Market inconsistency

The argument

A laissez-faire, free-market economy is one of the staples of the political philosophy, Liberalism, and the United States of America is a prime example of a country that relies on a free market economy. That makes it the natural test case, and its record is not one of steadiness: the United States has seen seventeen major economic recessions during its brief existence. On this argument, the repetition is the point — a system that produces downturns that regularly is not suffering a series of accidents but exhibiting a property. The Great Depression is the most notable of these economic downturns, and it shows the mechanism at work. For the majority of the 1920s, the U.S. economy roared. However, by the end of that decade, production from many industries slipped, and employment dropped. With factory production down and monopolistic companies unwilling to adjust prices and wages, the U.S. economy sank. A free market is supposed to right itself precisely through those adjustments to prices and wages; where market power is concentrated enough that firms simply decline to make them, the self-correction never arrives and the contraction feeds on itself. A free market led to an inconsistent market. How it ended forms the second half of the case. The United States economy, and much of the global economy, only recovered after President Franklin D. Roosevelt implemented his New Deal policies, which regulated markets, produced government-provided jobs, and injected federal money into business investments — something the economist John Keynes wrote to FDR about. Each of those instruments is an intervention of exactly the kind laissez-faire doctrine rules out, so the recovery came from outside the free market rather than from within it. Taken together, the boom-and-bust record and the manner of that recovery point the same way: the political philosophy of Liberalism, with its key facet of a free market, promotes market inconsistency, and that inconsistency is one of the drawbacks of Liberalism.

Premises

Counter-arguments

Market inconsistency is a natural feature of a free-market system. There are ebbs and flows when it comes to the economy. However, a laissez-faire economy is the best way to allow the market to function. Socialist practices would proliferate the economy if it were not for the free market. Industries and the people who work in them would lose freedoms and rely on the government for handouts. Market inconsistency, while sometimes painful, is a normal and good aspect of the free-market system.

Rejecting the premises

[Rejecting P1] A count of seventeen recessions is not evidence without a comparison. The argument gives no recession count for more regulated economies over the same period and no measure of the depth or length of the downturns, so the figure cannot show that free markets are less stable than the alternatives. The United States has also never been a laissez-faire economy in the strict sense, having had tariffs, land grants, chartered banks and a central bank across the period counted. [Rejecting P2] The causes of the Depression are contested, and several leading accounts place them in policy rather than in market freedom: monetary contraction by the Federal Reserve, the Smoot-Hawley tariff, and the collapse of the banking system's deposit base. Monopoly power is likewise usually attributed to failures of competition policy, which is a regulatory matter rather than a feature of free exchange. [Rejecting P3] "Only recovered after the New Deal" infers a cause from a sequence. Recovery was interrupted by a sharp renewed contraction in 1937-38, and full employment arrived with wartime mobilisation, so the period cannot serve as a clean demonstration that regulation was the operative factor. Economists continue to disagree about how much the New Deal contributed and which of its measures helped.