The “Self-Regulating” Market Itself Demands Regulation

It is highly significant that in either case consistent liberals from Lloyd George to Theodore Roosevelt to Thurman Arnold and Walter Lippmann subordinated laissez-faire to the demand for a free competitive market; they pressed for regulations and restrictions, for penal laws and compulsion, arguing as any “collectivist” would that the freedom of contract was being “abused” by trade unions, or corporations, whichever it was.  Theoretically, laissez-faire or freedom of contract implied the freedom of workers to withhold their labor either individually or jointly, if they so decided; it implied also the freedom of businessmen to concert on selling prices irrespective of the wishes of the consumers.  But in practice such freedom conflicted with the institution of a self-regulating market, and in such a conflict the self-regulating market was invariably accorded precedence.  In other words, if the needs of a self-regulating market proved incompatible with the demands of laissez-faire, the economic liberal turned against laissez-faire and preferred — as any antiliberal would have done — the so-called collectivist methods of regulation and restriction.  Trade union law as well as antitrust legislation sprang from this attitude.  No more conclusive proof could be offered of the inevitability of antiliberal or “collectivist” methods under the conditions of modern industrial society than the fact that even economic liberals themselves regularly used such methods in decisively important fields of industrial organization.

Incidentally, this helps to clarify the true meaning of the term “interventionism” by which economic liberals like to denote the opposite of their own policy, but merely betray confusion of thought.  The opposite of interventionism is laissez-faire, and we have just seen that economic liberalism cannot be identified with laissez-faire (although in common parlance there is no harm in using them interchangeably).  Strictly, economic liberalism is the organizing principle of a society in which industry is based on the institution of a self-regulating market.  True, once such a system is approximately achieved, less intervention of one type is needed.  However, this is far from saying that market system and intervention are mutually exclusive terms.  For as long as that system is not established, economic liberals must and will unhesitatingly call for the intervention of the state in order to establish it, and once established, in order to maintain it.  The economic liberal can, therefore, without any inconsistency call upon the state to use the force of law; he can even appeal to the violent forces of civil war to set up the preconditions of a self-regulating market.  In America the South appealed to the arguments of laissez-faire to justify slavery; the North appealed to the intervention of arms to establish a free labor market.  The accusation of interventionism on the part of liberal writers is thus an empty slogan, implying the denunciation of one and the same set of actions according to whether they happen to approve of them or not.  The only principle economic liberals can maintain without inconsistency is that of the self-regulating market, whether it involves them in interventions or not. (155-156)

Karl Polanyi | The Great Transformation: The Political and Economic Origins of Our Time


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