saw government as dead weight, taxation as unfair or even a form of theft. That they accepted these claims is proof of this story’s importance: propaganda and persuasion had worked.

There are a lot of problems here. First, the authors again claim there was this massive anti-government push in the 20th century that “worked,” and again the facts point in the complete opposite direction. The government today is far, far bigger than it was 100 years ago. So you tell me which side of the debate really had the public’s sympathies.

As for the fact that these books and lectures were financed by rich businessmen, I say “so what?” Every noteworthy idea has had rich adherents backing it to some degree or another—including many anti-liberty ideas, ranging from socialism to the progressive ideology favored by the authors of The Big Myth. Besides, isn’t that how the marketplace of ideas is supposed to work? You persuade people of your idea, and the more adherents you get the more you can expand your promotion activities. Everyone is free to promote what they want, and may the best ideas win the most promoters.

The fact that Friedman’s book had rich people backing it doesn’t mean it had an unfair advantage in the marketplace of ideas. It simply means it was successful in that market.

What would actually contravene the marketplace of ideas would be if people were forced to fund the promotion of ideas they disagreed with. If an idea is financed, not because of its merits or because people found it compelling, but because they were coerced into financing it, then we can absolutely cry foul.

As it happens, that kind of interference has been going on, but for the precise opposite team.

It’s called public schooling.

Think about it. Textbooks and teachers preach pro-government ideology, to impressionable children no less, all funded with taxpayer dollars—money that was not voluntarily given to support a cause that was freely endorsed, but taken with threats of violence. That is the real scandal here.

If a few television programs, books, and pamphlets count as capitalist propaganda, what do you call public schools? Unbiased? Can anyone honestly say that the view of market fundamentalism presented in most social studies classes is favorable or even neutral? Clearly, it’s not.

So in addition to having their own set of private donors, the pro-government camp also has a captive funding base in the form of taxpayers, and also a largely captive audience thanks to compulsory schooling laws! Now that is real propaganda. Those are deep pockets. Especially back when homeschooling was more restricted, parents were essentially compelled to have their children influenced by pro-government ideas.

And they have the audacity to accuse us of propagandizing! Now that’s rich.

Private donations are not inconsistent with the marketplace of ideas, but government interference absolutely is. Whenever governments intervene, whether through public schools, universities, or in journalism (remember the Twitter files?), they are creating an uneven playing field. Their own ideas are given an unearned megaphone while their opponent’s ideas are given short shrift if not outright censored.

Such interference with the marketplace of ideas likely explains why Leonard Read was such a lone voice when he founded FEE in 1946. His biographer Mary Sennholz writes of the daunting task ahead of him at the time.

In 1946, when Leonard E. Read set out to launch the Foundation for Economic Education, the eyes of the economics profession were on the federal government…To create an institution of learning that would confront this vast array of officialdom and its vocal allies was well-nigh inconceivable to everyone except Leonard E. Read. He appeared to be oblivious to the power and strength of official opinion and mainstream economic thought.

Funding for Read’s venture would eventually come in, but it didn’t come because of propaganda. It came because Read had an idea so compelling, and a passion for it so contagious, that the world simply couldn’t ignore it.

That idea has come to be known as the magic of the market.

The Magic of the Market

The final theme that runs through the excerpt is precisely this idea of a magical market, an idea the authors portray as almost superstitious.

Market fundamentalists treat “The Market” as a proper noun: something unique and unto itself, that has agency and even wisdom, that functions best when left unfettered and unregulated, undisturbed and unperturbed…

Americans in the early 20th century were largely suspicious of “Big Business” and saw the government as their ally. By the later decades of the century, this had flipped: many Americans now admired business leaders as “entrepreneurs” and “job creators” and believed it made more sense to count on the “magic of the marketplace” to solve problems than to engage government.

First, in case it needs to be said, no free-market proponent thinks “The Market” is literally magical, nor do we believe it is some mystical deity that has agency or wisdom. As Dan Sanchez has pointed out, no religious presuppositions are required for free-market proponents.

To the contrary, the “magic” of the market is figurative. Markets seem magical because they produce amazing results that are far too intricate for any individual to orchestrate, as Leonard Read famously pointed out in I, Pencil. The market is mysterious and seems to have agency because it is a complex adaptive system.

The “fundamentalist” pejorative is likewise misplaced. Our faith in markets is not based on blind adherence to a religious dogma, but on careful reasoning—the opposite of fundamentalism. The reason we are so insistent that the market be left alone is that we have learned—through rigorous analysis—how the system works, and we’ve realized that interference pretty much always breaks something.

But while the vast majority of free marketers have arrived at their position after critically examining all sides, the same cannot be said for those who believe in government. For many, the virtues of big government are articles of faith—a dogma that was taught to them in public school, college, and the media, and which they have accepted with minimal questioning.

This state fundamentalism—also known simply as statism—is truly ideological. The idea that the government just needs to preside over society to “fix” it and “manage” it is ingrained into the vast majority of Americans, but when pressed to explain why such interference is so desperately needed, their responses reveal a stunning dearth of critical self-examination on the topic.

If that’s not fundamentalism, I don’t know what is.

Critically, it is this statist ideology that needs to be exposed and refuted. Unlike market fundamentalism, the ideology of statism actually does dominate our institutions. It is this ideology that blossomed in the 20th century—largely thanks to government rigging the marketplace of ideas—and it is this ideology that is responsible for most of the problems we face today.

So if we want to talk about a “Big Myth” that has wooed the public for decades to our detriment, let’s talk about the myth this book conspicuously promotes: the myth that markets can be improved by the state.

  • Patrick Carroll is the Managing Editor at the Foundation for Economic Education.