Michel Foucault says that liberalism is the reaction to monarchy*. As monarchy lost its grip, governments retained their despotic reach. The nation-state assumed the role of the monarch, and exercised unlimited power inside its borders. Foucault explains that the only limits were the legal rules that had grown up under monarchies. The judicial system searched for limits to the power of the state in ancient laws, and the prescriptions of the natural law as then understood. The despotic reach of the nation-state included especially the markets, which were regulated both to prevent fraud and deceit, and to insure a just price, one that took into account the interests of the consumer, the worker, and the merchant. Because of the tight regulation and the juridical underpinnings, Foucault calls this version of the market a site of justice, a “site of jurisdiction.”

By the last half of the 1700s, the formal regulatory structure was overwhelming. It is here that Foucault places the beginnings of Liberalism, which he describes as self-limitation of government, based on markets. Foucault describes this transition as a change from a regime of jurisdiction to a regime of truth, a regime of “veridiction.” P. 30, et seq. The underlying idea of markets as a regime of truth is this:

… the market appeared as something that obeyed and had to obey ‘natural,’ that is to say, spontaneous mechanisms. Even if it is not possible to grasp these mechanisms in their complexity, their spontaneity is such that attempts to modify them will only impair and distort them. … when you allow these natural mechanisms to function, they permit the formation of a certain price … which will adequately express the relationship, a definite, adequate relationship between the cost of production and the extent of demand. P. 31

This price is a kind of truth, a truth about production and consumption of certain goods and services. This kind of truth enables us to examine the activities of government regulation to see whether they make sense. This means that the market is a “site of verification-falsification for governmental practice.”

It is meaningful in the sense that at a particular point in time, one can use it to make statements about observable facts, and a way to judge whether particular statements are true or false; in other words, this kind of truth is the basis for a kind of truth-telling discourse. Thus, government is the object of the truth-telling regime. The field of political economy doesn’t look at justice or rights, it merely measures outcomes. Political economy reveals “the existence of phenomena, processes, and regularities that necessarily occur as a result of intelligible mechanisms.” P. 15 Foucault gives the example of the truth that people move to areas where wages are higher. I’d add that this is not truth in some momentous sense, about life or the universe. It’s merely a way of gauging the effectiveness of some governmental action.

It is important to note that Foucault places this transition at a time when the writings of Adam Smith was writing about invisible hands, and François Quesnay was explaining that markets are part of the natural order of things. Perhaps we don’t need to call on magic to make use of Foucault’s insight.

Foucault says the use of the market as a site of veridiction of government means that good government is no longer a government that is directly measured by justice, but according to truth, the truth of the market. Does that mean that markets are no longer subject to fraud? Does it mean that markets are no longer subject to the demands of citizens, to the demands of society for justice, to the demands of the poor for some elemental fairness? I don’t think so.

The mere fact that a price is revealed in the market doesn’t mean that the price is just or natural, or even reasonable. If the market is malformed, it will reveal false prices, and that’s true whether the problem is that the government has set too many regulations or too few, or has allowed one group to establish rules that make work for their sole benefit, or has failed to enforce its own rules. Foucault’s method means that citizens must examine the rules to make sure they are producing the fairest possible outcomes**. A properly functioning government will immediately change the rules to meet the demands of its citizens for justice.

Foucault is obviously aware of this. One of the ways markets perform their mysterious functions is through competition, especially price competition. Foucault says that competition is unnatural in a market economy. It must be created and nurtured, and jammed down the throats of the rich, if necessary. He describes the German system of Ordoliberalism in very favorable terms. He points out that it insures competition in every field, and that it acts to quash the demands of capital for monopolies and monopsonies and other distortions that insure the filthy rich get richer at the expense of the rest of us.

Here is the important part. It tries to do this without interfering with the price mechanism at the level of the consumer. Consider health care. In Germany, health insurance companies are tightly regulated to insure that policies meet very high minimum standards, and that the companies have adequate levels of capital. No doubt these companies would like to be able to offer a confusing array of pretend coverages, to be free to torture the sick and dying and their families with billing and invoicing frauds and random denials of coverage, and to operate with no capital at all, but with a bucketful of derivatives and loans. The market, the sacred market, means we can do what we want to. No.

Foucault explains that his kind of regulation works on the conditions of the market, not directly on the market. Foucault doesn’t approve of direct actions; perhaps he would not interfere directly in the unemployment level, for example. He does, however support interfering in the conditions of society in ways that lead to desired changes. He doesn’t offer much in the way of separating these two forms of action, but it’s clear from his example of agriculture in Germany in the early 50s that he is indifferent to the markets for agricultural property and existing plant and equipment, and he has no problem with moving people out of agricultural labor.

You can see that none of these elements—population, technology, training and education, the legal system, the availability of land, the climate—are directly economic and they do not affect market mechanisms directly, but … they are conditions for agriculture to be able to function as a market, for agriculture to be able to function within a market. The idea was not, given the state of things, how can we find the economic system that will be able to take account of the basic facts peculiar to European agriculture? It was, given that economic-political regulation can only take place through the market, how can we modify these material, cultural, technical, and legal bases that are given in Europe? How can we modify these facts, this framework so that the market economy can come into play?

Of course, you only get that in democracies, not oligarchies.

*This is part of a series of posts on markets as the neoliberals see them. This post discusses the second major theme in the first part of The Birth of Biopolitics by Michel Foucault, following the post titled Liberalism and the Neoliberal Reaction.

See also:
A Starting Place for Combatting Neoliberal Theory
Liberalism and the Neoliberal Reaction
Anarcho-Capitalism Versus Market Competition

For more on the general problem of markets, see the Anarcho-Capitalism post and the links at the end.

** For example, consider A Theory of Justice by John Rawls.