[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
“[T]he self-regulating economy does not always work as well as its proponents would like us to believe.” Joseph E. Stiglitz
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.
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” and (intellectually related) “institutionalist economics” 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). In economics, the orthodoxy often goes under the name “neoclassicism.” A more general term encompassing both threads of intellectual history, but also extending beyond them, would be “classical liberalism.”