The Invisible Hand? How Market Economies Have Emerged and Declined since A.D. 500.

• Author: Root, Hilton L.
• Position: Book review

* The Invisible Hand? How Market Economies Have Emerged and Declined since A.D. 500

By Bas Van Bavel

New York: Oxford University Press, 2016.

Pp. xi, 330. $60 cloth.

Economic historian Bas Van Bavel makes claims in The Invisible Hand? that are antithetical to the beliefs of most readers of this journal and should be given serious consideration. Exploring the emergence and decline of markets over long historical periods, he finds little to support a basic contention of contemporary social theory that links markets with human freedom. He finds instead that subjecting the factors of production--land, labor, and capital--to markets is self-undermining and gives rise to feedbacks that result in declining welfare over time and eventually to downfall.

The liberation of factor markets from moral and communal oversight triggers an initial growth surge characterized by asset accumulation that enables market elites to gain political leverage, which they then use to shift terms of trade to their advantage. It matters little which groups build the market or which social allocation systems they employ--state, kinship, associations such as guilds, or communes--the end result is always mass inequality, immiseration, the widespread sorting of workers into castes, and rigid managerial hierarchies. Yet when institutional sclerosis seals off innovation and an absence of competition prevents a rebalancing, economic decline results in everyone being less well off.

Free factor markets are hardly a comparatively recent phenomenon. Monetary transactions with prices predominantly determined by the market were prevalent in a variety of premodern settings, including Babylonia, Egypt, Italy, and China, with the consistent outcome being a consolidation of wealth among a minority and poverty for the masses. From among the many possible examples of these trends, Van Bavel concentrates on Iraq in the early Middle Ages, Italy in the Middle Ages, and the Low Countries during the late Middle Ages and early-modern period. In the first two examples, market-inspired growth spurts ended in collapse. The Netherlands did a little better, ending in stasis and rigidity but avoiding absolute decline.

When the population finally retreats from markets, the costs of decline fall on all social strata. Thus, there is considerable irrationality among the winners, who fail to see decline coming and are unwilling to break the existing unanimity even as they approach a threshold at which...