"The Free Market doesn't exist" and other things I learned in grad school

This coming summer will mark the 4-year anniversary of the passing of Dr. Dave Schweikhardt. Dave was perhaps the most impactful teacher of my graduate career. Over the course of  the past year, notes from his classes (and those taken by others) have moved around my desk numerous times as I hunt for old wisdom or for some great anecdote or quote of his that I want to repurpose for my own curriculum development.  Given the time of year, I wanted to share one of my favorite memories of his Institutional and Behavioral Economics course. 

Sometime early in the semester, Dave entered the room one morning and immediately declared, "The free market doesn't exist!" He enjoyed getting right to the point, though it would often take us several minutes to catch up (our course was unfortunately early in the day, addling our response time somewhat). On this day, however, he forced us to formulate some kind of discussion on our own right off the bat. He repeated: "The free market doesn't exist. Why?"

I, hating silence and having read Milton Freidman as a teenager (and many other works after in similar traditions), generated some kind of defense of the existence of free markets in the vein of "I, Pencil". Dave didn't reply, asking if anyone else had thoughts. Someone else volunteered some comment about the invisible hand, again sortof refuting the statement (Dave would circle back to the invisible hand in subsequent lectures through the work of Warren Samuels, etc). From there another student brought up transaction costs and some comment to the effect of free markets needing management. Dave kept nodding thoughtfully along as we fumbled our way through our initial responses.

What we found was that none of the economists in the room had the same idea of what it meant for a market to be "free", other than some loose idea of less government intervention. Each of our "free" markets still included government regulation, just of differing types. This was the crux of Dave's lecture. The point was that a change in institutions means a change in rights, duties, etc., for some and not others. When we change institutions, we must be careful to ask, "where's the blood?". He was quick to point out that advocates of a free market often weren't advocating for anything except more rights for themselves (or some group), ignoring losses of rights elsewhere. He asked: what is "free" about it? He also wanted us to think more generally about the lack of clarity in our language, ranging from "free market" to "public" goods and beyond.

By the end of class, we were split into roughly three camps: 1) those that generally agreed, once the issue of the definition of "free" emerged, that "free" markets maybe didn't technically exist, but that this was an issue of language and not economics (believe me, this was about as heated as a grad school economics lecture could get) 2) those that agreed with 1, but who definitely thought this was an issue of economics and 3) those who just weren't very sure/wanted to explore the literature further.  If there was a fourth group of holdouts who disagreed with Dave, I didn't hear them. I ended up following Dave back to his office and spending too much time sorting it out when I should have been completing a metrics problems set. The value of this lesson was much longer lasting.

There is enormous value in teaching students to question the status quo, and Dave knew this. I still think it's concerning how few of us had thought about the concept of the "free market" in this way before, despite working in a field so steeped in political and philosophical realities as economics. The issue of language, and the way that we use it in particular has stuck with me and the few others that I've kept in touch with from the course. That course left me with a fair amount of anxiety about words and concepts used commonly in econ literature (and the media), that is sorely needed (not the anxiety, maybe, but the awareness), and the type of Socratic method Dave employed enabled us to ask our own questions and draw our own conclusions, so that a split in opinion like the one I described above was common in the course.  More of this, too, would be of benefit to an econ curriculum where you can either be Right or Wrong for much of your coursework (though once you hit the real world, that kind of thinking is much less useful).

Since I said that this was only one of my favorite memories from the course, I'll take this opportunity to link to my blog from last year about Dave and Schmid's most famous lecture: Institutions, Native American Toll Collectors, and what all this has to do with Interdependence .