The Free Market does not exist

“The invisible hand” is a metaphor derived from Adam Smith’s writings in the late eighteenth century, and is often cited by those advocating for non-intervention in this supposedly natural order of things.

The rationale goes that people inherently seek to maximise value obtained in return for their labour and goods, and allowing people to freely choose what they do and how much they charge naturally leads to an increase in labour productivity. Proponents of the free market would use this to argue against government intervention within economic life, claiming it would introduce distortions and make labour less productive, as a central planner cannot possibly account for the needs of a diverse economy. So where would one find such a free market? A market devoid of any distortions caused by asymmetric government policy?

Most countries support their local industry for the purpose of maintaining a competitive edge in global markets and to allow for self-sufficiency. Food, manufacturing, and power generation are typically heavily regulated and subsidised by the government. It’s not hard to tell that this distortion percolates into other sectors. When a government subsidises the production of a staple food crop in order to encourage local cultivation and food security, an opportunity cost is incurred. The farmer is discouraged from planting cash crops that could otherwise be exported.

And thus every transaction of mundane life is ever so slightly distorted in comparison to a similar economy without subsidised food grain. Ironically, food grain subsidies hedge against the same macroeconomic forces that, Milton Friedman would argue, centrally planned economies are incapable of dealing with. What about the very currency through which commerce is conducted? It is ultimately issued by the government, the very source of distortions in a free market. One could then argue that money is the instrument through which a state hijacks the free market. The invisible hand of the free market, I imagine, encapsulates the needs and desires of labour, and how much labour can be exchanged for that need or desire. This three-way parley of labour, needs, and desires is precisely what money mediates.

Friedman would conceptualise the free market in the way physicists treat the frictionless plane. This is an extreme idealisation which denies the conditions from which markets emerge. You could theoretically let the coefficient of friction tend towards zero and find your models converging, but the same cannot be said about a market without a sovereign arbiter. The answer to how a market would price an item in the absence of a state is that there wouldn’t be a market to perform the pricing.

The systems that issue money, mediate disputes, enforce contracts and property rights are all arbitrated by the sovereign. The search for the free market, therefore, ends before it begins, at the state.