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Rethinking the History of the Free Market: An Interview with Jacob Soll

© John D. and Catherine T. MacArthur Foundation - used with permission.

Jacob Soll is a professor of history and accounting at the University of Southern California. He has published several books including The Information Master and The Reckoning: Financial Accountability and the Rise and Fall of Nations. His most recent book, Free Market: The History of an Idea, examines the emergence of the idea of free markets from a historical perspective and offers new insight into how mythology surrounding free markets and general equilibrium have emerged. Professor Soll has received numerous awards, including a MacArthur Fellowship and two NEH Fellowships, and frequently contributes to publications such as the New York Times and Politico.

Emma Stroupe: What inspired you to write your most recent book, The Free Market: A History of an Idea? 

Jacob Soll: There’s this idea in economics called general equilibrium, by which the market corrects itself. It’s pulled out again and again. Tech people will pull it out, saying, “We don’t want any government,” and then suddenly the government’s there. It’s a very utopian and idealistic way of thinking and yet I don’t see any political examples of that working. You can have too much government or too little government, but the idea of no government and a system where the market will just correct itself with supply and demand is a bizarre ideology. No one before me had ever written a really serious history book on free market thought, so I decided to attempt one. 

In the history of political thought, we do these things called genealogies, where we work backward. What I found was before 1850, there was all this economic thought when people were building states. They used the words “free market,” and every single state, including England and Holland, was developing itself. There were these two books from around 1622 by Thomas Mun and Edward Misselden and they’re the first books that officially used free market thought. Both of them said, “We need the state to help companies, help trade, and do some protectionism so that free trade can flourish.” Now you get a few thinkers that say there shouldn’t be much state, but almost every free market thinker or person that uses the term thinks that there should be a good amount of state in there. The ones that think that it can really work on its own think that you need an absolute monarch to oversee it and then you need to open up the economy to agrarian landowners. I found myself thinking that this is just not the story we’ve been told, it’s a totally different story. The bad guy in this whole story is this French guy, Jean-Baptiste Colbert, who’s supposed to be the anti-free market guy. I found him to be literally the precursor to 19th-century American economic policy, 18th and 19th-century German economic policy, Japanese economic policy, and Chinese economic policy. So, the very person who’s supposed to be anti-free market turns out to lay the blueprint for market building for the entire world economy until 1980, essentially. And that just made me stop and think. It’s a kind of crazy book, and one I wanted to write after discovering all of this. 

ES: So, Jean-Baptiste Colbert was the one who laid all the groundwork, and yet we never really hear his name. How do you think we got to a point where it’s not Jean-Baptiste Colbert, but rather Adam Smith and his writings that get taught as the foundation of the economic ideas that we live in right now? 

JS: I mean, that’s what is crazy to me. If you read Smith, he doesn’t make a lot of sense for a modern economy. He is writing economic thought for agrarian landholders in Scotland who are trying to modernize their farms. He called artisans, merchants, and manufacturers “the unproductive class” and said they were essentially immoral and could never produce as much wealth as farmers. He actually worked for the agrarian oligarchs, both in their houses as a teacher to their children and manager for their farms. He taught at a university that was making its money in great part from the slave trade, tobacco trade, and also from this new agrarian revival. He is not the writer for the modern economy and capitalism, saying very clearly that all economic growth comes from agricultural labor and that all commercial growth has to actually correspond to agricultural growth. 

People in the 16th century knew this wasn’t true. In fact, medieval Italians knew that wasn’t true. They knew that being an artisan, making machines, making leather, making wool, that was how you made your money. So why Colbert and why Smith? Smith was somehow transformed by American thinkers into the symbol of the American free market, libertarian thought. He is so far from that, it’s actually kind of hilarious. He serves an oligarchy. So, he does have lots of conflicting things that he says, but if you read them in context, I think he’s actually quite clear. So, Smith gets created into the spokesperson for modern industrial capitalism because of certain things he says in his books that can be taken out of context. On the other hand, Colbert is the Frenchman who represents an absolutist government. Smith criticizes him in The Wealth of Nations for enacting too many “regulations.” Smith also praises him as being really a good manager of government finance, but people always ignore that part. I think Smith is so powerful—he says the problem with Colbert is he used too many regulations, and that he let businessmen into government. And it’s true, Colbert himself was a businessman. Colbert also said something that really upset Smith: that manufacturing was the most important thing for an economy, not farming. So he symbolizes this old urban commercial tradition of favoring manufacturing over farming. Meanwhile, Smith represents these groups that want to favor farming over manufacturing. Colbert becomes the poster child for what we call mercantilism today, an idea that didn’t exist back then. 

The myth of Colbert and mercantilism begins in the 18th century, when these agrarian lords, who say they’re for free markets, want no taxes on landowners. They want to favor landowning because Colbert has favored manufacturing. These lords believe free markets are for farms and that anything having to do with industry involved the state, which is more or less true. And so they have this whole anti-Colbertist narrative which gets taken up and solidified into a modern mythology.

I think the Smith mythology begins in earnest in the 1930s. American companies pushed really hard to build up Adam Smith and to build up what I believe was a sort of mythical utopian idea of free market thought. At this point in time, corporations were really scared about communism and FDR. They started creating think tanks and these myths that become really powerful. Not in Europe, not in Asia, but in the United States. My book has been attacked and attacked and attacked in the United States, whereas in the Financial Times, the Guardian, the Literary Review, and major newspapers in Denmark and Holland, my book was sort of hailed as this new narrative. But from the Wall Street Journal to the New York Times, they didn’t just attack the book, they attacked me personally. It was something I didn’t expect because in other countries, like France for example, those myths don’t have such a hold over people. In America, they get hardened into something very influential. 

If you want to understand that, read Alexander Hamilton’s Report on Manufacturers (1791), which is a direct critical response to The Wealth of the Nations. How do we get from a country that’s built on Colbert, by a self-declared Colbertist, to saying that the country is anti-Colbert? Myths are strong. People have interest in them, but if you want to know why we have so much economic trouble and things don’t work out the way we think, maybe it’s because they’re teaching all of this stuff upside down and backward.

ES: You’ve talked a lot about how in America we like to say that a free market is a free market and the government should stay out of it. You hear this a lot from different players in the political economy. As a historian, how do you think that this narrative came to be given that at the beginning of free market thought the state was said to be crucial? 

JS: Well, first of all, many of those people want the government to stay out of it until the government has to bail them out. They know very well that they need government. So one thing that’s really interesting is that by the end of the 18th century, you start getting these stable states with major bureaucracies. You have these kinds of proto-modern states where the government is taxing, creating balance sheets, and managing their economies. The British state ends up doing some serious financial management with various financial crises. The Austrian state has some success. The French state is kind of floundering because their innovation happens in the 17th century, but it’s a big state. People are not worried about the state going away. It’s really in the 19th century that you get anti-statist discourse. You get anarchists. You get all sorts of wild radicals. Usually from the left because the right is going to be for a big, hard, heavy state, or the Burkean establishment, which is not so light. But as the state gets bigger and corporations get more powerful, the idea that you can have an economy without state involvement becomes a kind of fantasy that I would say is perpetuated after World War II. There are people that say this at various times in history, but it doesn’t become a sort of hardened ideology until during and after World War II and after FDR. Some of the most famous proponents are Hayek and Friedman. But can you find me an example of a major successful industrial economy without massive government involvement? I’ve never seen an example of it, but it’s a discourse that I hear all the time in the business world. In the 2008 crisis, there wasn’t any state that didn’t intervene. Just like with Covid-19, there wasn’t one industrialized nation that didn’t go in and pump huge amounts of money into their economy. There would’ve been a world collapse. 

I don’t like the state being too involved with things. I went to mostly state schools, and then I went to some private schools and I was involved with them. And I love working for a private university. I feel like I’d be more moral working for a public university, but we have more freedom, and there’s more room for entrepreneurialism in a private university, I feel. The reality is we have these public-private partnerships. You have companies created by people, by individuals that are off the grid, partially of governments, but they rely on infrastructure, they rely on education, they rely on all sorts of subsidies. And I talk about this in the book, whether it be Amazon relying on the Postal Service, or whether it be Walmart relying on Medicare. I’m stuck with this conundrum that you get these anti-government discourses that come more and more after World War II. They’re based a lot on Hayek and Friedman. Now in lots of other countries, you can say, “I want less state,” but no one says “no state.” That’s another American kind of mythology. 

ES: With the emergence of new markets like cryptocurrency or an emergence of green markets, or climate change innovation, why is it important to understand these historical perspectives and the historical trajectory of economics? And what lessons can we learn as we go forward? 

JS: We’re dealing with these myths that keep making us crash into the wall. Economists try to create universal mechanisms. Turns out some mechanisms are universal and many are just historical. Lots are cultural too. Recently, a Nobel Prize-winning American economist wrote, “A lot of my early free market work was just wrong.” And no one took him up on it. Nothing happened. People are making policy off of these economic ideas and myths. There’s not a lot of discussion in the economics world of how completely disassociated they are from reality. That goes for the left and the right. To separate history from economics is madness, and yet, that’s what we do. We have economists who study the history of the economic mechanisms that they find, but they’re so disassociated from what I would call any competent history that I really wonder if they’re useful at all. An economist who actually knows history is a rare and important thing. Where a historian works with the idea that we’re seeing the parameters of what we don’t know and cannot know, the economist gives us these hard answers, which are often proven wrong really quickly afterward, and yet their credibility is untouched. The way we think about credibility needs to be revisited, starting with Adam Smith. 

*This interview has been edited for length and clarity.