Monday, May 22, 2017

The relevance of van Bavel

As you may know, I am currently reviewing Bas van Bavel's The Invisible Hand? for History: Review of New Books. As I am reaching the end of the book, I am ready to write the introduction for my review!

Van Bavel's work might best be characterized as "applied history." (Students of Michael Oakeshott will recognize that this means van Bavel, while doing serious historical research, is primarily dealing with the "practical past," i.e., the past viewed as providing lessons for present choices.) The context in which this work is set is the ongoing debate over optimal economic policy. For a time, from the collapse of the Soviet Union until about a decade ago, it seemed that this debate might be settled: neoliberalism had triumphed, and the best political economy prescription clearly involved a heavy dose of free markets. Certainly, there was debate at the margins: Should healthcare be publicly provisioned? How big a welfare state should one have? What is the proper role for central banks and international economic institutions like the IMF? And there were always heretics like Marxists and Catholic social theorists who demurred from this consensus, but they were like flat earthers or creationists, and could be safely ignored.

But then came the financial crisis of 2007-2008, and all that had seemed settled was at play again. The response to the crisis by free-market advocates most typically ran along these lines: "Yes, the crisis was bad, but it was the result of crony capitalism, not of true free markets. If the central banks and the international economic institutions had not gotten in bed with the big banks, this all could have been avoided." And there is, I think, a good deal of truth in this response.

But van Bavel's work provides a very important counter-response. Van Bavel's main thesis is that open markets work well, for a time, at producing wealth and lifting all boats. But with the rise of factor markets, meaning market dominance over the allocation of land, labor, and capital, there arises an increasingly wealthy financial elite, and that wealth gives them an increasing influence over social conditions in general. In particular, this elite becomes more and more able to bend the legal system of their society to serve their own interests. In short, unfettered free markets produce crony capitalism as their probable (at times van Bavel seems to suggest inevitable) outcome, much as consuming crystal meth, while providing a boost for a time, sooner or later produces a collapse in health.

Van Bavel backs his thesis with extensive evidence from three case studies: Iraq between 500 and 1100 CE, Northern Italy from 1000 to 1500, and the Low Countries between 1100 and 1800. He also touches, much more lightly, upon other instances of market societies, such as England, the United States, early modern China, and the Roman Empire.

My next post on this topic will be the conclusion of my review.

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