The Woman Who Shattered the Myth of the Free Market
Joan Robinson upended the misogynistic good-old-boys’ network of economists and devised theories around competition and labor vital to the antitrust debates of today.
By Zachary D. Carter
Mr. Carter is the author of “The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes.”
When Joan Robinson arrived at Cambridge University in 1929, nobody expected her to become one of the most important economists of the 20th century — let alone the 21st. She had spent the past three of her nearly 26 years in India, where she lived without professional responsibilities while her husband, Austin, an economist six years her senior, tutored a child maharajah. When Austin returned to Britain to join the Cambridge economics faculty, Joan, who had studied the subject as an undergraduate, felt her own ambitions kindled. But she had entered an environment hostile to women.
For 40 years, economics at Cambridge had been dominated by Alfred Marshall, whose intellectual achievements were rivaled only by his misogyny. He’d married Mary Paley, the first woman to lecture in economics at the university, and then promptly destroyed her career, pulling her book out of print. Marshall, a frustrated Robinson noted, treated his wife as a “housekeeper and a secretary.”
But Robinson would avenge her most emphatically. She would go on to devise a new theory that upended Marshall’s intellectual legacy, radically altering our understanding of the relationship between competition and labor power. Now those ideological innovations are shaping the revived debate over antitrust reform.
Marshallian economics was a realm of beautiful symmetries. Supply and demand naturally reached an equilibrium, and workers were paid the precise value of what they contributed to production. So long as companies had to compete on the price and quality of their goods, consumers could force producers to make improvements by purchasing cheaper, superior goods from their competitors. The market would respond to consumers and the wealth of society would increase.
The snake to this Eden was monopoly. If a single producer captured enough market share, it could immunize itself from competition and force consumers to respond to its preferences — higher prices, inferior quality, suppressed innovation. Marshall recognized that most markets were not perfectly competitive. But like other thinkers of his day, he believed that these were passing flaws and that markets had a natural tendency toward competition. The market was almost always improving itself of its own accord; only conditions of pure monopoly could impede this progressive trend.
Robinson turned Marshall’s framework on its head. Competition, she argued in her landmark 1933 book, “The Economics of Imperfect Competition,” wasn’t an on-off switch between pure monopoly and pure competition. A competitive market was not the normal state of affairs — it was a rare “special case.” Markets typically reached a state of “equilibrium” in which Marshall’s progressive improvements halted while exhibiting many of the flaws of a monopoly regime.
Viewed today, Robinson’s arguments appear more like the work of a philosopher than of an economist. In her day, detailed financial statistics — gross domestic product, productivity and the price indexes — would not be finalized for several years. Like other leading economists of her era, Robinson did not reach her conclusions by studying specific industries in detail, but rather by formulating a set of assumptions about business behavior, then subjecting those assumptions to a rigorous mathematical analysis in order to develop a few general rules. In the 1930s, the power of such arguments thus depended on how useful those rules actually proved to be in the real world, and on their intuitive appeal.
The most potent arrow in Robinson’s conceptual quiver was a new idea she called “monopsony.” A monopoly had always been understood to involve a single seller forcing its prices on powerless buyers, like the U.S. oil industry at the turn of the century. But buyers, Robinson observed, could enjoy the forbidden fruits of imperfect competition as well: If only one buyer for a good existed, then that buyer could dictate its price, no matter how many sellers might be competing for its purchases. This was monopsony.
Crucially, Robinson argued that workers, as sellers of their own labor, almost always faced monopsonistic exploitation from employers, the buyers of their labor. This technical point had a political edge: According to Robinson, workers were being chronically underpaid, even by the standards of fairness devised by the high priests of the free market.
Under classical conceptions of monopoly, economists and lawyers often interpreted labor unions as unfair barriers to competition. Instead of allowing employers to freely compete for individual workers, their reasoning went, unions forced them to negotiate with a cartel. In the 1920s, an influential Austrian economist, Ludwig von Mises, declared that the entire function of labor unions was to prevent fair competition for wages through the threat of “primitive violence” against strikebreakers.
But under Robinson’s framework, it was not unions that created competition problems in the market for labor; instead, labor markets were anti-competitive by their very nature, except in rare, special cases. In effect, she had reimagined competition policy as a labor-rights issue. The problems she exposed were not the excesses of a few over-the-top corporate behemoths, resolved with a few breakups and spinoffs. Monopsony, Robinson’s argued, is endemic to the labor market and demands an ongoing regulatory response throughout the economy.
By the time Robinson published her landmark book, she was already partnering with another genius at Cambridge, John Maynard Keynes, on what would become “The General Theory of Employment, Interest and Money,” published in 1936. Though the byline went to Keynes, the book was the product of a collaboration between him, his closest aide, Richard Kahn, and Robinson. It would revolutionize economics, providing a new intellectual justification for government budget deficits, relief aid and jobs spending. Like Robinson’s work on competition, it emphasized that full employment, another ideal of classical economics, was not a normal product of the market, but rather a rare, special case. A large majority of the time, Keynes and Robinson argued, governments would have to spend money and run deficits to ensure that everyone who wanted a job could have one.
As “The General Theory” guided policymakers through the 20th century, Robinson’s work on competition reached a wide audience, but largely through its influence on John Kenneth Galbraith, who incorporated her ideas into his own best-selling books. But with the rise of Milton Friedman in the 1970s, the economics profession once again began invoking the natural harmony of the free market as the cure for social evil. Robinson died in 1983 without ever enjoying the public recognition her male friends received.
Today, however, her ideas are enjoying a remarkable renaissance. The renewed influence of “The General Theory” has been evident in the series of multi-trillion-dollar stimulus bills signed into law over the past year. And a continuing revival of interest in monopsony may prove equally potent. A growing body of empirical literature indicates that Robinson’s conceptual insights were correct: Intensifying corporate concentration has suppressed worker wages over the past quarter-century. Imperfect competition is not only real but also appears to be intensifying. The economist Simcha Barkai pegs the figure at about $14,000 a year in lost wages for the typical worker.
The conservative Supreme Court Justice Brett Kavanaugh cited “monopsony” in a 2019 ruling against Apple; a recent investigation by House Democrats concluded that Amazon deploys monopsony power and that its warehouses tend “to depress wages” for warehouse and logistics workers when they enter a local market. In an era of historically weak organized labor and the accelerating concentration of job opportunities in a few big cities, much of the country faces a decline in potential buyers of labor and limited opportunities for redress through collective bargaining.
Economists are growing increasingly comfortable with the idea that large government budget deficits are not merely an emergency measure, but a normal part of a high-functioning economy. The same must be understood for regulation to ensure that workers are fully paid what they deserve.
Joan Robinson is, at long last, getting her due.
Mr. Carter is a writer in residence with the Omidyar Network and the author of “The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes.”