FacebookTwitterGoogle+RedditEmail

The Clichés of Economic History

Understanding economic theory, in law and in principle, requires a certain perception of the world. One perception requires an understanding of the world as one would like it to be. The other, which is perhaps more in touch with reality, demands an acceptance of the world as it actually is, and for that, one must look to cases and examples in history.

Similarly, a close look at the realities of economic history in the United States and elsewhere requires major adjustments to what is called ‘free market theory.’ These modifications lead to what should be called ‘really existing free market theory’, and this is the economic theory that is actually applied in practice.

For this, we can take a look at a rather perplexing example – a country that supposedly developed based on market principles and free enterprise – namely the United States. In the mid 18th century, the U.S was one of the richest societies (in terms of resources) in the world, yet it was pre-industrial.

Adam Smith, widely considered the father of modern economics, had surprisingly specific advice for the 13 colonies. Smith requested precisely what today’s economists recommend to many third world countries, advocating that the U.S maintain a commitment to its comparative advantages and sell what it’s best at producing. At the time, the U.S was most capable of catching fish and hunting fur, then exporting it to England, all while importing superior British manufactured goods.

Perhaps unpredictably in the eyes of Smith, the U.S gained its independence from Britain, and proceeded to completely ignore Smith’s free market advice. Under Alexander Hamilton, the liberated colonies immediately set up high protective barriers (such as tariffs) to try to bar superior British textiles, then later British steel. This allowed the new country to construct its own manufacturing base under specialized protective barriers and by other forms of incredible state intervention.

A staple in American manufacturing in the 19th century was cotton, which is often referred to as the fuel of American industrialization. The U.S produced cotton and became the world’s leading cotton exporter following its elimination of a massive indigenous population, which according to Howard Zinn, could have easily totalled “thousands upon thousands” of Indians.

The conquering of almost half of Mexico and annexation of Texas was also in order, which was land needed to monopolize cotton and “bring England to our knees,” to quote the Jacksonian Democrats. The U.S then ramped up production of this 19th century ‘fuel’ through its development of a slave society, which was followed by the criminalization of black life for the purpose of exploiting their labor.

Thus far, American society clearly industrialized in opposition, not supposed adherence, to market principles. It took radical violation of free enterprise undertaken to develop (change) its comparative advantages. Obviously, no small business or group of entrepreneurs could have conquered the northern half of Mexico; a publicly subsidized institution—the government—was the missing piece.

A brief look at the 20th century also reveals exactly this revelation, or the concept that the U.S did notdevelop and modernize because of a devout faithfulness to market principles.

Ronald Reagan is now considered a champion of free markets, and the 1980s a decade in U.S history in which entrepreneurial economics flourished. However, the Reagan administration’s efforts to protect American businesses from market discipline were unprecedented right up until their implementation. For example, the imposed 100% tariff on select Japanese electronics was done to “enforce the principles of free and fair trade,” according to President Reagan. His Treasury Secretary, James A. Baker, would later boast to the US Chamber of Commerce that the administration “granted more import relief to US industry that any of his predecessors in more than half a century.”

According to a comprehensive review of the Reagan era in Foreign Affairs by Clyde Sanger, a Senior Fellow for International Finance at the Council on Foreign Relations, “The postwar chief executive with the most passionate love of laissez-faire, presided over the greatest swing toward protectionism since the 1930s.” In a scholarly review by Patrick Low, a GATT secretariat economist, he estimates that the restrictive effects of Reagan’s policies measured at approximately three times those of other leading industrial countries.

Clyde Sanger notes some thematic irony, namely that advocation of market discipline is a tool used by those with power, who manage to avoid the ravages of the market as a result of astonishing state intervention. Those without power are then exposed to the free market discipline, and are therefore left with little, if any, protection from the subsidized structures of power. This theme is strikingly dominant in the economic history of the past three centuries.

The Reagan administration was following a common course of action that has been in practice in the U.S (and elsewhere) for its entire existence. However, modern neo-liberals have shed new light on the free market theory charade. Presidential candidate Michelle Bachman commonly extolls the victories of the free market and issues tough lectures about the immoral culture of welfare-dependence of American poor and working people. But an Environmental Working Group analysis points to evidence that her family farm received over $250,000 over eleven years.

A major piece of America’s dedication to ‘free market’ economics includes the massive transfers of taxpayer funds to private corporations, generally hidden under the masks of ‘defense’ or ‘security.’ However, pretending that these (purposefully) initiated transfers by the Pentagon to private industry hasn’t been economically effective isn’t, in fact, realistic. The U.S automotive, steel, high-tech, fiber-optic, airline and other industries would never have been able to survive international competition, innovate or develop through research without these fundamental violations of market principles, as MIT professor Noam Chomsky notes in Hegemony or Survival.

Whether this radical protectionism in a state-guided mercantilist system is a position worth advocating is perhaps a worthy subject for debate, but its usage is unquestionably in substantial defiance of any standard (classical) free market theory in principle. Since our analytical focus is centered on the world as it is, our attention should be focused on really existing free market theory, or the economic theory that is actually applied.

President Barack Obama, unlike his predecessor, hasn’t shied away from the belief and acceptance that protectionism is effective (and profoundly disguised). Of course, when his administration’s market interventions saved thousands of union jobs during the financial bailouts of General Motors and Chrysler in 2009, American media commentators eagerly termed them ‘free market infringements’ and ‘giveaways’ to undeserving corporations and the unions. However, when President Reagan subsidized an enormous amount of GM’s capital costs in the 1980’s to save the company’s management from a massive restructuring bankruptcy, that was simply necessary in the country’s effort to save American industry.

In 2011, President Obama handily announced a ‘new’ federal project that exemplifies exactly what U.S free market policy has always been: “a joint effort by industry, universities and the federal government to help reposition the United States as a leader…” In desperate need of economic growth before his re-election bid that’s just one year and half away, the U.S President turned to the application of what existing free market economic theory has always been: an incredibly confounding cliché.

William E. Shaub is a violin performance major at the Juilliard School of Music in Manhattan and an active political journalist. 

More articles by:
June 18, 2018
Paul Street
Denuclearize the United States? An Unthinkable Thought
John Pilger
Bring Julian Assange Home
Conn Hallinan
The Spanish Labyrinth
Patrick Cockburn
Attacking Hodeidah is a Deliberate Act of Cruelty by the Trump Administration
Gary Leupp
Trump Gives Bibi Whatever He Wants
Thomas Knapp
Child Abductions: A Conversation It’s Hard to Believe We’re Even Having
Robert Fisk
I Spoke to Palestinians Who Still Hold the Keys to Homes They Fled Decades Ago – Many are Still Determined to Return
Steve Early
Requiem for a Steelworker: Mon Valley Memories of Oil Can Eddie
Jim Scheff
Protect Our National Forests From an Increase in Logging
Adam Parsons
Reclaiming the UN’s Radical Vision of Global Economic Justice
Dean Baker
Manufacturing Production Falls in May and No One Notices
Laura Flanders
Bottom-Up Wins in Virginia’s Primaries
Binoy Kampmark
The Anguish for Lost Buildings: Embers and Death at the Victoria Park Hotel
Weekend Edition
June 15, 2018
Friday - Sunday
Dan Kovalik
The US & Nicaragua: a Case Study in Historical Amnesia & Blindness
Jeremy Kuzmarov
Yellow Journalism and the New Cold War
Charles Pierson
The Day the US Became an Empire
Jonathan Cook
How the Corporate Media Enslave Us to a World of Illusions
Ajamu Baraka
North Korea Issue is Not De-nuclearization But De-Colonization
Andrew Levine
Midterms Coming: Antinomy Ahead
Louisa Willcox
New Information on 2017 Yellowstone Grizzly Bear Deaths Should Nix Trophy Hunting in Core Habitat
Jeffrey St. Clair
Roaming Charges: Singapore Fling
Ron Jacobs
What’s So Bad About Peace, Man?
Robert Hunziker
State of the Climate – It’s Alarming!
L. Michael Hager
Acts and Omissions: The NYT’s Flawed Coverage of the Gaza Protest
Dave Lindorff
However Tenuous and Whatever His Motives, Trump’s Summit Agreement with Kim is Praiseworthy
Robert Fantina
Palestine, the United Nations and the Right of Return
Brian Cloughley
Sabre-Rattling With Russia
Chris Wright
To Be or Not to Be? That’s the Question
David Rosen
Why Do Establishment Feminists Hate Sex Workers?
Victor Grossman
A Key Congress in Leipzig
John Eskow
“It’s All Kinderspiel!” Trump, MSNBC, and the 24/7 Horseshit Roundelay
Paul Buhle
The Russians are Coming!
Joyce Nelson
The NED’s Useful Idiots
Lindsay Koshgarian
Trump’s Giving Diplomacy a Chance. His Critics Should, Too
Louis Proyect
American Nativism: From the Chinese Exclusion Act to Trump
Stan Malinowitz
On the Elections in Colombia
Camilo Mejia
Open Letter to Amnesty International on Nicaragua From a Former Amnesty International Prisoner of Conscience
David Krieger
An Assessment of the Trump-Kim Singapore Summit
Jonah Raskin
Cannabis in California: a Report From Sacramento
Josh Hoxie
Just How Rich Are the Ultra Rich?
CJ Hopkins
Awaiting the Putin-Nazi Apocalypse
Mona Younis
We’re the Wealthiest Country on Earth, But Over 40 Percent of Us Live in or Near Poverty
Dean Baker
Not Everything Trump Says on Trade is Wrong
James Munson
Trading Places: the Other 1% and the .001% Who Won’t Save Them
Rivera Sun
Stop Crony Capitalism: Protect the Net!
FacebookTwitterGoogle+RedditEmail