Economics, Law, Philosophy, Politics

Markets Are Government Creations: A Resource Guide

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[Note: This post is unlike the other posts on the blog, for the reasons described here. It offers a series of very rough notes toward a historical sketch of the idea that markets are government creations — in other words, the rejection of the neoliberal, neoclassical, or Reagan Era idea of a conceptual opposition between government and markets. More specifically, it fleshes out the claim in an earlier post that the idea of markets as government creations has been widely accepted by legal scholars, yet largely ignored by academic economists.]

“[T]he market is rational and the government is dumb.” Dick Armey[1]

“[T]he self-regulating economy does not always work as well as its proponents would like us to believe.” Joseph E. Stiglitz[2]

The idea that government plays a constitutive role in markets, including classical liberal markets, is not a new one. But it has never achieved dominance in either public or academic debates about what we would now identify as economic issues. It has never gained the status of a widely shared assumption in the way that its contrary has—the notion of a conceptual opposition between government and the market, public and private. Here, I will offer a brief history of the idea of markets as creatures of government, partly with the simple aim of bringing together in one place the disparate legal and economic contexts in which the idea has been expressed.[3]

At least in the United States, the peak influence of the idea that government constitutes markets arrived a century ago during the Progressive Era, when the “legal realist”[4] and (intellectually related) “institutionalist economics”[5] movements rose to prominence in academic and professional legal and economic thought, respectively. Both movements reacted against the orthodoxies of late-nineteenth-century thought in their respective fields. In law, this orthodoxy is sometimes referred to as “Classical Legal Thought” (CLT).[6] In economics, the orthodoxy often goes under the name “neoclassicism.”[7] A more general term encompassing both threads of intellectual history, but also extending beyond them, would be “classical liberalism.”

Looking back further, we can find occasional appreciations of the significance of government to the functioning of markets. But these earlier expressions are often ambivalent. In the same writers’ works, we can often find expressions both of the importance of government to markets, and the importance of protecting markets from government interference. To take a canonical example, Adam Smith recognizes, on the one hand, that a well-functioning market economy requires certain foundations such as secure property rights and protections from violence. He also recognizes that some political arrangements provide these foundations, while others, such as the violent feudalism of medieval Europe, do not.[8] On the other hand, at least as a matter of emphasis, Smith places far greater importance on the avoidance of government predation than he does on the government’s role in making markets possible.[9] Smith’s relative emphasis on the critique of governments for their mercantilist folly as opposed to the praise of government for its potential role in laying the foundations for market activity led A.O. Hirschman to conclude that “Smith affirms . . . that economics can go it alone: within wide limits of tolerance, political progress is not needed as a prerequisite for, nor is it likely to be a consequence of, economic advance . . . .”[10]

While occasional language recognizing the role of government in markets can also be found in other works of classical political economy,[11] it should not be surprising that no systematic insistence on this point appears before the rise of CLT and neoclassical economic thought in the later nineteenth century. Before the coalescing of the classical liberal opposition between government and the market, “[t]here was no general notion of freedom of contract; rather, the parties were thought to have implicitly accepted the moral and legal obligations customary to the relationships in which they entered or otherwise found themselves.”[12] To the extent that the notion of implied intent “blurred the distinction between privately assumed and publicly imposed obligations,”[13] we can see preclassical legal thought, and perhaps the classical economic thought that chronologically accompanied it, as inhabiting a world with no clear distinction between public and private law.

Only with the coming to self-consciousness of classical liberalism in the nineteenth century, and with it the public-private distinction and the accompanying opposition of government and the market, could the contrary view of markets as government creations come clearly into focus. Even then, some of the leading defenders of the latter view seemed hesitant to embrace it fully. In legal scholarship, one of the primary figures cited for the idea that classical liberal markets are creatures of government, and thus that the distinction between public and private law cannot be sustained, is the legal realist Robert Hale.[14] Yet Hale himself held back from the general conclusion that all legal decisions about how to structure a market are policy decisions. In the words of Duncan Kennedy, Hale “seems indeed to have believed that there is an appropriate role for judges in protecting ‘normal’ market functioning, while leaving distributive intervention to the legislature.”[15] As Kennedy notes, “in hindsight the idea of facilitating ‘normal’ functioning seems question[-]begging, given Hale’s own insistence on the pervasive market-structuring role of law, and the general realist insistence that legal issues are policy issues.”[16] The fact that even Robert Hale apparently found himself unable to straightforwardly endorse the idea that markets, including classical liberal markets, are creatures of government, illustrates the idea’s difficult history of reception.

More generally, the legal realists, such as Hale, Felix Cohen, and Wesley Hohfeld, rejected the orthodox assumption that legal rules could be neutrally deduced from abstract categories such as “freedom” and “will.” Instead of relying on the illusions of deductive formalism, they drew on American pragmatism to argue for developing and applying legal rules based on their functional effects—including their economic effects, such as relative changes in bargaining power.[17]

Similarly, and during the same period, the institutionalist economics movement drew on American pragmatism to reject the formalism of neoclassical economic thought and its abstract assumptions of rationality.[18] Instead, the institutionalists, such as Thorstein Veblen, Wesley Mitchell, and John R. Commons, advocated attention to empirical data that could help to establish realistic assumptions and the actual consequences of economic policies.[19] Commons, whose work lies at the intersection of legal realism and institutionalist economics, produced a treatise in 1924, Legal Foundations of Capitalism, that contained perhaps the most thorough investigation up to that time of “the role of law and the courts and how they determine the structural elements of an economic system.”[20] In terms of policy, participants in both the legal realist and institutionalist economics movements tended to support “social legislation,” and therefore rejected what had come to be called “laissez-faire.”[21]

The phrase “laissez-faire” itself captures the illusion that classical liberal markets exist apart from government, in such a way that they can be and should be protected from government interference. To assume that when the government enforces a certain set of legal rules that happen to have been in place in the United States in the later nineteenth century, it is “leaving the market alone,” while if it enforces another set of legal rules involving different prohibitions and permissions, it is “intervening in the market,” is to ignore that in both cases the government has created and controls the rules that constitute the market.

Although legal realism and institutionalist economics arose during roughly the same time from similar intellectual origins, reacted against similar orthodoxies, and favored similar economic policies, the movements met starkly different fates. These different fates may be significant in understanding why the view of markets as creatures of government has remained at the far periphery of public economic debate. Legal realism succeeded in transforming the customary modes of legal education, practice, and thought.[22] To a greater or lesser extent, at least in methodological terms, as Joseph Singer persuasively argues, “we really are all legal realists now.”[23]

In academic and professional economics, by contrast, institutionalism not only failed to transform the field, but was sidelined by competing trends. It is true that for several decades, a handful of economics departments continued to preserve Commons’ legacy. But today, those departments are “safely back in the orthodox fold.”[24] The orthodoxy is neoclassical, dedicated (at least until very recently) to sophisticated mathematical modeling and based largely on self-consciously idealized assumptions that aid in the production of mathematical models, to some extent regardless of their predictive utility.

Although a number of scholars keep the traditional institutionalist flame alive,[25] the closest thing to a legacy of institutionalism in the orthodox academic mainstream may be the loosely affiliated “New Institutional Economics” (NIE) movement associated with Nobel laureates Ronald Coase, Oliver Williamson, and Douglass North, which—to the extent that it shares assumptions and methods at all—is arguably as much neoclassical as it is traditionally institutionalist.[26]

In light of this background, it should be no surprise that contemporary articulations of the idea that markets are constituted by government policies—in other words, that markets are creatures of law—come largely from legal scholars rather than economists. In particular, legal scholars affiliated with the “Critical Legal Studies” (CLS) movement have produced some of the clearest articulations of the idea.[27] More recently, legal scholars influenced by legal realism but unaffiliated with CLS have continued to recover and rearticulate the idea.[28]

[Note: If I were developing these notes further, I might add a reference here to the law professors — not economics professors, notably — behind the recently launched Law and Political Economy blog, including David Singh Grewal and Jedediah Purdy (already cited in note 28). In fact, while I was putting together this post, the LPE blog posted its own history of the legacy of legal realism, by K. Sabeel Rahman.]

Outside of legal academia, the relatively few voices in contemporary economic policy debates that emphasize the constitutive role of government in markets tend to fall into two categories: a few are public intellectuals, including most prominently Dean Baker and Robert Reich; the others are development economists and historian-theorists such as Daron Acemoglu, James A. Robinson, Robert Bates, and Barry Weingast.[29]

Baker, who earned a Ph.D. in economics from the University of Michigan, has been a longtime public critic of neoclassical orthodoxy and conventional economic policy. In 2011, he published a manifesto arguing that American liberals should seek to restructure markets to serve progressive ends rather than simply attempting to redistribute income from winners to losers.[30] Baker’s argument attacks the assumption that the rules of the market favored by the Right are “the natural result of unfettered market forces,” while progressive rules constitute “interference with the market.”[31]

More recently, Robert Reich, a former Secretary of Labor who writes frequently on economic policy, has offered similar arguments. In a 2015 book, he argues:

Few ideas have more profoundly poisoned the minds of more people than the notion of a “free market” existing somewhere in the universe, into which government “intrudes.” In this view, whatever inequality or insecurity the market generates is assumed to be the natural and inevitable consequence of impersonal “market forces.” . . .

The prevailing view . . . is taught in almost every course on introductory economics. It has found its way into everyday public discourse. . . .

The question typically left to debate is how much intervention is warranted. . . .

But the prevailing view . . . is utterly false. There can be no “free market” without government. . . .

A market—any market—requires that government make and enforce the rules of the game. In most modern democracies, such rules emanate from legislatures, administrative agencies, and courts. Government doesn’t “intrude” on the “free market.” It creates the market.[32]

Do Reich’s words show that the idea of markets as government creations has, at long last, escaped its confinement in legal academia and gained a foothold in mainstream economic thinking? In fact, Reich is a professor of public policy rather than an academic economist. His primary training, fittingly, is in the law.

On the other hand, the development economists such as Acemoglu and Robinson who have argued for the primacy of political institutions over economic ones, and presented markets as creatures of state policy,[33] exist comfortably within the mainstream of academic economics.[34] Likewise, while Barry Weingast is currently a professor of political science rather than economics, he earned a Ph.D. in economics and was a frequent co-author with the economics Nobel laureate Douglass North.[35] Despite Weingast’s critiques of “the fallacy of neoclassicism”—the “fallacy, namely, that markets can exist without government”[36]—his work has not been excluded from the mainstream of contemporary academic economic debate. He also cites several other economists, including Acemoglu and Robinson, who have not fallen victim to the neoclassical fallacy yet remain active in mainstream academic economics.[37]

The most prominent progressive economists, however, such as Paul Krugman and Joseph Stiglitz, often continue to assume a conceptual opposition between government and the market, rather than viewing government policies as playing a constitutive role in markets. The epigraph from Stiglitz above is typical in suggesting that there is such a thing as a “self-regulating” or “free” market—that these terms have a determinate meaning built into them—but that such a market would not work well, and therefore government must intervene.[38] Similarly, Krugman stands by the conventional notion of there being a choice between government intervention and leaving markets to themselves.[39]

[Note: Based on a recent piece in the Boston Review, and his works dealing with economic institutions, I would now add Dani Rodrik to the small (but growing) club of mainstream academic economists who understand the potential significance of emphasizing that markets are constituted by government policies. He presents neoliberalism as the mistaken belief that “first-order economic principles map onto a unique set of policies, approximated by a Thatcher–Reagan-style agenda” — in other words, the fallacy that “the free market” is a determinate constellation of policies that can be derived by logic, rather than having to be chosen politically — and he recognizes the progressive possibilities in rethinking market rules. “[T]oday’s prevailing models probably come nowhere near exhausting the range of what might be possible (and desirable) in the future.” I would also note that Stiglitz’s involvement in the Roosevelt Institute’s “Rewrite the Rules” project suggests he may be arriving at a similar view.]

As a final note on the history of the idea that markets are government creations, I should acknowledge the absence of two notable “Karls” from the account offered above: Karl Marx and Karl Polanyi. There are certainly similarities between some threads in Marxist thought and some of the positions sketched above. In particular, both offer critiques of classical liberalism’s presentation of itself as somehow neutral or natural, and instead emphasize how the political and economic institutions of liberalism are historical constructions with effects that favor some interests over others. But in another sense, Marxism is very different from, and arguably incompatible with, the legal realist insight that markets are government creations. From the Marxist perspective, if anything, governments are market creations: the economic base of class relations determines the political superstructure.[40]

The economic historian and theorist Karl Polanyi’s thought is more compatible with the notion that markets are government creations. Against classical liberal opponents such as Ludwig von Mises, Polanyi emphasized that “[l]aissez-faire was planned.” Polanyi shows in great detail how the classical liberal market of the nineteenth century in England, far from being the spontaneous order imagined by Dicey and later Hayek, “was the product of deliberate State action,” “a deliberate government-controlled policy” involving a series of legislative acts in the 1830s that transformed labor and agriculture.[41]

But ultimately, while Polanyi recognized classical liberal markets as historical creations, he continued to speak of “the self-regulating market” not as a conceptually indeterminate expression, but as a determinate but “utopian” set of institutions doomed to generate a counterreaction. Because he seems to have assumed that the market has a natural form—that is, the legal market rules of classical liberalism—it is unclear whether Polanyi would have agreed with the shared insight of the thinkers above that a departure from classical liberal market rules does not constitute government “interference” in the economy, but is simply a change from one set of market rules to another.


Other posts in this series:

  1. After Neoliberalism (Nov. 17, 2017)
  2. Markets Are Government Creations: An Introduction (Nov. 19, 2017)
  3. Markets Are Government Creations: A Resource Guide (Nov. 20, 2017)
  4. The Intellectual Foundations of a New Progressive Era? (Nov. 22, 2017)
  5. The Tragedy of the Obama Administration (Nov. 24, 2017)



[1] Richard K. Armey, The Freedom Revolution 316 (1995). I was unable to find a source for the more common form of the quotation. See, e.g., Douglas J. Amy, Government Is Good 1 (2011) (quoting Armey as saying, “Markets are smart. Government is dumb.”).

[2] Joseph E. Stiglitz, Foreword, in Karl Polanyi, The Great Transformation ix (2001).

[3] I am particularly indebted to the works by David Grewal cited below, which led me to several sources cited in this section. Simon Deakin et al.’s article, cited below in the same note, also provides references to key works in the contemporary institutionalist economic literature.

[4] See generally Joseph William Singer, Legal Realism Now, 76 Cal. L. Rev. 465 (1988) [LRN] (history of the legal realist movement and its legacy).

[5] See generally Harry Landreth & David C. Colander, History of Economic Thought 322–55 (4th ed. 2002) (history of institutionalist economics).

[6] For a very concise summary of the rise of CLT by one of the writers who helped establish the conventional narrative, see Duncan Kennedy, Three Globalizations of Legal Thought: 1850-2000, in The New Law and Economic Development: A Critical Appraisal 19, 25–28 (David Trubek & Alvaro Santos eds., 2006).  See also Morton Horwitz, The Transformation of American Law, 1870–1960 9–32 (1992); Singer, LRN, at 477–482 & n.40 (in part summarizing Duncan Kennedy’s then-unpublished manuscript, The Rise and Fall of Classical Legal Thought: 1850–1940).

[7] See, e.g., Landreth & Colander, supra, at 218–379 (describing the rise of neoclassical economics in writers such as Marshall, following the development of marginal analysis by Jevons, Menger, and Walras).

[8] See generally Barry Weingast, Adam Smith’s Constitutional Theory (Feb. 2017), available via SSRN; Barry Weingast, Exposing the Neoclassical Fallacy: McCloskey on Ideas and the Great Enrichment, Scandinavian Econ. Hist. Rev. (Oct. 2016) [ENF], available via SSRN. In a typical passage, Smith writes: “Commerce and manufactures can seldom flourish long in any state which does not enjoy a regular administration of justice, in which the people do not feel themselves secure in the possession of their property, in which the faith of contracts is not supported by law . . . .” Adam Smith, The Wealth of Nations V.iii.7:985 (Edwin Cannan ed. 2000 [1776]).

[9] Dugald Stewart quotes two passages from lectures that Smith delivered before The Wealth of Nations:

Man is generally considered by statesmen and projectors as the materials of a sort of political mechanics. Projectors disturb nature in the course of her operations in human affairs; and it requires no more than to let her alone, and give her fair play in the pursuit of her ends that she may establish her own designs.


Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which thwart this natural course, which force things into another channel or which endeavour to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical.

Edwin Cannan, Preface, in Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations 56 (5th ed. 1904) [WN] (quoting Stewart’s quotations from Smith).

[10] Albert O. Hirschman, The Passions and the Interests 103–04 (2013 [1977]). Hirschman relies in part on the following passage by Smith:

The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity . . . .

Id. at 103 (quoting Smith, supra, WN, at V.v.82:581). Weingast rightly objects, however, that Hirschman has overlooked Smith’s recognition, in this passage and elsewhere, of the need for government to provide “freedom and security.” See Weingast, supra, ENF, at 9–10.

[11] Anticipations of legal realist views on property and contract law can be found, for example, in economic works by Jeremy Bentham and John Stuart Mill. See Joseph Singer, No Freedom Without Regulation 15 (2015) (quoting Jeremy Bentham, 1 Theory of Legislation 139 (1840)) (“Property and law are born together, and die together. Before laws were made, there was no property; take away laws, and property ceases.”); John Stuart Mill, Principles of Political Economy V.1.6 (William J. Ashley ed. 1909 [1848]) (“But when once it is admitted that there are any engagements which for reasons of expediency the law ought not to enforce, the same question is necessarily opened with respect to all engagements. … Every question which can possibly arise as to the policy of contracts, and of the relations which they establish among human beings, is a question for the legislator; and one which he cannot escape from considering, and in some way or other deciding.”). More tenuous suggestions of the role of government in markets can be found in earlier thinkers who recognize legal property as a human invention. See, e.g., Thomas Paine, Agrarian Justice, in The Thomas Paine Reader 471, 472 (Isaac Kramnick ed. 1987 [1795]) (emphasizing that “artificial or acquired property,” unlike “natural property,” is “the invention of men”); Jean-Jacques Rousseau, Discourse on the Origin of Inequality, in The Basic Political Writings 23, 60 (Peter Gay ed. 1987 [1782]) (describing the invention of property by “[t]he first person who, having enclosed a plot of land, took it into his head to say this is mine and found people simple enough to believe him”).

[12] Singer, supra, LRN, at 478.

[13] Id. at 478 n.44.

[14] See, e.g., Duncan Kennedy, The Stages of the Decline of the Public/Private Distinction, 130 U. Penn. L. Rev. 1349, 1352 & n.10 (1982) (citing Robert Hale, Coercion and Distribution in a Supposedly Non-Coercive State, 38 Pol. Sc. Q. 470 (1923)).

[15] Duncan Kennedy, The Stakes of Law, or Hale and Foucault!, in Sexy Dressing Etc. 109 n.15 (1993) [HF].

[16] Id.

[17] See Singer, supra, LRN, at 474 (“Legal realism should be understood as the pragmatic movement in law.”).

[18] See Steven G. Medema, Nicholas Mercuro & Warren J. Samuels, Institutional Law and Economics, in 1 Encyclopedia of Law and Economics 418, 420 (Boudewijn Bouckaert & Gerrit De Geest eds., 2000) (“In economics, formalism was taken to be the abstract deductive reasoning of orthodox economic analysis that enthroned universally valid reason, assumed passive, rational utility-maximizing behavior, and demonstrated an inordinate concern over the equilibria of comparative statics (in particular utility analysis of consumer behavior and the marginal productivity theory of distribution).”).

[19] See Landreth & Colander, supra, 322–55. Mitchell, one of Veblen’s students, founded the National Bureau of Economic Research, which continues to support empirical research, especially regarding national income and the business cycle. See id. at 343. Commons’ ideas on social legislation helped lay the foundations for New Deal economic policies. See id. at 344. On the role of American pragmatism in institutionalist economics, see Medema et al., supra, at 421.

[20] Medema et al., supra, at 429.

[22] See Singer, supra, LRN, at 503–16.

[23] See id. at 503. As Singer summarizes:

The legal realists successfully changed the nature of persuasive argument. Most current legal scholars accept the realist message that it is wrong to attempt to answer legal questions by appealing to the inherent nature of the abstract concepts of property, contract, and liberty. … This mainstream approach is, for the most part, consequentialist and anticonceptualist. Current scholars understand legal rules to be devices for achieving social ends of fairness and efficiency.

Id. at 503.

[24] Landreth & Colander, supra, 345; accord id. at 477 (noting a 1944 work that already described “the victory of the neoclassical over the institutionalist approach as complete”).

[25] See, e.g., Geoffrey M. Hodgson, Conceptualizing Capitalism (2015). [Later note: It now seems to me that Hodgson’s work deserves much more prominence than I gave it in these notes — largely because I had not yet had a chance to finish his book.] Also notable are contemporary proponents of “institutional law and economics,” an approach associated with Michigan State University and the work of Warren J. Samuels and A. Allan Schmid, “both trained at the University of Wisconsin by students of Commons,” as well as Steven G. Medema and Nicholas Mercuro. See Medema et al., supra, at 430.

[26] See Landreth & Colander, supra, 489–90 (characterizing NIE as based on neoclassical assumption of rational individuals competing to shape institutions to serve their interests); cf. Peter G. Klein, New Institutional Economics, in 1 Encyclopedia of Law and Economics, supra, 456, 457 (noting that NIE resembles neoclassical and differs from traditional institutionalist economics by following “strict methodological individualism, always couching its explanations in terms of the goals, plans and actions of individuals.”).

[27] See, e.g., Kennedy, supra, HF; Singer, supra, LRN; Joseph William Singer, Entitlement: The Paradoxes of Property (2000); Singer, supra, FR (rejecting the distinction between classical liberal property and contract law, on the one hand, and post-New Deal administrative law, on the other, by describing both sets of market rules as simply “regulations”); Karl Klare, The Public/Private Distinction in Labor Law, 130 U. Penn. L. Rev. 1358, 1415 (1982) (reiterating “some old Legal Realist lessons, namely that ‘private ordering’ presupposes that public power has established a regime of rules and enforcement agencies, that the ‘unregulated’ market is a fiction, and that private ordering is itself a mode of public regulation”); Carlos Salinas de Gortari & Roberto Mangabeira Unger, The Market Turn Without Neoliberalism, in 16 New Perspectives Q. 29 (1999) (rejecting the assumption that markets must take a neoliberal form and arguing for the redesign of markets in order to achieve emancipatory goals); Roberto Mangabeira Unger, Free Trade Reimagined 81–85, 143–44, 183–84 (2007) (emphasizing the primacy of politics over economics, suggesting “that a market economy can take alternative institutional forms” and that “[t]here is no single system of contract and property that can rightly be said to be implicit in the idea of a market economy,” and on this basis advocating a “heresy” of inclusive experimentation in market institutions, against the “orthodoxy” of contemporary mainstream economic thought and policy); Lucy A. Williams, Welfare and Legal Entitlements: The Social Roots of Poverty, in The Politics of Law: A Progressive Critique 569, 576 (David Kairys ed., 3d ed. 1998) (“Contrary to the dominant political imagery, which effaces the power of the state in structuring social life, the state has always intervened in social life through the design and enforcement of non-neutral, value-laden entitlements established by market-structuring background rules. The question is not when or whether government should step in; the question is rather whose interests, and what distribution of power, are protected by these entitlements.”); Michael Robertson, Reconceiving Private Property, 24 J. L. & Soc. 465 (1997) (advocating for “market socialist” property rules based on argument that “[p]rivate property, contract, and the market which supposedly belong in the private zone, can only take a particular shape after the state has made many choices . . . which determine their ground rules. Thus the state can never be ‘outside’ the private zone, but is always and necessarily involved in it.”). While not affiliated with the largely anti-liberal CLS movement, the liberal legal scholar Cass Sunstein relied on the legal realist view of the government role in markets in, for example, Cass R. Sunstein, Neutrality in Constitutional Law (with Special Reference to Pornography, Abortion, and Surrogacy), 92 Col. L. Rev. 1, 8 (1992) (noting that “existing distributions are a product of law, and hardly neutral,” and thus that “reliance on market measures, operating against the backdrop set by existing distributions,” is not “inaction, or negative, or part of the, state of nature,” but rather that “market measures are . . . a mechanism, actually chosen publicly and made possible only through law, for giving those distributions certain predictable effects”); see also Stephen Holmes & Cass R. Sunstein, The Cost of Rights: Why Liberty Depends on Taxes 29 (2000) (criticizing “the libertarian fiction that individuals who exercise their rights, in the classic or eighteenth-century sense, are just going about their own business, immaculately independent of the government and the taxpaying community”).

[28] See, e.g., Simon Deakin et al., Legal Institutionalism: Capitalism and the Constitutive Role of Law, __ J. Compar. Econ. 1 (2016) (criticizing social scientists’ neglect of the role of law in constituting markets); David Singh Grewal & Jedediah Purdy, Law and Neoliberalism, 77 L. & Contemp. Prob. 1, 8 (2015) (arguing that “the opposition between ‘market’ and ‘state’ as conventionally posed is nonsensical. What the neoliberal position advances is not a claim of ‘market against state’ or even simply a push for ‘more market, less state,’ but rather a call for a particular kind of state”); David Singh Grewal, Book Review, The Laws of Capitalism, 128 Harv. L. Rev. 626, 654 (2014) (reviewing Thomas Piketty, Capital in the Twenty-First Century (2014)) (noting a pivotal reorganization in the English grain-labor market that “is often described as ‘deregulation,’ but . . . actually constitutes a move from one legal-regulatory regime to another,” and describing how “this new market regime was understood from its inception to be a positive legal construction”).

[29] See infra.

[30] Dean Baker, The End of Loser Liberalism: Making Markets Progressive (2011) [LL].

[31] Id. The Australian economist John Quiggin makes a similar point in a forthcoming popular work. See John Quiggin, Predistribution and Profits: Extracts from Economics in Two Lessons (May 15, 2016), available via

[32] Robert Reich, Saving Capitalism 3–5 (2015). Reich has acknowledged that his new emphasis on the government role in setting the rules of the economic game is a departure from his earlier work. See, e.g., Robert Reich, The Political Roots of Widening Inequality, Am. Prospect (Apr. 28, 2015).

For a journalistic work aimed at a popular audience that thoroughly presents the idea of markets as creatures of government, see Alex Marshall, The Surprising Design of Market Economies (2012). Marshall notes that “[t]ypically in public discourse, we talk about markets as if the only choices are to submit to them, to regulate them, or to run from them.” Id. at 2. He later quotes approvingly from a political commentator: “’In actual fact, there is no such thing as a “free market.” Markets are the creation of government.’” Id. at 21 (quoting Thom Hartmann). Appropriately, Marshall developed his ideas in part while attending lectures at Harvard Law School—including lectures by Roberto Unger. See id. at 21–22.

Douglas J. Amy, a professor of politics at Mount Holyoke College, has also argued in writings directed to a popular audience that markets are government creations. See, e.g., Douglas J. Amy, Government Is Good (2011). In a chapter titled “Capitalism Requires Government,” Amy writes:

One of the most common and misleading economic myths in the United States is the idea that the free market is “natural”—that it exists in some natural world, separate from government. In this view, government rules and regulations only “interfere” with the natural beneficial workings of the market. Even the term “free market” implies that it can exist free from government and that it prospers best when government leaves it alone. Nothing could be further from the truth. In reality, a market economy does not exist separate from government—it is very much a product of government rules and regulations.


Finally, Suzanne Mettler’s The Submerged State (2011) draws attention to a specific set of policies that tend to obscure the role of government in economic life: the provision of government benefits through indirect means such as tax subsidies and payments to private companies, rather than through direct distribution.

[33] See, e.g., Daron Acemoglu & James A. Robinson, Why Nations Fail (2012) (popular summary of fifteen years of collaborative academic research into the consequences of extractive and inclusive political and economic institutions). As the authors note, “[i]n the social science literature there is a great deal of research related to our theory and argument,” including their prior work with Simon Johnson, as well as earlier work by North and Weingast. Id. at 468 (collecting sources).

[34] Acemoglu is a professor of economics at MIT, and Robinson has a Ph.D. in economics and teaches public policy at the University of Chicago.

[35] See, e.g., Douglass C. North, John Joseph Wallis & Barry R. Weingast, Violence and Social Orders (2009) (presenting conceptual framework for understanding the role of violence in shaping the dynamics between political and economic institutions in “limited access orders” and “open access orders”).

[36] Weingast, supra, ENF, at 9.

[37] Id. at 9 n.5 (citing works by Acemoglu, Robinson, Robert Bates, Timothy Besley, Torsten Persson, and Guido Tabellini).

[38] Singer also criticizes Stiglitz along these lines. See Singer, supra, FR, at 5.

[39] At least in their introductory macroeconomics textbooks, even the conservative Gregory Mankiw arguably conveys a greater appreciation of the role of government in constituting markets than Krugman. Compare Paul Krugman & Robin Wells, Macroeconomics 16 (2006) (noting that “when markets go wrong, an appropriately designed government policy”—a “government intervention”—“can sometimes move society closer to an efficient outcome”), with N. Gregory Mankiw, Principles of Macroeconomics 10–11 (5th ed. 2009) (noting that a government might “intervene in the economy and change the allocation of resources that people would choose on their own” in order “to promote efficiency or to promote equality,” but also recognizing that “the invisible hand can work its magic only if the government enforces the rules and maintains the institutions that are key to a market economy”).

In a review of Reich’s Saving Capitalism, Krugman expresses “mixed feelings” about the idea that government creates the market, while at the same time seeming to discount the notion that there is more than one way of designing and defining “free markets”: “In some ways it seems to concede too much, accepting the orthodoxy that free markets are good even while calling for major changes in policy.” Paul Krugman, Book Review, Challenging the Oligarchy, N.Y. Rev. Books, Dec. 17, 2015.

For another example of a prominent progressive economist who sometimes writes of markets as though they exist apart from government, see Amartya Sen, Introduction, in Adam Smith, The Theory of Moral Sentiments vii, xii, xiii (2009) (appearing to assume that there is such a thing as “an unregulated market economy,” or “pure capitalism, with complete reliance on the market mechanism guided by pure profit motive”).

[40] As Duncan Kennedy notes, distinguishing the legal realist emphasis on legal institutions from the focus of Marxism:

In conventional Marxist accounts, law plays a minor role because distribution is determined by the “relations of production.” There are a capitalist class and a proletariat, defined by their ownership or nonownership of the means of production. Although these relationships to capital and land have a legal form, that form is merely reflective of an underlying set of material conditions.

Kennedy, supra note __ [HF], at 90.

[41] There are also similarities between Polanyi’s thought and traditional institutionalist economics. See J. Ron Stanfield, The Institutional Economics of Karl Polanyi, 14 J. Econ. Issues 593 (1980).



4 thoughts on “Markets Are Government Creations: A Resource Guide

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