The Doctrine of Laissez-Faire and Pretense of Libertarianism

" When economic power desires to be left alone it uses the philosophy of laissez faire to discourage political restraint upon economic freedom. When it wants to make use of the police power of the state to subdue rebellions and discontent in the ranks of its helots, it justifies the use of political coercion and the resulting suppression of liberties by insisting that peace is more precious than freedom and that its only desire is social peace. A rational analysis of social facts easily punctures this pretension."

The quote above is by the Christian theologian Reinhold Niebuhr. He exposes the myth of laissez-faire for what it is. It is invoked when economic interests find it useful to limit the power of the state, but enterprise could not exist in its current form without the power of the state to support its needs. For example, the enforcement of intellectual property rights is dependent upon the power of the state. Our economy could not exist in its present form without international enforcement of property rights. Patents, copyrights, trade marks etc. are necessary to encourage innovation, and they are the key to the profitability of many enterprises. It does not take a whole lot of thought to uncover examples of the critical role of the state in modern enterprise. In fact, without the support that Wall Street banks received from the state it would not exist. One of the principle roles of the Fed is to maintain the stability of the banking system as well as the dollar as the medium of exchange and a store of value. The myth of laissez-faire is so intrenched on Wall Street that most of the benefactors from state intervention in the market refuse to acknowledge the central role of the state in its survival and in its future growth.

The myth of laissez-faire is ordinarily used to benefit particular firms or industries when the state is motivated to provide public goods such as clean air and water, or worker safety. It is also used when enterprise desires to shift the tax burden from itself and its managers to others. The Reagan tax cuts and the Bush tax cuts, which primarily benefited the wealthy, were justified by the argument that everyone would benefit from the larger economic pie that would be created by encouraging enterprise to invest in the economy. Paul Ryan and others continue to make that unjustified argument today. The argument depends upon reinforcement of the ideology of laissez-faire.

Societies depend upon ideology to shape behavior and the ways in which people think about social arrangements. We would be better off today if we put the myth of laissez-faire to bed and focused our attention on how to best use the dynamics of enterprise and the powers of the state to provide for the common good. We do not need to replace capitalism with some other form of enterprise. We need to better manage the complex arrangements between the state and enterprise. This is better accomplished in the absence of myths that interfere with rational discussion. Logic and rational discussion depend upon the principle of non-contradiction. We seem to have forgotten that principle. The strongest proponents of laissez-faire have usually been the first to defend enterprise against the use of antitrust laws that were designed to promote free enterprise and limit the abuse of monopoly power. Teddy Roosevelt who broke up the trusts, was called a traitor to his class by the strongest advocates of laissez-faire. The German scientist Max Planck said that "science advances one funeral at a time". This may have been true in physics but it has not been true in economics. Its time that we had a funeral for a zombie idea that refuses to die.