RESEARCH · THE MERIDIAN IN PRACTICE

Why markets have never been free, and why pretending they are distorts policy. From Silicon Valley to the City of London, every market rests on political choices about property, power, and who gets to write the rules.

Vayu Putra
Independent Political Economy Researcher
February 2026

The seduction of "freedom"

FEW phrases carry as much ideological weight as "free markets." It suggests neutrality, fairness, efficiency, and the absence of coercion. It implies that outcomes are earned rather than engineered, natural rather than designed. For decades, this phrase has functioned as a rhetorical shield, deflecting scrutiny from the institutional architecture that determines who wins and who loses.

Consider what happened in 2008. When Lehman Brothers collapsed, politicians who had spent careers praising free markets suddenly discovered $700bn for bank bailouts. When the Federal Reserve needed to prevent financial contagion, it created $4.5tn in liquidity support. Free market ideology evaporated the moment actual markets threatened actual elites.

Yet the idea of a free market, understood as a domain of exchange untouched by political power, has never existed. Every market operates within a framework of rules. Those rules are neither neutral nor accidental. They are the product of legal decisions, historical struggles, and political compromise.

The central claim of this paper is simple but consequential: markets are not free; they are structured. And because they are structured, outcomes reflect power embedded in those structures rather than pure merit or efficiency.

Markets as political constructions

Markets require at least five foundational components: enforceable property rights, contract law, a medium of exchange, dispute resolution mechanisms, and coercive authority to uphold all of the above. None of these arise spontaneously. Each is supplied, directly or indirectly, by the state or state like institutions.

The moment property is defined, someone else is excluded. When Britain enclosed common lands in the 18th and 19th centuries, 7 million acres passed into private hands. Landless peasants became wage labourers. This was not market evolution. It was political transformation enforced by 4,000 separate Acts of Parliament.

The moment contracts are enforced, some interpretations are privileged over others. American bankruptcy law, for instance, allows corporate debt restructuring whilst treating student loan debt as effectively perpetual. This is not economic logic. It is political choice codified in the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act.

The moment money is issued, a hierarchy of obligations is established. Central banks determine who gets liquidity and at what price. During the pandemic, the Federal Reserve purchased $120bn per month in Treasury bonds and mortgage backed securities. Asset owners benefited from rising prices. Workers faced rising costs. These are political choices, not natural facts.

The moment property is defined, someone else is excluded. The moment contracts are enforced, some interpretations are privileged. These are political choices, not natural facts.

Even the most laissez faire economies rely heavily on public institutions to function. The question is therefore not whether markets are regulated, but how and for whom they are regulated.

The historical fiction of laissez faire

The nineteenth century is often romanticised as the age of free markets. In reality, it was an era of intense state involvement: land enclosure, colonial extraction, tariff protection, financial repression, and violent labour discipline.

Britain, champion of free trade rhetoric, built its industrial base behind tariff walls. Until 1846, the Corn Laws protected British agriculture from foreign competition. Between 1815 and 1846, average tariffs on manufactured goods ranged from 45% to 55%. Free trade ideology emerged only after Britain had secured industrial dominance.

The United States followed the same pattern. From independence through the 1920s, America maintained some of the highest industrial tariffs in the world, averaging 40% to 50%. The Smoot Hawley Tariff of 1930 raised duties to 60% on over 20,000 imported goods. Free market ideology became prominent only after American industrial supremacy was established.

Industrial capitalism did not emerge through voluntary exchange alone. It was enabled by state backed monopolies, imperial trade routes, subsidised infrastructure, and the criminalisation of alternative economic arrangements. The 1799 and 1800 Combination Acts in Britain outlawed trade unions and worker associations, making strikes and collective bargaining punishable by imprisonment.

Colonial extraction provided critical inputs. Between 1765 and 1938, Britain extracted approximately £45tn from India (in 2018 prices), according to research by economist Utsa Patnaik. Cotton, tea, opium, and indigo flowed to Britain under terms set by colonial administrators, not market competition.

The same pattern holds in modern economies. Silicon Valley did not emerge without public research funding, defence contracts, intellectual property law, and state guaranteed venture finance. The internet originated as ARPANET, a Defence Department project. GPS came from military satellites. Touchscreen technology emerged from publicly funded research at universities and national labs.

Economist Mariana Mazzucato calculated that every major technology in the iPhone (internet, GPS, touchscreen, Siri voice recognition, lithium batteries) originated in state funded research. Apple commercialised innovations it did not invent, protected by patents it did not discover, selling into markets it did not create.

Financial markets did not globalise without central bank backstops and legal harmonisation. The Basel Accords, negotiated amongst central bankers, determine global banking standards. The International Swaps and Derivatives Association writes standardised contracts that courts enforce. Market infrastructure is political infrastructure.

Free markets, in this sense, are retrospective narratives applied after success, not conditions that preceded it.

Regulation does not oppose markets, it defines them

A common pedagogical error frames regulation as an external distortion imposed on otherwise free markets. This framing is analytically incoherent. Regulation does not sit outside markets; it constitutes them.

Rules determine who may enter, what may be traded, how risks are allocated, and which losses are socialised. Changing these rules changes the market itself, not merely its efficiency.

Consider pharmaceutical patents. The United States grants 20 year monopolies on new drugs. This is not a market outcome. It is a regulatory decision that creates specific incentives. Pharmaceutical companies spend more on lobbying and marketing than on research and development. In 2019, the top 20 pharmaceutical firms spent $295m on lobbying in the US alone, according to OpenSecrets data.

Patent protection increases drug prices dramatically. Insulin, discovered in 1921, now costs Americans $300 to $400 per vial. The same insulin sells for $30 in Canada. The difference is not production cost or innovation. It is regulatory choice about intellectual property enforcement and price negotiation.

Bankruptcy law determines whether failure is fatal or recoverable. American corporate bankruptcy (Chapter 11) allows restructuring whilst preserving management. Personal bankruptcy (Chapter 7 or 13) often requires liquidation. Student loans, as noted earlier, cannot be discharged through bankruptcy at all. These distinctions shape behaviour more than market signals do.

Labour law determines whether wages adjust through negotiation or coercion. In Germany, works councils give employees formal representation in corporate governance. Co determination laws require employee representation on supervisory boards for companies with over 2,000 workers. In the United States, union membership has fallen from 35% in the 1950s to 10% today, partly due to anti union legislation like Taft Hartley (1947) and state level "right to work" laws.

Financial regulation determines whether risk is borne privately or transferred to the public balance sheet. The Dodd Frank Act of 2010 attempted to limit taxpayer exposure to bank failures. Yet in March 2023, when Silicon Valley Bank collapsed, regulators guaranteed all deposits, not just those under the $250,000 statutory limit. Free market discipline applied to depositors disappeared the moment systemic risk appeared.

Calling one configuration "free" and another "regulated" is therefore a political judgement masquerading as economic description.

Regulation does not sit outside markets; it constitutes them. Calling one configuration "free" and another "regulated" is political judgement masquerading as economic description.

Power, not competition, shapes outcomes

Textbook models often assume atomistic actors competing on equal terms. Real markets are dominated by incumbents with scale advantages, informational asymmetries, and regulatory influence.

In the United States, market concentration has risen dramatically since 1980. The top four firms control 85% of the corn seed market, 66% of the beer market, 64% of the wireless carrier market, and 70% of the domestic airline market. In pharmaceuticals, the top 10 companies account for over 50% of global revenues.

Large firms shape standards, lobby for favourable rules, and externalise costs. Amazon spent $21m on lobbying in 2022. Facebook (Meta) spent $20m. Google spent $13m. These firms do not merely respond to regulations; they write them through captured legislative processes.

Smaller actors adapt or disappear. Between 1997 and 2012, the number of publicly traded American companies fell by 50%, from around 8,000 to 4,000. Startups now face not open competition but acquisition by platform monopolies. Facebook bought Instagram and WhatsApp. Google bought YouTube, Waze, and Nest. Amazon bought Whole Foods, Zappos, and Ring.

Over time, competition gives way to concentration, and markets become arenas of managed rivalry rather than open contest. Airlines coordinate schedules to avoid price competition. Internet service providers divide territories to prevent overlap. Credit card networks (Visa, Mastercard) jointly set merchant fees that retailers cannot negotiate.

This is not market failure in the narrow technical sense. It is the predictable outcome of incentive structures that reward accumulation, lobbying, and consolidation. Network effects favour early movers. Regulatory complexity favours firms that can afford compliance costs. Intellectual property regimes favour patent holders over challengers.

The myth of free markets persists precisely because it disguises these dynamics as outcomes of neutral competition rather than political economy.

Inequality as a structural outcome, not an accident

Inequality is often defended as a natural byproduct of free markets rewarding talent and effort. This defence collapses once markets are recognised as structured systems.

Tax codes, inheritance law, capital gains treatment, financial access, and asset price inflation systematically favour those who already own assets. In the United States, the top 1% own 32% of all wealth. The bottom 50% own just 2%. This concentration has accelerated since 1980, when the top 1% owned 23% of wealth.

Labour incomes are taxed more heavily than capital incomes in many jurisdictions. In the United States, the top marginal income tax rate is 37%. The capital gains rate for assets held over one year is 20%. Warren Buffett famously noted that he pays a lower effective tax rate than his secretary.

Housing and financial assets benefit disproportionately from monetary policy. Between 2008 and 2021, the Federal Reserve's quantitative easing programmes increased asset prices by approximately 50%. Homeowners and stockholders saw wealth gains. Renters and non investors faced rising costs without corresponding income growth.

Inheritance perpetuates advantage across generations. In Britain, inherited wealth now exceeds earned income as a source of lifetime resources for the top 10%. The estate tax, once a meaningful brake on dynastic wealth, now affects fewer than 0.1% of American estates due to exemption thresholds ($13.6m per individual in 2024).

Access to credit reinforces hierarchy. Wealthy individuals borrow against portfolios at 2% to 3% interest whilst working families pay 15% to 20% on credit cards. Businesses owned by Black entrepreneurs receive venture capital at less than 1% the rate of white owned firms, according to research by the National Venture Capital Association.

These outcomes are not market imperfections. They are policy choices embedded in market design. Pretending that inequality emerges organically allows governments to disavow responsibility whilst preserving structures that reproduce advantage.

The state is not the opposite of the market

The popular dichotomy between "state" and "market" obscures their interdependence. Markets rely on states for enforcement, legitimacy, and crisis management. States rely on markets for revenue, employment, and growth.

Crises reveal this relationship most clearly. When markets fail, states intervene. The 2008 financial crisis required coordinated central bank action across the US, UK, EU, and Japan. The Federal Reserve alone extended $16tn in emergency loans between 2007 and 2010, according to a Bloomberg analysis of Fed documents.

Losses are socialised, stability is restored, and markets resume. In the United States, bank executives who presided over the 2008 collapse received $1.6bn in compensation the following year. Shareholders were protected. Bondholders were made whole. Homeowners lost $9.8tn in property values with minimal government support.

The ideology of free markets resurfaces only after rescue is complete. Between 2010 and 2020, the same politicians who voted for bailouts opposed stimulus spending for unemployment benefits, infrastructure, or public health. Markets merited unlimited support. Workers did not.

This pattern is not hypocrisy; it is structural necessity. Markets without backstops collapse under systemic risk. The 1929 crash demonstrated what happens when central banks refuse intervention: GDP contracted by 30%, unemployment reached 25%, and deflationary spiral destroyed productive capacity for a decade.

States without markets collapse under fiscal strain. The Soviet Union's centrally planned economy grew rapidly until the 1970s, then stagnated under inefficiency and technological lag. By 1991, it imploded not because markets are superior but because political rigidity prevented institutional adaptation.

The question is therefore not "state versus market" but which institutional configurations distribute power, risk, and reward most effectively. China's state capitalism combines market mechanisms with political control. Singapore's developmental state guides investment through sovereign wealth funds. Germany's social market economy balances worker representation with export competitiveness. Each represents different answers to the same question: who writes the rules, and in whose interest?

When markets fail, states intervene. Losses are socialised, stability is restored, and markets resume. The ideology of free markets resurfaces only after rescue is complete.

Why the myth persists

The myth of free markets persists because it is politically useful. It depoliticises distributional outcomes, legitimises existing hierarchies, and constrains the imagination of alternatives.

For elites, it reframes advantage as merit. The wealthiest 0.1% in America own as much as the bottom 90%. Free market ideology attributes this not to inherited wealth, lobbying power, or regulatory capture but to superior talent and effort.

For policymakers, it shifts blame from design to destiny. When wages stagnate whilst productivity rises, the explanation becomes "market forces" rather than labour law, union suppression, or shareholder primacy doctrines. Between 1979 and 2020, American productivity grew 62% whilst median wages rose just 17.5%, according to Economic Policy Institute data.

For educators, it simplifies instruction at the cost of realism. Economics textbooks teach supply and demand curves as if they exist independently of property rights, bargaining power, and institutional context. Students graduate believing markets are natural systems rather than constructed arrangements.

Most importantly, it narrows democratic debate. If markets are natural, then questioning outcomes becomes irrational. If outcomes are political, they become contestable. The phrase "free market" short circuits deliberation by suggesting that alternatives violate economic laws rather than merely reflecting different values.

The ideology also serves international power dynamics. Institutions like the International Monetary Fund and World Bank have long promoted free market policies in developing countries whilst wealthy nations maintained strategic protections. The 1997 Asian financial crisis saw the IMF impose austerity on Thailand, Indonesia, and South Korea. When the 2008 crisis hit the West, the same institutions endorsed unlimited monetary expansion and bank rescues.

Implications for students and policymakers

Students trained to believe in free markets are ill equipped to analyse real economies. They struggle to explain crises, concentration, inequality, and persistent inefficiency because their models abstract away power.

A more useful framework treats markets as institutional arrangements subject to redesign. This does not imply central planning or hostility to exchange. It implies accountability for rules and transparency about trade offs.

Consider pharmaceutical pricing. The question is not "state versus market" but whether patents should last 20 years or 10, whether governments should negotiate prices, and whether drug development costs justify monopoly rents. Each choice creates different incentives and distributes resources differently.

Consider labour law. The question is not "regulation versus freedom" but whether workers can collectively bargain, whether contracts can impose non compete clauses, and whether gig economy workers qualify as employees. Germany's works councils, France's 35 hour week, and Denmark's flexicurity model each represent different institutional choices, not deviations from a natural state.

Consider financial regulation. The question is not "intervention versus laissez faire" but whether banks should be separated from investment activities (as under Glass Steagall), whether derivatives should be traded on exchanges, and whether capital requirements should vary by systemic risk. The 2008 crisis proved that "light touch" regulation was not neutrality but a political choice favouring financial innovation over stability.

The relevant question is never "state versus market" but which rules, whose interests, and enforced by whom. This framing redirects attention from abstract ideology to concrete consequences.

Markets without myth

Markets are among humanity's most powerful coordination mechanisms. But they are not neutral, natural, or free. They are constructed systems reflecting political choices, historical legacies, and power relations.

Abandoning the myth of free markets does not weaken economic analysis. It strengthens it. It allows scholars and citizens to confront reality without ideological blinders and to debate economic arrangements as choices rather than inevitabilities.

The first step toward better markets is not deregulation or intervention per se. It is honesty about how markets actually work. Property rights are political decisions about exclusion. Contracts are political decisions about enforceability. Money is a political decision about hierarchy. Each shapes who can participate, who gains, and who loses.

The second step is recognising that all markets require rules, and all rules serve some interests over others. The question is whose interests prevail, through what processes, and with what accountability. Democratic legitimacy requires that these processes be transparent, contestable, and subject to revision.

Markets function best not when they are "free" from politics but when political processes ensure that rules serve broad prosperity rather than narrow advantage. That insight does not come from textbooks. It comes from history, evidence, and the courage to call myths by their name.

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