Thursday, November 17, 2011

The Illusion of Free Markets

Professor Bernard Harcourt has recently released a compelling book "The Illusion of Free Markets: Punishment and the Myth of Social Order." Harcourt, a professor of law and chair of the political science department at the University of Chicago, painstakingly traces the parallel historical trend of increasing punishment during eras of strong free market advocacy. Harcourt's Illusion presents crucial historical evidence that when nations' focus on freeing their trading and capital markets, there is always a concomitant rise in that nation's imprisonment and incarceration rates. Of course, the rise in incarceration is always of the nation's poor and disempowered.

Harcourt's thesis perfectly situates the failed American War on Drugs. The explosive rise in mass incarceration in the United States over the past 25 years (imprisonment increase of 335% as a result of the War on Drugs) occurred when the presidential administrations of Reagan, Bush Sr., Clinton and Bush Jr. simultaneously worked tirelessly to deregulate the U.S. capital markets. Free market advocacy and deregulation have been occurring at exactly the same time that prison rates and populations have been skyrocketing. Harcourt describes how this is not just an American anomaly, but is a global historical reality.

The question that this historical reality begs is why? Why during eras of powerful free market advocacy do governments' radically imprison their own citizens?

From the front flap of The Illusion of Free Markets: "It is widely believed today that the free market is the best mechanism ever invented to efficiently allocate resources in society. Just as fundamental as faith in the free market is the belief that government has a legitimate and competent role in policing and the punishment arena. This curious incendiary combination of free market efficiency and the Big Brother state has become seemingly obvious, but it hinges on the illusion of a supposedly natural order in the economic realm. The Illusion of Free Markets argues that our faith in 'free markets' has severely distorted American politics and punishment practices.

Harcourt traces the birth of the idea of natural order to eighteenth-century economic thought and reveals its gradual evolution through the Chicago School of economics and ultimately into today’s myth of the free market. The modern category of 'liberty' emerged in reaction to an earlier, integrated vision of punishment and public economy, known in the eighteenth century as 'police.' This development shaped the dominant belief today that competitive markets are inherently efficient and should be sharply demarcated from a government-run penal sphere.

This modern vision rests on a simple but devastating illusion. Superimposing the political categories of 'freedom' or 'discipline' on forms of market organization has the unfortunate effect of obscuring rather than enlightening. It obscures by making both the free market and the prison system seem natural and necessary. In the process, it facilitated the birth of the penitentiary system in the nineteenth century and its ultimate culmination into mass incarceration today."


  1. Mr. Cummings. This is a great post. I would not have connected the idea of free markets and increased incarceration rates. However, I think this phenomenon can be explained in market theory itself. When the markets are free, there is opportunity for large gains as well as opportunity for large losses. I think that those who advocate free markets are looking mostly at the opportunity for reward and they forget about how this concept can backfire into huge consequences.

    It is important to ask ourselves if the positive effects of a free market are worth the negative effects, especially when those who are benefitting from the free markets are few and those who are affected by the negative consequences are many.

  2. Zach H- Memphis LawNovember 20, 2011 at 1:22 AM

    Whatever happened to correlation does not imply causation?

    Free market ideology focuses on individualism and survival of the fittest, and downplays the role of law/government except to ensure property rights. It is not unreasonable that this could lead to more crime as a result of greater inequality in societies and the focus on self-interest over community interest.

    However both this blog post's analysis and the quote from Harcourt take this reasonable assumption and veer sharply off the rails. Harcourt says:"Just as fundamental as faith in the free market is the belief that government has a legitimate and competent role in policing and the punishment arena" - If government does not have a legitimate role in policing and punishment, who does? The governmental role in these areas is as ancient as civilization itself. The penitentiary system dates back at least to ancient Greece, not the 19th century as Harcourt claims. I'm sure the prison system grew in the 19th century, however this is not because of free market advocacy. Instead, the major changes in the 19th century (urbanization, free market capitalism, increase in prisons) was a result of the industrial revolution. The changes in society were technology driven, the policies merely adapted to a changed world.

    Professor Cummings equates this thesis to the rise in incarceration resulting from the Drug War. This example does not support Harcourt's thesis. Harcourt's theory seems to be that increasing advocacy of free markets leads to more incarceration/crime. Cummings' example shows that the increase in incarceration is due to the Drug War. Unless Harcourt's theory is actually that free markets lead to more expansive criminal laws, the Drug War does not support this. Even worse, the Drug Wars are an attempt to restrict a free market, the exact opposite of creating a more laissez-faire economy that supposedly leads to more imprisonment. This is the opposite of what Harcourt is claiming. I highly recommend this piece in the Atlantic on the relationship of cocaine prices and violent crime rates for anyone interested in the Drug War and the economics of crime.

    Finally: does the current data show that countries with more free market advocacy have a higher rate of incarceration? The International Center for Prison Studies says the US has 743 prisoners per 100,000 citizens. That is very high, by far the highest reported rate in the world right now. However, other free-market oriented countries don't have the same problems. Furthermore, the few communist countries left have similar rates to their capitalist counterparts. The average rate for both communist and capitalist countries is around 150-200, excluding the USA. The one exception is North Korea, which does not report to the ICPS. An estimate reported by NBC News claimed that North Korea has a rate of 900 per 100,000.

    In sum, I repeat: correlation does not imply causation. Simply because two events/trends coincide does not mean that one causes the other. I haven't read the book, but as presented in this post this theory seems extraordinarily flimsy.

  3. Of course I haven't read the entire book, but I would question the causal link. There are many, many variables at play, and it would be difficult to isolate the link between free markets and incarceration. However, taken broadly, I can see how a link could be plausible.

    In my opinion, even if there was a link, I don't believe it is substantial enough for action to be taken based solely on preventing the result of incarceration. I don't believe that a market should be totally free; reasonable regulations need to be in place to protect all parties. I think the focus on regulating a free market should be viewed more broadly, that is, to protect the public as a whole (which would, indirectly, address the issue of incarceration).

  4. Jessie C_ Memphis LawNovember 21, 2011 at 6:54 PM

    I think this is a really interesting topic. The correlation makes sense to a point however the causal link seems a bit distant. I found a comment on to be very interesting. It stated:

    "Why not think about the illegal drug market as a "truly free" market? There are no taxes, no regulations as to quality/purity or who you can sell to, no quotas, no protectionism and no licensing. Employers are not subject to labor laws. It's a cross between Somalia and Galt's Gulch!

    But what about the fact that the state will lock you up if you have them or are caught selling them? The state isn't regulating the market, it just picks off seemingly random participants in it. That is to say that when you're "in" the market, it is free. If this is truly a "war" on drugs that we're in, think of it is a market in a war zone. Every now and then a sniper picks off a street vendor, but if the vendor operates in a free market, his death or kidnapping doesn't change the nature of the market in which he operated."

  5. So if everything within a free market is either legally forbidden, legally permissible, or legally obligatory... and then the government changes every few years, changing with it which activities fall into which categories, how do you track crime through time? For example it may seem like "crime" has increased under a certain presidential regime... but what may actually have happened is we are "tougher" on certain types of crime, or we lower the criteria for being convicted of certain crimes. It may be an artificial inflation, and maybe those in power wish to have a higher conviction rate, effecting stats that say the administration is "getting crime off the street," when really, it's just expanding the definition/ rate of enforcement of crime. Also during good economic times, police forces expand since there's more money to pay them... which means more cops arresting folks.

  6. Natasha (Memphis Law)November 23, 2011 at 12:29 PM

    If Harcourt insinuates that the political emphasis on free market and the political emphasis on fighting crime facilitated mass incarceration which promoted the rise of the prison market, then in a sense, there really truly exists no such "free market" if the government via its (criminal sentencing) policies can create an economy that depends on imprisonment. If government policy can create or promote segments of the economy, then it is an illusion that there is "free market."

  7. As others have said, "correlation does not equal causation." Given the dropping crimes rates since the 1980s it could just as easily have been said that free market policies reduce crime.

  8. While it is clear that correlation does not equal causation, the comparison being made is not between "crime" and "free market" deregulation. It seems that Harcourt is showing that over time as markets were deregulated, incarceration rates increased dramatically. When you look at the correlation between this deregulation and the "War" on drugs, the comparison is not shocking. It is interesting that many proponents of free market economics are also proponents of government regulation of individual behavior, such as drug use or abortion. It seems that the correlation is not as tenuous as it might seem. I would like to read the book though to see how he builds his argument that in this case correlation does mean causation.

  9. I agree with the third comment above. There are just too many variables involved to come to the conclusion that incarceration and deregulation are so closely intertwined. Perhaps, though, the glass is always half-full for me; loosening up on regulations does not necessitate criminal behavior that was not already in the works?

  10. Could it be that free markets lead to greater economic expansion, and that greater economic expansion leads to greater revenues for the government, which leads to more money to build prisons, which leads to more criminals actually being put there? Hopefully one day, there will be enough of an economic expansion to actually fight the causes of crimes as well as being tough on crime...

  11. Incarceration does not equal rehabilitation. I think Denny hit the nail on the head. Every day in criminal court over 90% of cases settle and never go to trial. It seems to me that at least one reason for this is that prosecutors make deals that will keep these people out of jail because the jails are overcrowded and we don't have the resources to house them. Instead of simply incarcerating, if we put in programs to truly rehabilitate; I think the entire system would be much more efficient.

  12. Kirkland (Memphis Law)November 28, 2011 at 2:30 PM

    I think the author's juxtaposition of the "free" market exchange and the expansion of the American penal system is incredibly interesting. Not only does the author point out that the way that we think about these free markets changed our thought process about criminal justice, but he additionally advocates rethinking both. This is a challenge on conventional wisdom that I believe needs to be brought out into open discussion.

  13. Andrew F. (Memphis law)November 28, 2011 at 6:30 PM

    I also agree that correlation does not equal causation. However, I wonder if there is much evidence out there to show a correlation between more regulated markets and lower incarceration rates.

  14. Franklin A (Memphis Law)November 28, 2011 at 8:57 PM

    In response to Denny, I agree that it would be interesting if there was a study examining the expansion of the American prison system during this period of de-regulation.

  15. Like others who've commented here, I do not quite understand the correlation Professor Harcourt draws between the drug war, market deregulation, and prison population. Granted, it might benefit to read the book. This article on the book doesn't really explain the causal link between deregulation and imprisonment. Rather, it leaves the rise in imprisonment as some phenomenon that could perhaps be explained by a number of other causes.

    I do agree that free markets do have an indirect adverse effect on society. Free markets have historically led to progress for a small minority, while leaving the vast majority in deeper poverty and with less economic mobility. Milton Friedman was the intellectual father of the myth that free markets benefit society as a whole. The Chamber of Commerce and large corporations have perpetuated this myth; even to the point it is stated as some sort of law of nature. Friedman took a hacksaw to Adam Smith's works to piece together this theory that free markets benefit society. Anyone, including Adam Smith if he were around, could look at the history of modern capitalism and see how free markets have done little more than economically polarize society. Of course there is a strong causal link between poverty and imprisonment. Its unclear, however, if Harcourt takes a similar position.

  16. I also agree with most of the previous commenters. While reading this post I could not wrap my head around the connection that the author was attempting to make. Just because two things happen simultaneously in society does not necessarily mean there is a link. I think Denny's explanation is just as plausible as a more negative explanation such as the one the author is trying to make.

  17. I too think that the author's conclusion is fallacious. Just because two policies trace their origin to the same philosophical time period does not mean the two are causally related.

  18. This post as well as the subject material, Bernard Harcourt's book highlights a major problem with the belief that the free market is the cure for all ills, the fact that the free market is far from free. all economic systems exist in the context of history and unfortunately America's history is fraught with systemic inequalities. In a completely free market in this country not all individuals would be starting with the same privileges and thusly the free market would serve to continue systemic inequality. It is easier for supporters of a free market to incarcerate individuals who are disadvantaged as a result of history than it is for them to try and address the root cause of high crime rates, a life lived effected by painful history.

  19. Melissa T(Memphis Law)November 29, 2011 at 12:40 PM

    I agree with the others that just because there is a correlation does not mean there is causation.