LSE's Lionel Robbins Argued That the Free Market Economy Had Been Replaced by Another Regime Since World War I

Lionel Robbins, a well-known London School of Economics professor, was also among the economists who argued that the free market economy had been replaced by another regime since World War I. “The essence of pre-war capitalism,” he wrote in 1934, “was the free market . . . in the sense that the buying and selling of goods and the factors of production was not subject to arbitrary interference by the State or strong monopoly controls.” Since World War I, he said, the free market “has tended to be more and more restricted”by state intervention. He wrote:

The cartelisation of industry, the growth of the strength of trade unions, the multiplication of State controls, have created an economic structure which, whatever its ethical or aesthetic superiority, is certainly much less capable of rapid adaptation to change than the older more competitive system. Certainly no one who wishes to understand the persistence of the maladjustments of the great slump can neglect the element of inelasticity and uncertainty introduced by the existence of the various pools and restriction schemes, the rigidities of the labour market and cartel prices which are the characteristic manifestation of these developments. These tendencies are the creation of policy.

He concluded that the Great Depression was not due to the conditions of capitalism but “to their negation”:

It was due to monetary mismanagement and State intervention operating in a milieu in which the essential strength of capitalism had already been sapped by war and by policy. Ever since the outbreak of war in 1914, the whole tendency of policy has been away from that system . . .

 --Pierre Lemieux, Somebody in Charge: A Solution to Recessions? (New York: Palgrave Macmillan, 2011), 65-66.