What do we mean when we talk about the ‘free market’?

There are some ideas that inform so much of our thinking about the world that we tend to take them for granted. One example: the idea of the “free market.” Whether we’re talking about income inequality, climate change, or the future of U.S.-China relations – even if it doesn’t come up explicitly, the idea of the free market informs how we think about all of these topics and more. 

But despite its ubiquity, most of us can’t seem to agree what, exactly, we mean by the term. 

Which is why in this episode we’re going to take a closer look at the history of the concept. Jacob Soll is a professor of philosophy, history and accounting at the University of Southern California, and author of the book “Free Market: The History of an Idea.” 

On this episode, guest host Mark Blyth talks with Jacob about how the concept has evolved over the centuries (millennia, in fact) into the lightning rod of economic debate that it is today. But Jacob’s fascinating origin story doesn’t just correct the historical record – it also reframes how we should think about modern economies today. 


[MUSIC PLAYING] DAN RICHARDS: From the Watson Institute for International and Public Affairs, this is Trending Globally. I'm Dan Richards. There are some ideas that inform so much of our thinking about the world that we tend to take them for granted. One example, the idea of the, quote, "free market."

Whether we're talking about income inequality, climate change, or the future of US-China relations, even if it doesn't come up explicitly in the conversation, the idea of the free market informs how we think about all of these topics and many, many more. But despite its ubiquity, most of us can't seem to agree on what exactly we mean by the term. Which is why on this episode, we're going to take a closer look at that idea with someone whose work will challenge the assumptions you have about what the free market is and the role it plays in our world today.

JACOB SOLL: I don't believe that the standard idea of a free market has ever existed. I believe it's something we're always being promised we'll get to if we do certain things. And so it's a dream. It's been a dream for a really, really long time.

DAN RICHARDS: Jacob Soll is a professor of philosophy, history, and accounting at the University of Southern California. And in his book, "Free Market: The History of an Idea," he tells a story of the free market that I guarantee you have not heard before. He doesn't just debunk certain myths that many people hold about the, quote, "free market." In describing how it's historically been understood, he also forces us to reconsider more generally how markets and economies work.

A longer version of this episode first appeared on another podcast from the Watson Institute, The Rhodes Center Podcast, which is hosted by the inimitable Mark Blyth. If you want to listen to the full conversation, you can find that by subscribing to the Rhodes Center Podcast, wherever you listen to podcasts.

Mark and Jacob started their conversation with one of the most central characters in standard histories of the free market, the Scottish philosopher Adam Smith. But as Jacob makes clear, the ideas that shaped Adam Smith are very, very different from the ideas we've come to associate with Adam Smith. Here's Mark.


MARK BLYTH: Hello, Jacob.

JACOB SOLL: Hey, Mark.

MARK BLYTH: So let's talk about this book. Anyone who's interested in this topic goes through a kind of standard education, either sort of in classes or self learned. And it usually starts with the Glorious Revolution. England is always the protagonist. America is strangely absent. France is the bad guy. There's a pantheon of liberal greats. And that's sort of the standard story.

And what I was really surprised by when I picked up your book is it basically starts with the Romans and then it goes through the late medieval to early modern period. There's tons of Italians. There's tons of French. So why Romans? Why did you start there?

JACOB SOLL: Well, actually, I start there because of Smith. Smith is a professor of moral philosophy. And moral philosophy is basically studying the stoics. And the person that puts the stoics together and makes them into the curriculum for the Romans is Cicero.

And so both Hume and Smith are bathed in ciceronianism. They talk it. They quote him all the time. Of course, Smith doesn't use footnotes. But you can hear Cicero in everything he says.

Basically, Cesaro has a theory of exchange, of moral exchange, that if two senators, who are great landowners, exchange things in a disinterested way, it will keep the economy going. It will work with nature and the natural process of the seasons. And the Roman Republic and its class system and its Constitution will go on forever, producing the bounty that it has produced.

MARK BLYTH: Is that a kind of self-regulating market claim?

JACOB SOLL: That sounds a lot like a self-regulating market based on moral behavior.

MARK BLYTH: Eh. So take us for a walk. Once the Romans drop out of the picture, where does it go next? How does it pop up in medieval times?

JACOB SOLL: Well, first it's really interesting because Cicero and the stoics talk about controlling desire. And one of the most important classic pagan philosophers to persist in Christianity is not only Aristotle but more so Cicero. Cicero never goes away.

One should never forget that he is a martyr for the Republic. He gives his life for the Republic. That's right before Jesus Christ. So he's a sort of martyr model. So he can fit into Christianity really, really well.

But the Christians don't want exchange to be based on landowners exchanging for a secular or not a secular but for a Republican city. They want people to exchange their gold and their desire for salvation. So suddenly, this idea of a self-perpetuating market becomes a Christian idea that desire, if you give it up or if you give up money, you will receive literally the treasure from heaven like a merchant will receive treasures and profits. And the fathers of the church use that language.

Then you have this long Christian, sort of, struggle over markets, wealth, and salvation. And some of the first market thinkers are not people looking for profits. They're Franciscans looking to fulfill a vow of poverty.

MARK BLYTH: That's actually a super fascinating part of the book. They go to great lengths to try and be poor.

JACOB SOLL: Well, obviously, the church is very rich. The church is the state. It's incredibly rich institution. And the Franciscans sort of show up in the twelve-hundreds as a force, and they don't want to have any possessions. They can't have anything.

So for example, if they own a book, they need to prove that the book is for theology and not for ownership sake. Otherwise, they commit mortal sin and they go to hell. So the stakes are huge in not having wealth. So they need to figure out what wealth is. And so they start looking into market processes.

The idea is they have to understand what everything is worth. And so what they get interested in is how value is created. They want to actually know what everything's worth at every moment, so they don't make any errors.

MARK BLYTH: Aha. So they can maintain, if you will, they're neutral value.

JACOB SOLL: Or their-- right-- zero value.

MARK BLYTH: Zero value and the whole thing. All right. So the church is caught up in these sort of internal commotions. The Italians pop up. Not just because of the wealth of the city-states of the time, but because they actually have big factories hundreds of years before Smith discovers a medieval tin shed filled with people making pens. How do they fit into this free market story?

JACOB SOLL: Well, they are the first people to really talk about markets. It's people who are either Florentines or involved with Florence, but also Siena. You have Lorenzettis, Frescoes of good and bad government.

And actually, the Frescoes show functioning markets. And they show that you have stores and rich people if you have good government. If you don't, you have poverty and plague.

And what they say that's really interesting, for the first time, is that merchants can be good people. You have to understand that the medieval church called business people or merchants paupers. The poorest people in the world are the people who are trying to make money. What else could be less Christian and sad than that, right? Necessary but sad.

They turn that all around with a very secular vision saying, actually, we're really positive. We make markets work, but we also do something else. We run governments. If you go to Florence and see the Duomo or the Palazzo Vecchio, it's covered with all the signs of the guilds who pay for the government.

And they're very aware that they're paying for government. And this money supports the Republic and the public good. And Cesaro says that's the summum bonum. That's the best thing you can do.

But they have this idea-- and this is where Machiavelli comes in. Always so remarkably visionary. Machiavelli comes in and says, look all these merchants are necessary, but the state has to be richer than any single merchant. Otherwise, we have an oligarchy or a dictatorship. And of course, that's what had happened under the Medici.

MARK BLYTH: So right there, you've got an appeal to free markets. You've also got a warning that unless the state is strong enough to regulate those markets, you will end up with oligarchy or worse.



DAN RICHARDS: So the idea of a self-regulating market between upstanding citizens that could eventually build wealth for everyone. This idea predates Adam Smith. But even closer to Adam Smith's era, Jacob thinks there's a figure who actually played a bigger role in shaping how we think about markets and economies today. A man named Jean-Baptiste Colbert. Colbert was, among other things, the minister of state in France and a minister of finance in France all in the late sixteen-hundreds under King Louis XIV.

Colbert is probably one of the most influential economic thinkers and policymakers who you have never heard of, unless you're an economic historian, that is. His relative obscurity in history is also related to another important misunderstanding, as Jacob sees it. And that is how France has gotten a sort of bad rap economically in the last few centuries as a sort of economic disappointment compared to, say, England in the 19th century or Germany in much of the 20th. This isn't just inaccurate, according to Jacob. It also leads to some pretty big misunderstandings about the modern economy. Here's Mark.


MARK BLYTH: So where you really make a controversial-- I would say a controversial contribution though, is to really in that the relationship that we commonly have in our heads between France and the UK, and between the figures of Colbert and Smith. So let's go right into this. I'll give you the stereotype of Colbert. You tell me why it's all bollocks, right?

So Colbert is this finance guy. The French they try and tax farm everyone to death. They're constantly at war. This guy comes in and tries to build a big state. He has one or two successes. But ultimately, it's porcelain fabrics. Who cares?

And then really what happens is the British have both the technological, industrial, scientific, and literary revolutions all at once. And they then take off, in part because of the Glorious Revolution, which France doesn't have. France's revolution comes 100 years later, and it's actually retrograde. So what new is that to say?


Was that was a fair stereotypical summary.

JACOB SOLL: I mean, right, that's an Anglo-Saxon fantasy, to put it politely. No. First of all, Colbert arrives in the 17th century. He's a trained accountant. France is the biggest, potentially richest country in Europe. It also is a place with one of the biggest scientific establishments in Europe and a monarchy which is remarkably weak but has this great potential.

Louis XIV calls him in, and he believes that this taxation system is terrible. What he tries to do is bring good accounting into the state, efficiency, fair taxation. He always writes about that. Colbert is a former businessman, but he's working for a monarchy. He's got to raise funds. So he believes that manufacturing will create extensive, expanding wealth, and so will imperial seaborne trade.

So he tries to create a system not unlike the English and the Dutch have created, I would say, 25 or 30 years earlier, where they have created shipping businesses that are really successful and manufacturing hubs. Colbert looks at them and says, wow, they had the state heavily involved.

So he studies them, and he says, what France needs to do is what the Dutch and the English did. But we need to do it faster because we're in terrible condition. And they're literally-- he says that the Dutch are emptying out parts of France because the French can't compete. Literally destroying industry and literally taking over parts of France economically.

So what does he think needs to be done? He thinks that there needs to be what we would call now a developmental economy. The state has to build ports. It has to build communication networks of roads and canals.

It has to systematize weights, and measures, and currency. It has to get better accounting and tax collection. And it has to support these manufacturing and shipping industries. This is literally a bigger scale model of what the Dutch and the English are doing, done with a centralized state, absolutely, and done faster under enormous pressure.

How does he do it? He relies hugely on this scientific establishment, which is in France. France has an Academy of Sciences. It's inviting foreign scholars in. It is actually super, super advanced in creating engineering technologies.

And in fact, it becomes, through its textile mills in Holland which he builds up, a huge menace to the wool industry in England, which by the way, is the biggest industry. This is not some small thing textiles. It is the thing. And then there's also shipping.

So those are the two things that the English rely upon. Colbert goes after them. France is bigger. And by the way, France's economy is going to be bigger than the English economy until the mid-18th century. This terrifies the English.

Now, France has a totally defective political system. Colbert dies in '83. Many of his reforms are pushed back. But what he does do sets the state for France being the second economy in the world. He basically boils down and does a quicker version of the English development model.

MARK BLYTH: So how come the English never wrote down nor realized nor fessed up to the fact that they, too, were a kind of developmental state? How did that history get wiped out of England? You know, why did we end up with this sort of, like, homespun story about Adam Smith in a pen factory as being sort of what happened in England?

JACOB SOLL: Well, the English never thought that. I mean, read all the discussions around opening markets as opposed to tariffs in the beginning of the 18th century. I mean, there's just endless amounts of writing. The people that win are saying, look, we can't compete with the French on an open market. We just can't do it.

Their numbers are bigger. And actually, what they're producing is superior or in greater quantities. It will simply wipe out our market. And if the wool and market is gone, the whole English economy collapses. They're very much aware of this. And they're aware of the French superiority in fashion, in wine, and in certain industries, too.

Nobody thinks in Seventeen Sixty that England is absolutely superior. That myth does not exist in the mid 18th century. It doesn't even really exist under Smith. The Americans, Hamilton says he wants to be the new Colbert when he's building the American state. He doesn't talk about Smith.

In fact, please read his project on manufactures. It is a direct response to The Wealth of Nations. He basically knocks down every one of Smith's theories. The idea that agriculture will make you rich, the idea that open markets can work for developing nations, like early America. He knocks it all down.

MARK BLYTH: And America has the highest rate of tariffs for the whole of the 19th century. But again, this is this other fascinating thing, right. So I'm suggesting that the British in a sense deliberately or accidentally forgot their own history. The Americans are a completely protectionist society, relying on the frontier and internal expansion for the whole the 19th century, right. And they then completely forget this story as well.

JACOB SOLL: Henry Clay continues Hamilton's policies calling it the American system, which is a system of tariffs and small subsidies for infant industry, which is how America gets on its feet. America is not a free market nation. In the 19th century, Britain hails itself literally as a free market nation. It becomes its identity.

Now, are there free markets within England? Yes. Are there international free markets? The English keep pushing for them. But England has this very special trick up its sleeve. France has some of this trick, too.

It's called a global empire. It's an empire run on coercion and gunboats. It's not that friendly. It's based on pillaging. We calculate that over 140 years, Britain extracted around $44 trillion from India alone. That's just the colony of India. You have to think about how much money that is, thanks for the railroads, right.

So even the free marketeers who say they are against empire still are for maintaining the empire against uprisings. Theoretically, they're against it just like Smith is theoretically against slavery. But is he really against slavery? Are these guys really against empire? Not when push comes to shove. Not necessarily.

MARK BLYTH: So let's go farther than not only of these sort of embedded in nefarious colonial extraction whilst talking about the benefits of free trade. We seem to get-- according to you, we get Smith wildly wrong. I'm going to put it in short form you expand on it.

This guy is essentially a huckster. This guy is essentially the 18th century equivalent of somebody who's in the ideas industry, as Dan Drezner wrote about a few years ago. He makes his living getting grants from giant oligarchical landowners who basically allow him to do the things that he wants to do. And he writes very flattering books that never implicate them in anything, that are incredibly vague and say lots of contradictory things.

JACOB SOLL: Absolutely.

MARK BLYTH: Now, we have this version like, but hang on a minute. This the guy discovered not just the division of labor, it's also the theory of accumulation. It's also industrialism. Doesn't it do all that sort of stuff? And you're like nah, sorry. It does not.

JACOB SOLL: Well, Smith's a hedger. You have to think of Smith as a professor who's on the make with some big donors. And he works for the donors. He actually lives in the donor's house, the Earl of [INAUDIBLE] who's really one of the richest, most powerful men in all of Britain. These people run the parliament.

They're trying to cleanse their lands of peasants and crofters so that they can put lambs, or sheep, and these high-return cattle. So they're kind of land-owning, oligarchical, agricultural entrepreneurs. And if you read Smith, that is what the system that he is talking about.

Do businessmen exist? Yes. Does manufacturing exist? Sure. But they can never produce wealth on their own. According to him, all wealth comes from agricultural labor, and all industry is dependent on agricultural production, which we know is just not true. That's not how it works.

Smith hedges on everything. He complains about politicians while talking about the ideal legislator. He talks about the necessity for businessmen while saying they're extremely dangerous, untrustworthy, and monopolizing, and that they should never be in government, ever. Businessmen should never be in government.

Companies are dangerous, too. Why? Because the people he works for are individuals. So he likes this idea of this individual, good person. But he also uses the word "we" in The Theory of Moral Sentiments.

And I don't know if he uses it in the same way in The Wealth of Nations. It's very easy to boil down who "we" is. We are the landowners, and the professors, and the people who support them, and live off them, and these universities that are educating their children.

Smith's filled with contradictions, I would also argue. Please, look closely at his ideas of slavery, which he claims is immoral and efficient but perpetual with two Ls. That means you can never get rid of it. This is the age of abolition. Major English and Scottish people are making speeches in the parliament about abolition.

Not so Smith. He's working for people who make money from slavery. Smith says it's bad but we can't get rid of it. There's a whole narrative of hedging and writing about these things in the 18th century.

One last thing. You have to understand that when Smith says wealth can only be created by agriculture, there is a huge and long tradition of people desperately arguing that agriculture will not create enough wealth. It will not create stable wealth or growth that you need for a modern, commercial society. All of these other authors who you've never heard of but are in my book are calling for this. Most notably, Alexander Hamilton.

And so Hamilton is the heir of a long tradition of market thinkers who don't believe that agriculture is the path to wealth. Smith is what we might call a medieval economist or a sort of, neo-feudalist. This is not the father of capitalist thinking.


JACOB SOLL: It's just not.

MARK BLYTH: It's just not, right. So Britain forgets its own developmental tradition that Colbert draws on to do France.

JACOB SOLL: That's right.

MARK BLYTH: Colbert's boss screws it up, because he's a war mongering idiot. And France gets held back a bit. But it never really failed, but there's always this persistent idea that it failed and that Britain, in some sense, succeeded.

And of course, if you look at it now, I mean, let's not even mention Brexit or anything like this. But you know, you've got an economy in the UK that is basically mired in very bad governance, huge sort of rent seeking, a collapse in real wages, the whole-- not really-- France's problem is, should we extend the retirement age? Because honestly, if we do the right accounting, we can fix it.

JACOB SOLL: Well, France also is way behind Britain in science and patents and all these other things. That's actually France's Achilles heel. It's technologically becoming a Second World state. And Britain, by the way, isn't. But without Europe, it's in very big trouble.

I think a lot of this also has to do with World War II. All of these economic fights are really set up after the Great Depression in World War II. There's a huge reaction first of all to FDR. That's so much of what people are angry about.

Economically is FDR creating social security. FDR bringing the state more into the economy. And then France collaborates.


So it's not really--

MARK BLYTH: But they all do. I mean, this is kind of the Bretton Woods "golden era for labor," quote, unquote.

JACOB SOLL: Well, sure. But the French don't really win the war, right. And it's Britain and America that have to hold hands and do it. And that's a good thing that they did. But the narratives of the 20th century get written after the war. And that's a lot of where this economic stuff comes from, especially in America with the Austrian school and others.

MARK BLYTH: So there's definitely, if you will, the material interest in telling a particular story because it protects, if you will, the wealth and property rights of those who are telling the story. But if I think about my friends and colleagues in economics who have been through graduate education or whatever, they actually don't spend a lot of time reading Smith or any of that stuff. They just jump straight into math class.


MARK BLYTH: Right. And it's a series of applied models. And this is how it works and all the rest of it. It's very distant from that. But at the same time, the importance of the idea of the free market is still absolutely central to both economic science, economic governance, economic policy.

Can we ever really escape the free market? I mean, in a sense, what you're trying to do is to give us where it really came from, what it really is about, how its different contours and struggles have been shaped over time, and a sense there is no they're there. It's a dream, as you say, right. But we keep trying to go for it. Why do we keep trying to go for it?

JACOB SOLL: Well, first of all, it's really seductive this idea-- and this goes back to religion-- that if you just find the right set of ingredients, if you channel your desire the right way, everything will work itself out. You don't need governments. There will be this utopia. We're not getting to a utopia.

The one thing we're not going to escape, I believe, are markets. And so the people that I talk about in this book are market thinkers. They believe they're talking about free markets. They just believe that government will have a big role in them.

I don't really good examples of wealth creation without government involvement of some point. Both of our major aircraft and military industries are completely subsidized. Or let's just agriculture in America, which is subsidized beyond belief. American dairy farmers, American grain.

I don't know about free markets, because I haven't really seen them in the ideal sense. I do know about market freedoms and what Colbert called liberty of commerce. So I believe in free societies. I don't like governments bothering me too much in what I do. But I don't believe that we can have markets without government involvement.

Do I believe that America can compete in the chip market without the government? I haven't seen that happen so far. And I believe it's strategically necessary. Will, the government totally succeed? No. There'll be lots of failures. But there are lots of failures in private industry, too, and lots of corruption there as well. And waste.

These are super hard questions. I'm not coming up with a single answer. But I'm-- do not think that the single answer is the idea that we're going to reach a self-correcting utopia.

MARK BLYTH: Jacob has an amazing book that goes all the way from basically Roman ethics to the 21st century. It was great to bring you here to Brown. And I hope that many people listen to the podcast and buy the book.

JACOB SOLL: Thank you so much, Mark. Great pleasure.


DAN RICHARDS: This episode of Trending Globally was produced by me, Dan Richards, and Lila Wirth. Our theme music is by Henry Bloomfield. Additional music by the Blue Dot Sessions.

If you liked this conversation, be sure to subscribe to the Rhodes Center Podcast, another podcast from the Watson Institute. It's hosted by Mark Blyth and is filled with thought-provoking conversations about finance and economics. And if you haven't subscribed to Trending Globally, be sure to do that as well.

If you have any ideas for guests, or topics, or questions, or comments about the show, send us an email at trendingglobally@brown.edu. Again, that's all one word, trendingglobally@brown.edu. We'll be back in two weeks with another episode of Trending Globally. Thanks.


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