Free market principles are derived from experience – not ideology

About fifteen years ago we experienced what people called at that time the end of Ideology. Since then I understand that certain writers, with the extraordinary capacity that such people have to confuse issues and to make intelligent discourse difficult, have changed the meaning of the word “ideology” but I cannot help that. I use the word in the sense that everybody understood it in the 1990s, when Marxism was the great ideology, and such others as existed were largely derivations or imitations of Marxism

The point which I wish to address is that when the advocates of Free Markets put forward the principle of good free market practice, and call for policy to be principled, they are accused of being ideological. Apparently in the view of the critics, in the absence of ideology, there are no principles of good practice at all.

This is the purest nonsense. In every sphere of human activity there are principles of proper practice, the purpose of which is to guide people to adopt practices that are known to work, while avoiding risks that beset the process. So airlines have a most elaborate and rather rigid set of rules – rigid because risks are high, or would be if proper practices were not followed; but this is not limited to airlines. Factories and offices have their rules of proper practice and so in fact do households. We drive (or I hope we do) in accordance with the rules of proper driving practice, which not only avoid unnecessary risks (drive safely) but also avoid causing damage to the mechanisms of the motorcar, or needlessly reducing its working life.

The last two points touch on the area where rules of good practice are sometimes found to be onerous. Rules of proper practice always do this; they not only guide us, as to the easiest and most effective way of doing things; they also, and always, bar us from doing things which we are likely to want to do, because they are attractive in the short run but which either involve excessive risk, or which will inevitably exceed the price in the future which, rationally regarded, is too high for the advantage to be gained. Rules of proper practice insist that we pay proper attention to the future; that factories regularly replace their capital equipment, that most households keep their level of debt manageable, and so on.

The principles of free market economics is of that kind. There are rules of proper practice, and those of them which people find onerous are those which insist that the future must not be sacrificed to the present to an excessive degree.

How then does this differ from ideology? The difference is that rules of proper practice are derived, genuinely derived, from observed and collected experience, and from theory which is itself genuinely derived from that observable and real experience, and is subject to constant revision in the light of new discoveries.

Ideology was none of these things. Marxism pretended to be a comprehensive description of reality, based on fact but was nothing of the sort. Marx gave the game away when he said “other philosophers have tried to understand the world where mine is to change it”. So Marxism (in its original form) was a myth invented by Marx to deceive people into behaving in a way which would change the world as Marx wished it to change. Marx and his successors were successful for a time. They did change the world. The trouble is that those who set out to change things without first understanding them are likely to change them for the worse, and so did Marx.

Free Markets have never been an ideology. The Free Market was not designed, it evolved. Its origin lies in antiquity both in Europe and in China and it has evolved in response to experience up to today. The theorists of free markets, like Adam Smith did not prescribe they described, like astronomers. In some places Adam Smith was wrong, but free markets went their way ignoring him. Although some rather feeble efforts have been made to create pro- free market ideologies they have had very little influence. Free markets have never been an ideological contrivance, as Marxism certainly was; they have been a working reality, and while they have been intentionally adopted (as in Germany in1948) this has been done, usually against ideological opposition, because they were seen to work.

So there are free market principles, and those who understand them are right to try to insist that they should be followed. This is not a matter of ideology but of sound practice and those who wish to query or verify the principles must examine the body of evidence which underlies them.

Author: The Late Michael O’Dowd was Chairman of the Free Market Foundation (1978-2005) and this article formed part of his address to the 2005 Annual General Meeting of the Foundation. The article may be republished without prior consent but with acknowledgement to the author.

FMF Feature Article/ 30 August 2005

FMF Policy Bulletin/ 2 June 2009