Government vs. Free Market misses the point. Government creates markets.
By Alex Marshall
If you like markets, if you applaud individual success and private business, you should like government. One is not possible without the other.
Americans will be getting an earful about the perils or virtues of government until they vote on Nov. 6. But they won’t hear anything about what it is exactly.
To Republicans, government is a cancerous force, there to secure what their platform calls “our God-given liberties.” Success comes only through individual hard work, nurtured by faith and family. As the platform explains: “We are the party of maximum economic freedom,” which promotes prosperity so “individuals and families can maintain their freedom from government.”
To Democrats, government can help you get a job, medical care and more. It enables us to show that “we’re all in this together,” as former President Bill Clinton said in his speech at the Democratic National Convention.
The Democrats have a view of government that is closer to my own, but even they struggle to explain the deeper role that it plays in our lives: creating and maintaining the very marketplace that Republicans worship.
There is this idea, not discussed because it is so widely accepted even on the political left, that some sort of independent, free-standing market exists with its own laws, similar to those of natural systems, such as the law of gravity. Democrats want to poke, prod and regulate this market; Republicans say they want to leave it alone. But this so-called free market doesn’t exist, not even as a valid concept. Governments create markets.
Government is responsible for every aspect of the market economy, from writing the laws defining private property, corporations and intellectual property, to building the roads on which commerce depends. When business was simpler, centuries ago, government built simple markets. Today, it creates more complicated ones.
It took centuries of evolution to arrive at today’s system of property ownership, where a piece of land can be measured, bought and sold like a commodity. For thousands of years, kings handed out patents — essentially a grant of government power — for land (thus “land patents”) or as a grant of monopoly power to sell something, say salt or bricks. In 1474, the Venetian Senate was the first to set up a patent system aimed at promoting invention. The new law let inventors know, in advance, that they would be rewarded with limited monopoly rights for significant new creations. Other nations copied this.
Governments have invested in physical infrastructure, such as roads, ports and waterworks, for as long as they have existed. A high point was New York State’s construction of the Erie Canal in 1825, inspired by an earlier federal plan for roads and canals put forward by Thomas Jefferson’s brilliant treasury secretary, Albert Gallatin. Paul Johnson, the conservative British historian, called the Erie Canal the greatest public-works project of all time in terms of the wealth it created. Today’s discussion in the U.S. of state and federal investment in high-speed train lines is a continuation of the long debates over which kinds of infrastructure to invest in.
Just as there can be good and bad forms of government, such as democracies and dictatorships, there can be good and bad markets. There used to be a vast body of law dealing with the buying, selling and ownership of slaves, for example. When Congress finally outlawed slavery through the 14th Amendment in the 19th century, all that was swept away.
If you like markets, if you applaud individual success and private business, you should like government. One is not possible without the other. The relationship of government to the private marketplace and capitalism as a whole is one of parent and child.
Paul Ryan, the Republican vice-presidential nominee, might never accept this, if he is a strict believer in novelist Ayn Rand’s view that government is a parasite on the body of a marketplace that works by itself. But there is hope for the rest of us. We can stop talking about markets versus government, and start talking about what markets we want. In a democracy, if we understand that government creates markets, it means that we— the people— shape them. And our candidates should tell us how they would shape them.
I would like to see Mitt Romney and Barack Obama talk about what changes are needed in the state and federal system of chartering corporations, for example. And does either candidate have ideas for how the patent and copyright systems should be altered in an age when words, sounds and images can be transmitted across the world at no cost? These issues should not be left to the courts and lobbyists.
Government doesn’t just change the light bulbs in the arena that private businesses operate in. It designed the whole stadium. This election is about acknowledging this, or remaining willfully in the dark.
Alex Marshall, a senior fellow at the Regional Plan Association in New York, is the author of the new book The Surprising Design of Market Economies (University of Texas Press).