Exposing the Big “Free Market” Myth with Author Naomi Oreskes
Watch the Event:
For decades, a belief in the virtues of an unfettered “free market” has been deeply ingrained in American society, shaping economic and political views, and fueling resistance to government regulation. On May 4, the Corporations and Society Initiative (CASI) hosted a discussion with Naomi Oreskes on how the narratives around “free market” and deep-seated faith in “the magic of markets” arose, and whether it has served us well over the years. Oreskes is a Harvard University earth scientist and historian, and author of the book, with co-author Eric Conway The Big Myth, How American Business Taught us to Loathe Government and Love the Free Market.
In her introduction, CASI co-faculty director and Stanford Graduate School of Business finance professor Anat Admati said she met Oreskes after her first book with Conway, Merchants of Doubt, was published. The book exposed how a small group of scientists hid factual truths and helped spread junk research and misinformation about the health effects of tobacco and the threats of a warming climate.
Admati noted that she and Oreskes attended the World Economic Forum in Davos in 2014 and again in 2015, united by their shared discovery of “the subtle power of deception for profit and control over narratives, particularly in situations where the public can be easily confused.”
“I just learned that what Naomi and I encountered is the subject of a special field of research called agnotology,” Admati reported. “That research is focused on deliberate, culturally induced ignorance or doubt, typically to sell a product, influence opinion, or win favor through the publication of inaccurate or misleading scientific data and disinformation.”
“So, we know that it is a big problem.”
Admati turned the event over to CASI student leader Louise White (MBA ’23) who began the discussion with Oreskes by asking, “What is the big myth and why should we care about it?”
Oreskes described the big myth as having three parts. First is the idea of the free market as something that exists unto itself, as opposed to markets “being a human institution and a tool that people develop with rules we create according to how markets should operate.”
The second part of the myth is the idea that markets have wisdom.
“If you leave markets alone, then the invisible hand of the marketplace will solve our problems. Government is meant to get out of the way, or it might distort the marketplace.”
These myths are often echoed in business and political circles; however, a growing chorus of influential voices is beginning to offer a counter argument. At a recent CASI event on Environmental, Governance, and Sustainability (ESG) issues, Tariq Fancy, BlackRock’s former chief investment officer for sustainable investing, was asked whether rules inhibit the functioning of markets.
Fancy was quick to respond that “the greatest hoax is the free market hoax.”
“Ask any lawyer. A market is just a collection of rules,” he said. “You can change those rules and you’ll get different outcomes, all of which can be considered market outcomes.”
The third part of the myth is one Oreskes thinks is less well-known and less well-understood. “We show in the book that throughout the 20th century, and particularly from the mid-century onward, market fundamentalists pushed forward the idea, not just that markets are an efficient means to deliver goods and services, but that they're a bulwark of freedom.”
The notion was that “Economic freedom protects political freedom and if you compromise economic freedom, you're on a slippery slope to totalitarianism.”
Oreskes said that while it is reasonable to argue about what the rules for markets should be, “this third part of the myth is just a complete falsehood, a complete misrepresentation of the facts of history.”
Oreskes said that when she began researching the book, she thought it would begin with Ronald Reagan because he brought the idea of big government overreach into mainstream politics. In his inaugural address in 1981, Reagan famously proclaimed, “Government is not the solution to our problem; government is the problem.”
“As we started digging, the story went back further and further, and eventually we settled on the debates over child labor in the early 20th century.” At the time, progressive era reformers were demanding an end to the practice of children as young as two years old working in textile mills, factories, and mines. The business community argued against that, “not by saying that child labor was great,” Oreskes said, “because that would not be plausible, but by beginning to construct an argument about freedom.”
They claimed, “If you let the government tell businesspeople what to do, it would encroach on their freedom to run their businesses,” and deprive fathers of the right to raise their children in the way they wanted.
Oreskes shared more examples of how this idea began to shift America’s economic and political thought. In the 1920s, leaders in the electricity industry successfully waged a massive propaganda campaign to fight government involvement in electricity markets by making the case of ‘creeping socialism’ and ‘a threat to the American way of life.’
Oreskes said the electricity industry also hired academics to rewrite the textbooks that were being used in American high schools and colleges. The goal was to “influence the curricula in burgeoning business schools to be pro-market, pro-capitalist, anti-regulation and anti-government. Very early on, she said, “we see the seeds of this [idea] that government is bad, regulation is bad.”
The battle continued in the 1930s and 1940s with the National Association of Manufacturers opposing President Roosevelt’s New Deal programs. Using print, radio, and film, the industry group launched a campaign called the Tripod of Freedom, where Oreskes said, “we begin to see the overt misrepresentation of American history.”
“They claim that America was founded on three essential principles that are like a tripod, and if you undermine any leg of the tripod, the whole structure will collapse.” The three legs, according to Oreskes, are representative democracy, the Bill of Rights, and free enterprise, or capitalism.
As Oreskes pointed out, capitalism is not in the U.S. Constitution, the Declaration of Independence, or the Bill of Rights. “If you know anything about Alexander Hamilton,” she said, “you know that many of the founding fathers were big advocates of government engagement, and the 19th century was characterized by massively protective tariffs.”
Oreskes said that as this narrative evolved, the idea of economic freedom became as essential to American life as freedom of religion or freedom of speech. It was claimed that “If you compromise that, then everything else fails.”
The discussion turned to the economic schools of thought that helped drive the ‘free market’ narrative to prominence. Oreskes said that a message that was used to support the narrative was that “the only choice we have is unregulated capitalism or we’re living under a Soviet-style centrally planned economy.” This message “was based on the privileging and prioritizing of an argument that came out of the Austrian school of economics.”
Oreskes discussed how these themes emerged in the early 20th century pointing to one of the founders of the Austrian School, Ludwig von Mises. A noted economist and historian, Mises issued a sharp critique of the Soviet central planning system and argued in favor of limiting the government’s economic role. According to Oreskes, Mises concluded that “any kind of centralized planning is going to devolve into a totalitarian state.”
A protégé and colleague of Mises was Austrian-British economist and Nobel Prize winner Friedrich von Hayek who advanced the idea of free market capitalism with his publication of the 1944 book titled, The Road to Serfdom. He won rave reviews in Britain and the United States when he argued against socialist economic policies and claimed the government would inhibit rather than promote freedom.
As Oreskes explained, the businessmen who brought Hayek to the U.S. were excited by his message, but they thought it was too sophisticated for an American audience. It also contained a number of exceptions to the argument against government intervention, identifying the benefits of the government regulating pollution and deforestation, ensuring sanitary working conditions, and the need for social security.
“He allowed for a rather wide space for government action.” But when the Reader’s Digest version of the book was published in 1945 for a consumer audience, Oreskes said, “they stripped out all of the caveats, all of the exceptions, and [sections] where Hayek says you actually do need government.”
Oreskes said Adam Smith’s Wealth of Nations, published in 1776, underwent a similar fate. During the late 1940s and early 1950s, a small group of pro-free market businessmen funded the Free Market Study project at the University of Chicago’s School of Law and Economics. Economist George Stigler was given the task of producing a revised edition of Smith’s seminal book.
“Most people do not know that Adam Smith had a very extensive discussion in The Wealth of Nations on the need for banking regulation,” Oreskes noted. “In 1776, he's talking about why you cannot have a successful capitalist economy unless you regulate banks for all the reasons that we know today. This was completely removed from the Stigler version. There's a discussion in The Wealth of Nations of why workers have to be paid fair wages [and] why it's reasonable for workers to unionize, although he doesn't use that word. But he talks about collective agency, [and] how factory owners will pay starvation wages if they can get away with it. All of that is removed from the Chicago School version of The Wealth of Nations.”
Oreskes then discussed how free market fundamentalism reached new heights in the modern political era. Both U.S. President Ronald Reagan and British Prime Minister Margaret Thatcher argued for staunchly pro-business, anti-government policies using similar themes and arguments.
“We know that Thatcher was very influenced by Hayek,” Oreska stated. “Her famous phrase, TINA, there-is-no-alternative, was one of her slogans. And I just think that encapsulates this whole argument that there is no alternative; that it's either communist dictatorship or unregulated capitalism. The reality, as we argue in the book, is there are lots of alternatives.”
Oreskes said that when you look back at the history of capitalism, you can see that it has changed significantly from the days of Adam Smith.
“The capitalism of small shop owners that Adam Smith imagined was very different from the managerial and monopolistic capitalism that developed in the nineteenth century, which was quite different from the manufacturing-based capitalism of mid-20th century America, which is extremely different from the financialized global capitalism of today. So, capitalism has never been one thing.”
Oreskes believes this creates an opportunity for academics, business leaders, and others to talk about the kind of capitalism we want and the right balance between the private sector and the public good.
Following up on this point, Louise White asked, “Since business has been responsible for creating the narrative that we have today, do you think that business can be a part of creating a new narrative?”
Oreskes responded by saying she’d like to think that there are business leaders who are interested in having a [broader] conversation about how we can make our system more democratic, fairer, and with rules that work.
“It would certainly be a whole lot easier to move things forward if we did have enlightened business people who were willing to be part of this conversation.”