The Illusion of Free Markets: Punishment and the Myth of
Natural Order

The Illusion of Free Markets: Punishment and the Myth of

Author: Bernard E. Harcourt
Cambridge, MA: Harvard University Press, 2011. 336p.
Reviewer: Íñigo Ortiz de Urbina Gimeno | January 2012

Are freedom and regulation in the eye of the beholder? According to Bernard Harcourt, they are. In his latest book, The Illusion of Free Markets, the University of Chicago Law School professor forcefully argues that the idea that markets are or can ever be free is an illusion. Since regulation and oversight are prerequisites of their existence, “free”, non-regulated markets have never existed and never will. To be sure, levels of regulation do vary over time. But the real issue, he contends, is not whether there is more or less regulation, but how regulatory regimes distribute wealth.

According to Harcourt, most of us, including notably the icon of critical theory, Michel Foucault (p.46), have trouble seeing that the real issue is not level of regulation. To illustrate his thesis that markets are never truly free, Harcourt begins his book by contrasting the workings of mid-eighteenth century Paris markets, commonly deemed an overregulatory nightmare, with the present-day Chicago Board of Trade, which “is the free market” (p. 16). Regulation in eighteenth-century Paris, which was “essentially ineffective and could hardly be enforced” (p. 22), is compared with the maze of very detailed regulation supporting the Chicago Board of Trade, the “free” market. This detailed comparison shows the inadequacy of describing the situation as a confrontation between yesterday’s “discipline” and today’s “free” markets. Harcourt further argues that our inability to see the real question behind “regulation” and “freedom” talk began with Quesnay and the Physiocrats in the end of the eighteenth-century: they mark the beginning of the ascent of the idea of “natural order”, or self-regulating markets. Their ideas, echoed in Bentham’s economic writings in the nineteenth-century, were finally to gain scientific credit on the writings of the Chicago School of Economics.

The story is amusingly told, but: what is all this doing on a book about current US levels of imprisonment, anyway? Meet Harcourt’s second, more controversial thesis: laissez-faire and the prison state have mutually supported and reinforced each other, and the illusion of free markets is related to the mass incarceration phenomenon which singularizes the US among Western nations today.

Since Harcourt’s first thesis about the ascent of the “natural orderliness” of markets is not new (he does not claim otherwise), and is less daring, let’s focus on his second thesis. Some doubts remain as to its nature. At first glance, his thesis seems to be that the “naturalization” of the market and its neo-liberal crime policy offspring (as presented in Chicago Law and Economics writings) have led to America’s current crime and punishment policies (or at the very least facilitated them). Surprisingly, he explicitly denies to be making a causal claim (p. 43). It is difficult to see how it could be so, given his statement that Becker’s work (the seminal work on the law and economics of criminal law) “would ultimately facilitate the massive expansion of the penal sphere” (p. 40), that neoliberal penality “is made possible by belief in the inherent efficiency of the free market” (p. 41), that “it facilitates passing new criminal statutes and wielding the penal sanction more liberally” (pp. 41 and 192), and that prison increases in the US “have been facilitated –- not caused by, but made possible by — the rationality of neoliberal penality” (p. 202), that “in both direct and indirect ways … has facilitated this punitive turn” (p. 203). These surely look like causal claims. Unless one commits to the awkward view that in order to be the cause of event A, event B has to be its only driving causal force, they are indeed, since they state that a certain event (neoliberal, Chicago Law and Economics-based penality) made possible or facilitated the coming about of another event (the drastic increase in the prison population in the US).

Harcourt’s second thesis brings to mind the rather different but parallel thesis advanced by some of the first economists venturing into the domains of other social sciences (the first “economic imperialists”). In their 1975 book, The New World of Economics, McKenzie and Tullock argued that the rise of crime in America in the sixties was partly attributable to academics neglecting the idea that punishment deters crime: “Ideas influence the real world. The fact that most specialists in the study of crime have believed, written, and taught that punishment does not deter crime has had an effect upon public policy … The rising crime rate in the United States to a very considerable extent can be blamed upon our intellectual community.” McKenzie and Tullock used stronger causal language, but their point is the same as Harcourt’s: ideas have effects on public policy and a rather direct one at that. The reality, however, is that we do not know much about the influence of academic points of view on public policies, and what we do know does not point to a great deal of influence.

If it is already very problematic to assume that whatever position was held by some theoreticians resulted in a specific crime policy (in this case, massive incarceration). Yet, matters get worse for Harcourt’s second thesis when closer attention is paid to what the alluded-to academics actually say. Some of the ideas held by Chicago School economists and lawyer economists would actually have an effect contrary to the one Harcourt’s second thesis says they had. In fact, it is rather safe to say that the thorough implementation of Chicago Law and Economics crime policy recipes would reduce, instead of increase, the number of inmates in US prisons. This is so mostly because of the quantitative importance of the Chicago School of economics’ stance in one single topic: drug legalization. Harcourt admits that some of the most prominent representatives of the Chicago School have either expressly argued for the complete legalization of drugs (among them, two Nobel Prize recipients, Milton Friedman and Gary Becker) or at least shown their doubts about their current legal status and favored the legalization of some of them (Posner). In fact, Becker has very recently argued that the US should decriminalize and legalize drugs and predicted that it would reduce the prison population by over 30% (Becker “Does American Imprison Too Many People?”, in Becker/Posner Blog, December 04, 2011). Other prominent lawyer economists outside the Chicago School have argued that legalizing drugs would have dramatic effects on the prison population that would nevertheless come at the expense of an important increase in the number of addicts and substance abusers (Donohue, John J., Ben Ewing, and David Peloquin. “Rethinking America’s Illegal Drug Policy”, NBER Working Paper No. 16776) .

Interestingly, Harcourt massively downplays the significance of this position, devoting two meager pages to the question (pp. 231-233). He begins by arguing that members of the Chicago School do not consider drug legalization a top priority. Take, for instance, Posner and Epstein, who, he says, have authored “in combination, well over fifty books on topics ranging from sex to literature to presidential impeachment to pharmaceutical innovation, and yet not one single volume –- nor a single article, for that matter — focuses on our modern carceral excess” (p. 232). Harcourt’s move here is difficult to justify, and it shows more than he wants. Initially, his thesis was about the influence of the Chicago School style free-markets ideas on crime policy, specifically their relationship with policies leading to higher rates of imprisonment. Faced with one topic where Chicago School ideas would clearly result in less people in prison (a lot less: about 800,000 according to Becker’s calculations), he basically changes the subject: his emphasis is no longer on the influence of ideas on crime policy, but on how many times theorists write about the subject and whether or not the topic is active in their “to do” list. However, both things are clearly beside the point. The fact that Chicago School lawyer economists do not write more often on the subject can be explained by the fact that, once one has argued that drugs (or some of them) should be legal, from the theoretical point of view there is not much more to be said about the topic. It is also rather clear that, as of today, drug legalization is not a real policy option. Harcourt may think that there should be more writing on the legalization of drugs, and I can personally agree with him. But advancing the place of drug legalization in the policy agenda is not to the task of academics qua academics, but of activists. And, in all fairness, lawyer economists may not be out on the streets handing out leaflets arguing for the legalization of drugs, but just by doing as little as Harcourt thinks they are doing, they actually take risks. Publicly endorsing a position with so very few friends in high places can be seriously damaging for anyone with public sector ambitions. I once heard a story about how Posner’s chances to become a Supreme Court Justice were quashed by his endorsement of marihuana (and maybe LSD) legalization. The story may or may not be true, but there can be no doubt that such a policy endorsement would have been a hot topic on an eventual nomination hearing.

If Chicago School lawyer-economists had their way, there would be a lot fewer inmates (if lawyer economists outside the Chicago School had their way, prison population would be reduced even further. See, e.g., Donohue, John J.: “Assessing the Relative Benefits of Incarceration: Overall Changes and the Benefits on the Margin”. In Do Prisons Make Us Safer? The Benefits and Costs of the Prison Boom, ed. Steven Raphael and Michal A. Stoll, 269-341. New York: Russel Sage Foundation, 2009). Thus, the interesting question here is not why certain academics do not write more often on the topic, or devote more of their free time to advance this policy option, but a different one: if lawyer-economists have really managed to influence crime policy in a number of issues, how come they have failed to do so in this very important, indeed decisive topic? That they have so obviously failed would suggest that crime policy developments in the last decades in the US do not reflect Chicago School free market ideas, but a set of different, at most partially overlapping ideas. But Harcourt has an answer to that, too: his claim “is not that the Chicago School is itself the dominant view in the public imagination …. Dominant beliefs operate at a more abstract level” (p. 232). We have pretty much come round full circle here: his second thesis is not actually a causal thesis, and is also not really about the Chicago School, but about the popular view of what its views are. I must say my eyebrows are raised. 

Harcourt’s scholarship is unique. A truly gifted writer and a scrupulous researcher (check out his superb analysis of Cesare Beccaria in chapters one and two), Harcourt skillfully mixes a hermeneutic approach to social science with a rigorous, data-bound approach (which I would gladly call “positivistic”, were I not convinced Harcourt himself would be dismayed at the idea of his scholarship having an ounce or even a gram of positivism). From this unholy union, a scholarship emerges that is fresh, rigorous, and always thought-provoking. The breadth of his scholarship is equally impressive: his previous books include treatments of “quality of life” policing, youth gun violence policy, and “actuarial” justice. [See, respectively, Illusion of Order: The False Promise of Broken Windows Policing (Harvard University Press, 2001), Language of the Gun: Youth, Crime, and Public Policy (University of Chicago Press, 2006), and Against Prediction: Punishing and Policing in an Actuarial Age (University of Chicago Press, 2007).] Not content with this, in his fourth book he has pushed even further to analyze the influence of economic ideas (ideology?) in today’s penal policy. The reader may or may not be convinced by some or even many of his arguments. But just as with all his previous books, the ride is sure worth taking.

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