Bernie Sanders’ candidacy has the potential to bust up common mythmaking about the free market.
Bernie Sanders’s announcement that he’s running for the 2016 Democratic Party presidential nomination is welcome news. Sanders could foster a more honest national conversation about economics, especially our national attachment to the myth of the free market. This mythology has long diverted attention from the reality of a corporate-dominated system. The too-frequent failure to describe the economy accurately limits our ability to address the problem of extreme inequality.
The myth of the free market centers on its historical connection to the capitalism of Adam Smith and the concepts of individual liberty, freedom, and democracy – concepts that helped provide a sense of national self-definition. And, this myth has crucially shaped discussions about American economic policy. These include whether or not government regulation of economic behavior constitutes an intrusion into the realm of individual rights; whether or not concentrated financial power is a social good or ill; and whether or not social and economic inequities reflect individual or systemic failings.
Candidates of both major political parties share an affinity for the rhetoric, beneficence, and presumed reality of the free market. Republican Ted Cruz proclaimed that, “the American free market system is the greatest engine for prosperity and opportunity that the world has ever seen.” Fellow Republican Marco Rubio, echoing a Tea Party slogan, declared that “the government should not be picking winners and losers when it comes to the free market.” Democrat Hillary Clinton has expounded on the global role of the United States as the exemplar of “democracy and freedom and free market economics,” and, while Republican Carly Fiorina has complained that “we don’t have a free market in this country today; we have crony capitalism,” she advocates a return to a free market that will “unleash human potential.”
What to make of all this praiseworthy rhetoric? For theorists of capitalism, such as Adam Smith, Friedrich Hayek, and Milton Friedman, the “free market” has a specific historic meaning and its appeal rests on its capacity to diffuse concentrated power and, thus, reward individual achievement. Price competition among small-scale entrepreneurs, where no single buyer or seller accrues sufficient power to control price, drives the productive innovation and efficiency that capitalism promises, as sellers seek an advantage over one another. This all results in lower prices for consumers, continual economic expansion, and greater employment. Capitalism’s free market, the thinking goes, dilutes financial and political power, which eliminates the need for public regulation of private economic behavior.
A properly functioning free market cannot tolerate either monopoly or oligopoly, both of which destroy the price competition on which the capitalist model depends. The outcome of a few firms controlling an industry, as compared to a single firm, are no different since both destroy the free market. Amid a reality of corporate enterprise, small-scale producers cannot compete, and are either absorbed into larger firms or exit the economic arena altogether. And those that remain, in order to avoid a damaging price-cutting war that can potentially subsume all the businesses in a given industry by lowering prices below cost, must collude on pricing.
Late-nineteenth century industrial leaders learned quickly that the chaos of the free market interfered with profits and, further, that productive efficiencies required planned and predicable coordination, as well as general agreements about pricing. As Andrew Carnegie explained, the imperatives of big business meant that industry needed to operate “independent[ly] of the market.” By 1900, one percent of corporations produced one-third of all goods, and 12 percent of corporations controlled 84 percent of productive wealth. These large-scale enterprises generated the productive capacity so widely celebrated in the post-Civil War years. The promise of material abundance at lower cost was realized, not through the free market but, instead, through economic concentration in the form of oligopolistic enterprise.
In response, some early and mid-twentieth century economic reformers promoted anti-trust legislation, though this only replaced monopoly with oligopoly. Others sought to further regulate corporate power in order to more broadly share the wealth it generated and to provide a social safety net rather than institute socialism or pursue a return to an idyllic free market. However, over the last thirty years both Democrats and Republicans, all in the name of the free market, rolled back earlier checks on corporate power by deregulating industry, entering into trade agreements that undermined domestic workers, and weakening social programs. Predictable inequalities of wealth resulted, as economic power accrued to a handful of corporations, further subverting any pretense of a free market.
Language matters. To successfully address the systemic social and economic inequities that now plague the United States requires that we clearly identify their source, acknowledge the realities of corporate power, and abandon rhetoric that, though rooted in a compelling mythology, fails to do so.
Here’s hoping the candidacy of Bernie Sanders can make that happen.
Claire Goldstene has taught United States history at the University of Maryland, the University of North Florida, and American University. The author of The Struggle for America’s Promise: Equal Opportunity at the Dawn of Corporate Capital (2014), she can be reached at email@example.com.