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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.
Bernard 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.
Eric Laursen, Review of Bernard E. Harcourt's "The Illusion of Free Markets: Punishment and the Myth of Natural Order" (Harvard University Press, 2011)
Eric Laursen is an independent journalist living in western Massachusetts. He is co-author of Understanding the Crash (Soft Skull Press/Counterpoint, 2010) and author of the forthcoming The People’s Pension: The War Against Social Security from Reagan to Obama (AK Press, Spring, 2012).
Last December, Wall Street's leading banks were fighting tooth-and-nail to keep federal regulators from setting rules governing the vast market in financial derivatives contracts – the market that helped turn the 2008 mortgage-backed securities meltdown into a global catastrophe. The regulators were developing rules to implement the Dodd-Frank financial reform bill – rules that, among other things, were supposed to make the derivatives market more transparent.
Then an article appeared in the New York Times that seemed to blur the outline of this reform scenario. Titled “A Secretive Banking Elite Rules Derivatives Trading,” the article, by Louise Story, detailed how nine big banks had virtually captured the new regulatory regime before it even got started. One of Dodd-Frank's provisions called for most derivatives to be traded via clearinghouses, putting buyers and sellers in closer touch with each other and cutting out middlemen.
According to Story, nine big banks, including such familiar names as JP Morgan Chase, Morgan Stanley, Goldman Sachs, and Citigroup, had already checkmated this plan by setting up their own, secretive clearinghouse to trade credit default swaps, and cut a deal with the Chicago Mercantile Exchange that gave them effective control of another new clearinghouse. Result: nine elite banks, operating out of public view, have cemented even tighter control of the derivatives market than they had before. If anything, Dodd-Frank has helped them to do it.
Now comes The Illusion of Free Markets, a dense, groundbreaking book that explains why such things happen: why the supposedly freewheeling capitalists of the post-New Deal decades can get away with operating a tightly controlled system geared primarily to generate profits for a small group of big players. “At the end of the day, the notion of a 'free market' is a fiction. There is simply no such thing as an unregulated market,” writes the author, Bernard E. Harcourt, a professor of law and political science at the University of Chicago – ironically, one the academic hotbeds of ultra-free market theory in the '50s, '60s, and '70s.
In light of what's happened to the derivatives market, and the ease with which too-big-to-fail banks turned Washington's economic rescue legislation to their advantage in those fateful last months of 2008, Harcourt's conclusion seems obvious. (A useful companion to The Illusion of Free Markets, laying out the four decades of high-pressure politicking that enabled Wall Street to dictate terms, is Jeff Madrick's recently published Age of Greed). But the banks' success isn't just a matter of raw power, Harcourt argues. It's because we've all – lawmakers, economists, citizens – become imprinted with a universalizing ideology telling us that free markets = liberty and personal freedom, that a natural or spontaneous order is maximally efficient, and that “efficiency,” quantitatively expressed, is the most important virtue in human society.
We can argue against this implacable social vision. Many of us do, all the time. But given its basic assumptions, it's a remarkably airtight, encompassing model, one that's extremely easy to fall into. Here's an example from Harcourt's book:
“The market is the best mechanism ever invented for efficiently allocating resources to maximize production ... I also think that there is a connection between the freedom of the marketplace and freedom more generally.”
The speaker wasn't Milton Friedman, Friedrich Hayek, or any of the other prophets of neoliberalism. It was Barack Obama, on the campaign trail in summer 2008 – just as Lehman Brothers, AIG, and Fannie Mae and Freddie Mac were teetering. Obama is hardly a leftist, of course, but he was working intently to convince voters, many of whom were enraged at the financial services industry, to elect him to preside over the reform of Wall Street. Nevertheless, this was his statement of economic principles.
If free-market ideology is us, where did it come from? Harcourt attempts to explain this, and a bit more besides. His book won't appeal to most readers. It's unapologetically academic. It opens with a long section comparing and contrasting the 18th century Paris grain market and the Chicago Board of Trade, one of the four big, present-day U.S. futures and options exchanges, the importance of which doesn't become clear until many pages later.
To his credit, Harcourt finds space in The Illusion of Free Markets for a great deal of fascinating research, from bizarre 18th French proposals for reform of police administration to the boom in construction of mental hospitals in the late 19th century U.S. But two chapters on mass incarceration in contemporary America, while related, are so detailed they seem to have come from a different book. In knitting all this material together, Harcourt has perhaps not been well served by his editors at Harvard University Press.
Which is unfortunate, because The Illusion of Free Markets is a powerful demonstration of the impact of ideas – even relatively arcane economic arguments. It details the profound ideological connections between seemingly opposed politicians like Obama and Ronald Reagan. And it explains a great deal about how financial and corporate interests have been able to persuade Americans to accept close to four decades of deregulation, tax policies that favor the rich, and a justice system that essentially punishes people for being poor and of color – indeed, to regard these policy changes as inevitable. As such, it will reward a careful, patient read.
Harcourt starts with the notion of a “natural order” in society, which he traces back as far as Aristotle. But the story really begins with the Physiocrats, the group of French economic thinkers who were precursors of Adam Smith. The most important was Francois Quesnay, possibly the first to conceive of economics as a system “that functioned on its own, that had a direction of its own, that followed a necessary path – that had no liberty.” Another way to look at it was that human liberty was something enclosed within the economic system – that any attempt to achieve a social outcome outside the laws of the natural order dictated by the market is somehow illegitimate.
The Physiocrats fetishized private property. “You don't understand our laws, you say,” wrote the Marquis de Mirabeau, another of their leading thinkers. “Well, we have none other than private property, personal, chattel, and real, from which derive all other liberties that do not harm the property of others.” At the other end of the value scale for the Physiocrats was social and economic equality, which they saw as a threat to private property, “and consequently society itself.” Social inequality wasn't a social problem. Like private property, it was “inscribed in nature.”
Naturally, not everyone agreed. And so private property – and unequal privilege – would need to be defended. That's where the State came in. The Physiocrats advocated a “legal despotism,” an absolute power that would ensure “security” through the penal process.
Jeremy Bentham, the English philosopher of utilitarianism, took the next step, arguing that the idea of economic efficiency could be imported into other areas of society and government – such as prisons. He famously proposed the “Panopticon,” a model prison that would allow guards to observe the inmates without themselves being seen. The Panopticon would be cheaper than other prisons because it required fewer guards and could even bring in revenue from work done by the inmates.
That went along with Bentham's belief that human beings rationally pursue pleasure and avoid pain. It meant that the State could apply economic principles to deterring crime: how high a “price” in fines, or imprisonment, or some other penalty, would a person be willing to pay if he or she were caught? Bentham called his analysis “marginal deterrence,” and it directly paralleled the research on marginal pricing that economists were beginning to apply to markets.
So free markets and punitive government went, strangely, hand-in-hand. Harcourt provides a brief but fascinating snapshot of Jacksonian America, which absorbed both ideas. Andrew Jackson pushed for abolition of the first U.S. central bank as a way to keep power out of the hands of “a few monied Capitalists.” Instead, his followers favored a system that minimized government intervention in the economy. But the Jacksonian age was also the first period of rapid prison expansion in America.
Few people in modern society today, except for the very religious, believe in a natural order that runs – or should run – our lives. And in the century following Bentham's death, other economic and political philosophies arose: Marxism and Keynesianism, but also mutual aid-based approaches grouped together as anarchism. What rejuvenated the Physiocrats' ideas was the rise of the Chicago School, particularly a trio of economists: Ronald Coase, Richard Posner, and Gary Becker.
Coase argued that in general government shouldn't attempt to correct faults in the market, because the “harmful effects” would be greater than the gain from regulation. Posner, whose former colleague at University of Chicago Law School is Barack Obama, revived Bentham, who he credited with first understanding that “all men calculate their welfare.” Crimes, he said, shouldn't be regarded as moral wrongs but only as “a class of inefficient acts.”
Becker, who eventually received a Nobel Prize in economics, published an enormously influential paper in 1968 proposing that there's no need to consider any other factor than economic gain or loss to understand why people commit crimes – not “anomie, psychological inadequacies, or inheritance of special traits.” Anyone would commit a crime, he argued, as long as the benefits outweighed the costs.
The Chicago School economists didn't believe in “natural order.” But like their intellectual godfather, Hayek, they believed in “the spontaneously formed order of the markets.” Bypassing the market in some way – by stealing, or by attempting to regulate the market – is “inefficient,” and therefore shouldn't be allowed. “Criminal law,” according to the Chicago School, “is best understood as that which prevents this kind of market evasion.” Ultimately, “all human relations are analyzed through a transactional lens and can be evaluated in terms of efficiency and utility.”
The problem is, it doesn't work – even in the fields closest to home. As an example, Harcourt compares the 18thcentury Paris grain market and the Chicago Board of Trade. The former operated under a vast set of government regulations aimed at preventing price fixing and profiteering. The latter is self-regulating: the members of the exchange set the rules and control who can trade and who can't. But the officials who regulated the Paris market took a light hand and were often ignored. The small clique of member firms that run the CBOT, by contrast, exercise tight control over trading and lobby vigorously to eliminate anyone who might challenge them. Regulation happens – the only real issue is, who benefits?
“Efficiency,” nevertheless, is used to justify many things, Harcourt observes – such as racial profiling; zero-tolerance, mandatory sentencing, and “three-strikes” laws; and a vast increase in surveillance and data collection in police work. To these could be added education “reform” built around mandatory standardized testing and teacher performance ratings. Today, enormous amounts of data are crunched in a broad range of fields, in a quest to determine their degree of efficiency – or, better yet, whether they tend to promote efficiency. Harcourt calls this the Actuarial Society, but it could be termed just as properly the Econometric Society, because concepts and tools derived from business and economics have come to be applied to so many other aspects of human life.
It could also be termed the Punishment Society. Just as a vast expansion of state penal apparatus followed the spread of the Physiocrats' ideas, so has the Prison Industrial Complex followed the rise of the Chicago School. Harcourt's chapter on the recent growth of prison populations and prison building will stagger even readers who think they are familiar with the problem. He also lays out evidence that other industrialized countries that have adopted neoliberal economic policies more recently have started to throw people into prison at rising rates as well.
Politics, of the conservative-populist variety, explains why. Starting with Barry Goldwater and then Ronald Reagan, Harcourt points out, conservative politicians joined the free market to the Prison Industrial Complex in a more crudely effective way than any academic economist could. Goldwater and Reagan ran on platforms that emphasized both freeing up the capitalist economy and cracking down on crime. But what kind of crime? Harcourt unearths a remarkable statement by Lee Atwater, campaign adviser to both Reagan and George H.W. Bush.
“There are always newspaper stories,” Atwater observed, “about some millionaire that has five Cadillacs and hasn't paid taxes since 1974 ... And then they'll have another set of stories about some guy sitting around in a big den saying so-and-so uses food stamps to fill his den with booze and drugs. So it's which one of these that the public sees as the bad guy that determines who wins.”
Getting the public to regard the white-collar offender as somehow less offensive than the drug dealer is a lot simpler if people have been inoculated with the ideology of efficiency derived from ultra-free market economics. What's most damaging is that this prevents people from asking much more important questions. Any economic system, Harcourt writes, must be evaluated “on distributional grounds, not on the basis of any illusory metric of liberty.” That's difficult today “because of the deafening and dominant discourse of natural order and market efficiency.”
Harcourt calls The Illusion of Free Markets a “prolegomenon” – a first step in creating a new analysis that asks who benefits from the supposedly “free” economic system that's been built to regulate us. The next step, of course, is to figure out what we want instead. By exposing the flawed ideological roots of what's taken for “expert” social and economic thinking today, Harcourt's book may help us avoid the pitfalls in getting there.
http://hnn.us/article/141722
Book Review: The Illusion of Free Markets: Punishment and the Myth of Natural Order
Bernard E. HarcourtThe Illusion of Free Markets: Punishment and the Myth of Natural OrderCambridge, MA: Harvard University Press, 2011. 328 pp. ISBN 978 0 6740 5726 5. £21.80
There is no such thing as a free market. Bernard E. Harcourt makes this point twice. First, he illustrates how those markets heralded as “free” are as heavily regulated as so-called disciplinary regimes. The term “free” is therefore misleading as it is used to protect some forms of regulation from a discussion of their distribution effects. Second, “free” markets have led the US to a curious amalgam between the freest of market domains and excessive incarcerations in the penal sphere, a tension Harcourt terms neoliberal penality. With the first point, Harcourt provokes some debate aimed at a core belief of western societies. While he may not be the first to make this observation, he does so showing considerable proficiency both in history and economics. Also, the timing for this book could not have been better, a short time after the global financial crisis. His second point leads into a compelling genealogy of the idea of natural order of markets from the early physiocrats via Adam Smith to the Chicago School. This genealogy is the true heart and soul of the argument. Ultimately, some methodological concerns, an excessive mass of detail and an, at times, strangely uneven narrative do not allow the book to live up to its potential. However, this does not stop it from being thought-provoking, timely and important.
In the lengthy introduction, Harcourt sets the scene by describing in considerable detail two very different arenas. First, he shows the detailed and minute regulation of the 18th-century Parisian grain and bread markets. Myriads of rules and regulations were used to make sure that the market price would be respected. We also learn that the markets and police were closely aligned concepts. In some of his late lecturesFoucault (2009) had himself used the police des grains as an example for a nearly perfect disciplinary regime. In an ostensibly sharp contrast to historic France, Harcourt retells a story of a post-deadline sale of wheat at the Chicago Board of Trade (CBOT) in 1996. Again, a myriad of rules and regulations are employed. However, over the past two and a half centuries the rhetoric has changed and the CBOT is now widely considered as a prime example of a free market. Challenging this rhetoric, Harcourt points out that both instances were equally heavily regulated. Somehow the notion of free markets has obscured our view of markets as what they are: always in need of regulation. A market ordering itself is a myth. The problem with this myth is, according to Harcourt, that it prevents us from properly scrutinizing “how the administration of the markets actually distributes wealth”. Therefore, the first conundrum the book is trying to address is how this obscuring notion of free markets has been cemented in our contemporary societies. For Harcourt, “free” is a useless and misleading term and so is “discipline”, as it suggests markets in the ancien regime were so different from their contemporary pendants. In a short subsection on method this leads him to accuse Foucault of nominalism, something which I will pick up again at the end of this review. The second conundrum the book addresses is: how has the same genealogy that led to the dominance of the liberal free market idea also led the US to record numbers of incarcerations? How was direct governmental intervention driven out of the market and into the penal sphere? How was neoliberal penality spread? He uses this combination of free markets and mass incarceration to organize his genealogy of free markets.
In the first chapter Harcourt starts his genealogy by discussing Cesare Beccaria’s On Crimes and Punishment (1764) in some detail. He contrasts the readings of the text by the philosophes as a landmark of enlightenment, by Jeremy Bentham (and in spirit Gary Becker) as a very early rational choice theorist and by the early physiocrats as opposing truly free markets. Chapter 2 presents Harcourt’s own position, which is derived from a close reading of some of Beccaria’s “practically forgotten” other texts. In this reading, Beccaria advocates state intervention as “a form of enlightened despotism”. Order is, for Beccaria, not a natural effect of the market but the product of state regulation. Finally, Foucault is cited as offering a disciplinary reading of Beccaria, precisely because of the interventionist aspects of his work. So the question arises: how can Beccaria equally be heralded as an early advocate of liberal economics (free markets) and a disciplinarian (mass incarceration)?
Chapter 3 introduces an important aspect of Harcourt’s genealogy: the construction of the concept of natural order of markets. Francois Quesnay and Adam Smith are placed at the start of this part of the genealogy. Despite Smith’s criticism of Quesnay in The Wealth of Nations (2007/1776), Harcourt shows how both men shared common experiences which bonded them and infused Smith with the physiocrat Quesnay’s ideas of natural order, who had in turn built his ideas on earlier scholastic philosophers. The next chapter discusses an aspect of Quesnay’s work which provides a first hint towards explaining neoliberal penality: Quesnay promoted a form of legal despotism in which the legal despot was necessary but should respect the natural order of the market and restrict her rule “to penal sanctions against those who deviate from the natural order”. Harcourt provides interesting evidence on what this theory meant in practice when he describes the physiocrat Mercier’s rule over Martinique, which was marked by excessive police intervention in order to ensure the natural order.
The fifth chapter is dedicated to Jeremy Bentham. As famously shown in Foucault’sDiscipline and Punish (1995/1975), Bentham was concerned with the penal sphere and questions of efficiency – an important combination for Harcourt’s argument. Bentham’s writings provide evidence of a strange alchemy of a cameralist reading of Beccaria and what we might today regard as a moderate reading of Smith’s The Wealth of Nations. Bentham thus reproduced and diffused the physiocrats’ mix of natural order in the economic sphere and legal despotism in the penal realm. For Harcourt, Bentham’s rejection of naturalism is only rhetoric and his practices point directly towards an ideology of natural order.
Chapter 6 marks a distinct shift in the tone of the argument when the much more contemporary Chicago School is discussed. The focus of Harcourt’s analysis here rests on the wide-spread Coase theorem which suggests that a market is, given no transaction costs, the most efficient mode of allocation. Also, according to the theorem, government intervention is even in the case of considerable transaction costs not desirable, as it is nearly impossible to acquire the information necessary for sound decision-making. Harcourt reveals a natural order bias in this concept as it does not rely on empiricist individual case assessment of how high transaction costs actually are and then determining the mode of allocation, but advocates the market as more efficient tout court. Harcourt then continues his genealogy of the idea of natural order which he finds at subtle work in the Coase theorem, infused into Coase’s thinking via Bentham and von Hayek. This genealogy is associated with the evolution of a definition of crime which finds its most recent incarnation in Richard Posner’s work, who, tellingly, defines crime as concerning only those who bypass markets. In this view, rape is a problem only because it bypasses the market for sex. This firmly divides the good, natural and free market from the crime, which is the one sphere where intervention is still needed from the outside, effectively producing the combination of free markets and mass incarceration that Harcourt looks into.
Chapters 7 and 8 aim at deconstructing the terms “myth” and “freedom”. Here the author revisits the illustrations with which he started this book: the police des grains of the ancien regime (Chapter 7), which he shows was not put into much practice. He presents a large and detailed amount of historical evidence questioning the disciplinary power in the case. According to Harcourt, the market was de facto barely regulated. On the other hand, the genesis of the Chicago Board of Trade (Chapter 8) is portrayed as a story of politics and favoritism in which the rules of the game determine the winner. Harcourt thus challenges the notion of freedom and natural order in this institution.
The penultimate chapter focuses on the downside of neoliberal penality in the form of mass incarceration. Again, a wealth of data is presented to provide observation of the explosion of size and cost of the US penal system. In the final chapter Harcourt pre-emptively addresses some criticisms of his argument. Most notably, he acknowledges that only the US penal system has risen in numbers, in contrast to western European countries. However, he sees the growing use of mental institutions in Europe at the same time as an equivalent which, if taken into account, put the US and the EU on the same development path.
Harcourt’s argument is diverse and important. He makes a compelling case against the ostensible freedom of markets. While others have made this point before (e.g.MacKenzie, 2006) Bernard E. Harcourt combines this insight with a detailed genealogy with historic, philosophic and economic proficiency. His genealogy of the natural order which is supposed to underlie markets provides important insights into the curious combination of free markets and mass incarceration as well as their co-evolution. However, there are some drawbacks to his argument. At times, his narrative is somewhat oddly paced, as he provides an excessive amount of detail about certain aspects, which are no doubt interesting but make the book lengthy to read. The attention that the various aspects of his argument receive is varying, so, for example, if you expect a lot about the penal sphere – beyond statistics on its expansion in the US – you are likely to be disappointed. More importantly, however, questions regarding his methodology need to be raised. In order to avert nominalism, Harcourt discards terms such as “free” and “discipline” altogether, while at the same time adopting the vocabulary of economists (“distribution”, “wealth”) and Foucault, to whom he owes more than he is ready to acknowledge. And while he tries to avoid the term “free” he strongly suggests that markets are not as free as they seem. As we learnt from philosophers such as Adorno (2006/1966), calling something not-something is not transgressing the term but sticking firmly to its system of thought. And, questioning Foucault’s analysis of discipline because the blueprints of disciplinary power were not put into practice in their totality is an empiricist’s argument. In all fairness, Harcourt seems to have a weak spot for them; however, it misses Foucault’s point a bit. Not many panopticons were actually built. Still Foucault’s analysis of panopticism is a landmark in social sciences. After all, Foucault’s last position in academia was a professorship in the “history of systems of thought”. So, perhaps, not completely discarding the terms “free” or “discipline” has some legitimacy after all. Then again, these issues cannot detract from the timeliness and importance of the argument made by Harcourt and one can only hope that organizational scholars will use this springboard to (re)engage with (not so) free markets and the penal sphere, both often strangely neglected fields of investigation in organization studies.
University of Chicago professor Bernard Harcourt is a student, but not a follower, of theChicago School, an academic movement that has had a profound effect on America in the period since World War II, pushing the country aggressively toward an embrace of neoliberal ideas about economics and politics. In his latest book,The Illusion of Free Markets: Punishment and the Myth of Natural Order, Harcourt probes deeply into some of the contradictions inherent in the thought of the Chicago School, and exposes a striking historical parallel to its work. I put six questions to Harcourt about his new book:
1. Your book builds off an intriguing study of the eighteenth-century French Physiocrats —Francois Quesnay, Pierre-Paul Le Mercier de la Riviere, and others — in which you suggest that their theories of economics closely parallel what we have come to think of as the Chicago School. What exactly are the parallels, and how did this idea come about?
It’s the messianic belief in natural order in economics — in spontaneous order, as Friedrich von Hayek called it — or today in the efficiency of free markets, conjoined with a faith in strong government to deal with those who are outside the natural order — who are out-of-order, or disorderly. It’s the combination of those two paradoxical tenets — of government incompetence when it comes to regulating the economy and government competence when it comes to policing and punishing — that links these thinkers. Undoubtedly there were others before the Physiocrats who brought the idea of natural order into economics — Pierre de Boisguilbert, for instance, or the Scholastics with their notion of “just price.” But Quesnay and his disciples, especially Le Mercier, did so with a doggedness, obsession, and passion that would change the way people thought — a doggedness and obsession, I should add, that resembles the persistence of Hayek or Richard Epstein. It’s that maniacal, quasi-religious faith in natural orderliness or today market efficiency that ties these thinkers together.
For both the Physiocrats and the Chicago School, there is an orderly inside but also an outside — and for those outside, there is the iron fist of the state. The Physiocrats called for “legal despotism.” “The only object of man-made, positive law is to punish severely men whose passions are out-of-order,” Quesnay wrote in 1767. These two paradoxical tenets were joined together for the Physiocrats, and you can hear it well, again, in Quesnay: “All that is required for the prosperity of a nation is to allow men to freely cultivate the earth to the greatest possible success, and to preserve society from thieves and rogues [“des voleurs et des mechants”]. The first task is governed by self-interest; the second is ensured by civil government.” Looking back at Quesnay’s writings offers us a kind of recul— a French term for stepping back to see better — on how the idea of natural order would evolve into the invisible hand and laissez-faire, later into spontaneous order, and ultimately into a theory of free markets. By the same token, it lets us see better how the idea of legal despotism evolved into a theory of the state as “night watchman,” into Jeremy Bentham’s panopticon prison, and finally into Richard Posner’s argument that the “major function of criminal law in a capitalist society” is to prevent “market-bypassing.” To be sure, the language and rhetoric has metamorphosed over two centuries. But the logic — the structure of the argument — is the same.
Now, how it all came about, that’s a fascinating story that journeys through Hayek and natural law for the libertarians such as Richard Epstein, and through Bentham for the utilitarians and the pragmatists, such as Becker and Posner. They all came together thanks to the writings of my dear colleague Ronald Coase (who repeatedly scolds me that he was never part of the Chicago School). But to understand all this, I think I’ll refer you to the long chapter on the Chicago School in the book itself.
2. You suggest that members of the Chicago School, particularly Richard Posner, have drawn on the eighteenth-century Italian philosopher-statesman Cesare Beccaria in a way that falls short of fully understanding him. What did they miss?
They missed his economics! It’s not entirely surprising, given that Beccaria’s economic writings have been forgotten by history and never translated into English. But Beccaria was primarily an economist. Joseph Schumpeter referred to him as the “Italian Adam Smith” — but in importance only. His economics, as you will see, were radically different than Smith’s.
Beccaria was an adamant regulator, not just of proportional punishment, but of commerce and trade as well. The same year he published On Crimes and Punishments, he was computing algorithms for the optimal tariffs to augment the wealth of the prince. There was a perfect consistency in Beccaria’s thought that led him from hiscameralist beliefs to a regulatory conception of criminal law, and that allowed him to see that markets are policed in the same way that we police the streets. He would teach his economics students about policing and finance in the same breath.
Becker and Posner drew heavily on Beccaria’s punishment writings. In fact, Beccaria had articulated most of the important law-and-economics insights in the criminal area by 1764 (from marginal deterrence, to the trade-off between length and certainty of punishment, to the use of mathematical algorithms to solve criminal law questions). But they missed his cameralism and mercantilism, and as a result embraced an internal inconsistency: a strict, Beccarian regulatory framework for criminal law, but a hands-off approach to free-market exchange.
3. You’ve leveled sharp criticism at some of your most prominent colleagues in Hyde Park. How has this affected your relationship with them?
One of the most remarkable things about the University of Chicago is that we genuinely prize ideas and criticism. Hyde Park is truly extraordinary for the intensity of its life of the mind. We dish it out hard — harder than anywhere else I’ve been. But with that comes a certain mutual understanding and respect: we want to hear each other’s best criticism, and we value it.
I know for myself that my work has consistently sharpened in Hyde Park as I’ve had to respond to my colleagues’ criticisms — and let me tell you, they have been pointed. The presentation of my Chicago School chapter at the University of Chicago faculty workshop was at times explosive. But I value that tremendously and believe that Becker, Epstein, Posner, and others value it as well.
As for what they say about me among themselves, well, I’ve no idea! But frankly, that’s secondary. Getting it right matters more. Each year our entering class at the University of Chicago adopts a motto. My favorite one goes, “It’s all fine and good in practice, but how does it work in theory?” That’s by far the most important — getting it right, both in practice and in theory.
4. You show us that Le Mercier talked about limiting the role of government in the marketplace, yet when he was dispatched to govern Martinique he proved heavy-handed. Likewise you seem to think that libertarians, especially right libertarians, talk a good game about small government, but that if they got their hands on the rudder they might be harsh rulers. What’s your evidence for this proposition?
True-blooded right libertarians have never gotten their hands on the rudder in part because they eschew the kind of political compromise that’s required for electoral politics. Thinkers like Hayek, Ayn Rand, Robert Nozick, and for that matter Richard Epstein have had extraordinary intellectual influence, but have never been given the opportunity to steer the ship. To predict what would happen, you’d have to look at someone like Ronald Reagan, the rhetorical champion of small government — which would confirm my point. President Reagan was the great initiator of our national debt crisis. He tripled the debt, increasing it by $1.9 trillion, and set us on our present course of massive deficits. More to the point, he oversaw the prison buildup and the war on drugs. He and his attorney general, Edwin Meese, put us on the path to mass incarceration. Reagan spoke of limited government, but put into practice that paradoxical — and expensive — alchemy of purported privatization and the police state.
5. You associate neoliberal concepts with the staggering rise of the U.S. prison industry. Are you arguing that the move toward a privatized prison industry has unleashed market forces that drive an expanding business — as we saw recently when prison-services corporations were found to be behind lobbying efforts for harsh measures to incarcerate immigrants who are “out of status” — or do you have a different take on the issue?
My argument, as I’ve clarified over at Balkinization, is not that privatization or other neoliberal policies are responsible for mass incarceration (though they have undoubtedly contributed). In the book, I demonstrate instead how neoliberal ideas were born — and remain today — joined at the hip with the Big Brother state. The idea that the government is incompetent except when it comes to policing has facilitated the slide to mass incarceration. That mindset makes it difficult to pass economic regulation, but easy to multiply criminal offenses and increase the severity of punishment. Or, as Posner has written, to send only the poor to prison (the wealthy can be fined) and provide only “a bare-bones system” of indigent defense (anything more would be inefficient).
I focus on the role of ideas not to disparage the importance of policies like the war on drugs, truth-in-sentencing, or law-and-order politics, but to refocus attention on how theories shape our practices. That paradoxical way of thinking has facilitated penal excess, certainly during the past forty years of neoliberalism, but also when the penitentiary was born at the beginning of the nineteenth century — a period historians now refer to as “the Market Revolution.” Periods of strong belief in free-market ideals have gone hand in hand with the birth and escalation of the prison system.
6. In the latest rounds of discussion about raising the federal debt ceiling there was a remarkable resistance to accepting the costs that flow from simultaneously waging three wars and increasing defense spending, even as Republicans chanted a small-government, if not a no-government, mantra. Doesn’t this point to an inherently untenable contradiction in Chicago School thought, at least as it is interpreted by political leaders?
Yes, you see where I’m headed! In another book, I will need to extend the analysis to national security — the other domain where big government is perceived as inherently legitimate and competent. I’ve been tracking defense spending over at Balkinization, and it is staggering. Defense represents about 20 percent of the federal budget and 50 percent of the discretionary portion of the budget. The United States is spending more on defense than we’ve spent since World War II, and now accounts for 50 percent of the world’s military expenditures. Defense spending is one of our largest stimulus programs, yet it is never discussed in those terms. That’s the product of that paradoxical opposition between natural economic order and government competence in the realm of security. Prisons and armies, domestic tranquility and national security — you are right, sadly, the two play a similar role in American public discourse.
Albert Florence at home in New Jersey, in 2011, with his attorney Susan Chana Lask. The US supreme court found against the suit he brought against Burlington County after he was strip-searched twice after arrest on suspicion of a minor driving violation. Photograph: Mel Evans/AP
There is a deep tension in contemporary US political thought between the notion of freedom that tends to dominate in the socio-economic domain and the concept of liberty that predominates in the penal sphere. In socio-economic matters, the idea of freedom tends to be shaped by classic economic liberalism: the belief that an invisible hand shapes favorable public outcomes, that individuals need robust protection from the government, that the state should refrain from interfering in commerce and trade. In the law enforcement and punishment context, by contrast, the dominant way of thinking about liberty gives far more ground to the government, to the police and to the state security apparatus.
This tension, when it gets acute, gives rise to what I would call "two-faced" or "Janus-faced liberalism". Over the last 40 years, during a period characterized by increased faith in free markets, in deregulation, and in privatization, America's Janus-faced liberalism has worsened and fueled the uniquely American paradox of laissez-faire and mass incarceration. In the country that has done the most to promote the idea of a hands-off government, our government runs, paradoxically, the single largest prison system in the whole world.
This past month, the great American paradox took a distinctly dystopian turn, particularly at the US supreme court. The oral argument on the constitutionality of President Obama's Affordable Care Act, in conjunction with the court's decision on the constitutionality of strip-searching all persons arrested even on the most minor traffic infractions, crystallize this worrisome trend. My sense is that I am not alone in this assessment;there appears to be growing recognition across the US that this two-faced liberalism may, in fact, be pushing the country, inch-by-inch, in the direction of a police state. This is surely true of the recent strip-search case, Florence v County of Burlington.
Associate Justice Anthony Kennedy, more than any other supreme court justice perhaps, embodies and reflects this deep tension in liberal thought. In the socio-economic domain, Justice Kennedy embraces a robust economic-liberal notion of freedom. At oral argument on the Affordable Care Act, Kennedy signaled strong reservations about the federal government imposing a health insurance "mandate" on anyone. He emphasized, in an eerily deliberate way, that "the reason, the reason this is concerning, is because it requires the individual to do an affirmative act." Kennedy went on to say:
"And here the government is saying that the federal government has a duty to tell the individual citizen that it must act, and that is different from what we have in previous cases and that changes the relationship of the federal government to the individual in the very fundamental way."
Forcing Americans to buy health insurance, on Justice Kennedy's view, violates a fundamental notion of liberty and basic values of a liberal democracy – despite the fact that all Americans already pay for Medicare and Medicaid, as well as other social programs, not to mention military interventions. In the economic sphere, Kennedy evidently is attached to a robust economic-liberal approach. He almost sounds libertarian.
It is not an exaggeration to say that the decision "changes the relationship of the federal government to the individual in the very fundamental way" (to borrow justice Kennedy's own words). The decision overturned the rulings of seven US courts of appeal and contradicted the best practices of the federal bureau of prisons, the US marshals service, the US immigration and customs service, and the US bureau of Indian affairs – agencies that all require reasonable suspicion before strip-searching minor offenders. Despite this, incidentally, the Obama administration weighed in favor of the constitutionality of blanket strip-searches.
The contrast in conceptions of liberty could not be more stark. In the strip-search case, Justice Kennedy adopted what I would call a "police-state logic", a logic that is fundamentally at odds with the classical liberal political theory tradition. Under this logic, the court first identifies all possible security risks, no matter how trivial and low-probability; the court then delegates to the security apparatus the decision regarding the effectiveness and appropriateness of different security measures; finally, the court abdicates any pretense of independently weighing the security risks against individual liberty interests, so as to avoid, at all cost, any appearance of undermining the security experts.
In the process, the court adopts weak reasoning, even patently deficient arguments, to support the police-state logic. The fact, for instance, that the Oklahoma City bomber, Timothy McVeigh, was stopped for driving without a license plate, or that "one of the terrorists involved in the September 11 attacks was stopped and ticketed for speeding just two days before hijacking Flight 93", is completely irrelevant to the decision whether to impose a requirement of reasonable suspicion before stripping someone arrested for a minor violation. Strip-searching McVeigh or, for that matter, the September 11 terrorist would not have prevented, in any way, those tragedies. Justice Kennedy nevertheless embraces the non-sequitur because it bolstered his police-state logic. In the security realm, "you never know …" is regarded as a clinching argument.
This contrasts sharply with what we could call "liberal-economic logic" – the approach that places two thumbs on the scale of liberty in economic matters. Had this logic been applied in the strip-search case, there is no question the case would have come out differently, given the high cost to human dignity and self-respect, as well as, the grave risk of racial discrimination. The disproportionate arrests of African Americans in the US is extremely alarming in light of Justice Kennedy's decision, as evidenced by the facts surrounding the arrest, week-long detention, and multiple strip-searches of Albert Florence, in that case.
The growing chasm between these notions of liberty in the economic domain and in the police context has not escaped attention. Maureen Dowd sarcastically commented in the New York Times, following the strip-search decision: "So much for the conservatives' obsession with 'liberty'." Andrew Trees, in the Chicago Tribune, underscored this two-faced liberalism, remarking that "a majority of justices view a strip-search for something as trivial as failing to use a turn signal as perfectly acceptable, but requiring a citizen to buy healthcare is an unwarranted intrusion on personal liberty."
News parodies also spoofed the paradox. In a mocking headline styled "In Controversial Decision, Supreme Court Replaces Annual Physicals with Strip-Searches", the Borowitz Report recounted, with dripping sarcasm, that "the supreme court decided today that annual physicals were unconstitutional and should be replaced by random strip-searches conducted by the nation's police." Sadly, this is not too far off-base.
How do we explain this deep tension in liberal thought? How can liberty be treated so differently by Kennedy and some of his fellow supreme court justices in the context of economic exchange (healthcare) as opposed to the context of policing (strip-searches)?
Though the contrast is so stark, there is a coherence and logic to it. It dates back to the 18th century, when the idea of natural order (which would evolve into the concept of free-market efficiency) was introduced into economics hand-in-hand with the idea of a police state. The first economists, Francois Quesnay and his disciples, referred to this as "legal despotism". Using this rubric, they formulated a political ideal of complete governmental inactivity in all but the penal sphere. Given the existence of natural laws governing economic exchange, the group envisaged no role for the legislature except to criminalize and punish severely those who fail to see and appreciate the fundamental laws of nature. The only object of positive manmade laws was to severely punish those who were disorderly, as a way to protect society from "thieves and the wicked".
The same paradoxical, but coherent link ran through early laissez-faire liberalism. It was reflected in the writings of Jeremy Bentham, who argued that the government should "Be Quiet" in economic matters – at the very same time that he was inventing the all-seeing panopticon prison. This paradox is found in the Chicago School of economics as well, which defined the function of criminal law in a capitalist society as punishing and preventing those who "bypass" the free market. And of course, it continues to the present – a period in which we may be declared free from a government mandate on healthcare, but subject to strip-searches and delousing if arrested.
Since the 18th century, the idea of economic freedom has been joined at the hip with the need for a police state; government is perceived as incompetent with regard to economic regulation, but fully legitimate and competent at policing and punishing. Not surprisingly, the periods of strongest belief in the free market (the "Market Revolution" in the 1820s and the recent period of neoliberalism since the 1970s) have coincided with the starkest periods of penal expansion – with the birth of the penitentiary in the first half of the 19th century and the exponential rise in prison populations since 1973.
The rise of neoliberal thought since the 1970s has left us with a frightening union, one in which there is both free-market ideology (which militates against universal healthcare) and mass incarceration (with the attendant excesses like generalized strip-searches). This is what many of us have come to call "neoliberal penality". Justice Kennedy's Janus-faced liberalism is just the most recent, and troubling instance, where the socio-economic domain (healthcare reform) is governed by skepticism of the state and the need to protect the freedom of the individual, while the penal sphere is governed by a police-state logic that gives the state security apparatus carte blanche to eradicate even the smallest security risks (with a sledge hammer, if necessary). No delegation is permitted to social security experts in the economic realm, lest we fundamentally alter the relationship of the government to the individual; but we give free rein to the domestic security experts in policing and punishing – even when the magnitude of the potential harm is minimal.
In both contexts, naturally, there are risks. In the case of detention in a general holding cell, there is some danger that a person arrested might smuggle contraband into jail and harm himself or others. As Justice Kennedy reported:
"Officers at the Atlantic County Correctional Facility, for example, discovered that a man arrested for driving under the influence had '2 dime bags of weed, 1 pack of rolling papers, 20 matches, and 5 sleeping pills' taped under his scrotum."
In the healthcare context, there is the risk that an uninsured person may require medical attention and thereby impose costs on the insured. Justice Kennedy seemed to recognize as much at oral argument when he noted that:
"[I]n the insurance and healthcare world … the young person who is uninsured is uniquely proximately very close to affecting the rates of insurance and the costs of providing medical care in a way that is not true in other industries."
Despite the existence of risk in both situations, the supreme court delegated decision-making to the domestic security experts in the strip-search case, but appeared reluctant to do so to the social security experts on the healthcare side. Justice Kennedy closes his opinion in the strip-search case with these words:
"Courts must defer to the judgment of correctional officials that the inspections served not only to discover but also to deter the smuggling of weapons, drugs, and other prohibited items."
Never in a million years would you expect to see that kind of deference extended to social security experts. This should give rise to wide-scale cognitive dissonance, but that has not occurred. And the reason is that most Americans have, over the past several centuries, internalized the great American paradox. There is a growing disconnect, but we do not hear or see it. The liberal paradox has become, well, second nature.
Paul Krugman, writing about the Trayvon Martin justice shooting, does a powerful job of connecting the dots – particularly, the connection between the illusory ideology of free markets and the growth of the prison complex. Krugman documents how the call for limited government and free markets hides what he calls "crony capitalism", namely the practices that put in place a "privatized government" in which "corporations get their profits from taxpayer dollars, dollars steered their way by friendly politicians". This form of crony capitalism diverts public resources toward private profit – especially, in the direction of the prison complex. Krugman observes that:
"[W]e seem to be turning into a country where crony capitalism doesn't just waste taxpayer money but warps criminal justice, in which growing incarceration reflects not the need to protect law-abiding citizens but the profits corporations can reap from a larger prison population."
Mass incarceration and generalized strip-searches are two of the most glaring examples – and they are heading us in the direction of an America dystopia. The fact that we incarcerate almost 1% of the adult population in this country is itself appalling. The racial disparities in our criminal justice system are equally shocking. Today, 27% of African Americans and 26% of Hispanics in this country – more than one in four – live in poverty; and one in nine African-American men between the ages of 20 and 34 are behind bars.
Stripped naked, deloused and uninsured: these are, indeed, frightening prospects. Not surprisingly, Americans are facing these prospects precisely because of increasingly two-faced liberalism. The very question of the healthcare mandate arose because of an allergy to government-based economic interventions, stemming from the fundamental paradox in American notions of liberty. If the country had adopted a single-payer healthcare system, like the (already-existing) Medicare or Medicaid programs, none of these mandate issues would have arisen. The country would simply have a tax and transfer; as it does for innumerable social programs, economic subsidies to large corporations, and international conflicts such as the wars in Iraq and Afghanistan.
Instead, resistance to the Affordable Care Act grew (almost a majority of Americans oppose the reform), and is now accompanied by supreme court-approved strip-searches, delousing showers and mass incarceration. It is hard to imagine a worse combination: the cycle of poverty, precariousness, uninsurance and incarceration is becoming dystopic.