The ‘Marketplace of Ideas’ is a Failed Market

Defenders of the right to free speech often make the argument that freedom of speech allows poor ideas to be discussed, criticized, and defeated. The principle underlying this argument enters political theory via J.S. Mill’s On Liberty, where he writes,

“The only way in which a human being can make some approach to knowing the whole of a subject, is by hearing what can be said about it by persons of every variety of opinion, and studying all modes in which it can be looked at by every character of mind.”

The argument began to adopt its modern form through the writings of Supreme Court Justices Oliver Wendell Holmes Jr. and Louis Brandeis, who were colleagues on the Supreme Court from 1916 to 1932.

In 1913, Brandeis wrote an article for Harper’s Weekly, expressing the now-familiar aphorism: “Sunlight is the best disinfectant.” Although Brandeis’ article didn’t focus on the use of free speech to defeat bad ideas, but rather on the necessity of corporate transparency and the dangers of undisclosed conflicts of interest in corporate and public policy, numerous advocates for free speech have adopted this aphorism. Holmes expressed a similar idea focused on the freedom of speech, writing in a dissenting opinion joined by Brandeis that,

“The ultimate good desired is better reached by free trade in ideas… The best test of truth is the power of the thought to get itself accepted in the competition of the market… That, at any rate, is the theory of our Constitution. It is an experiment, as all life is an experiment.”

Despite its limited judicial impact, as Holmes and Brandeis formed the dissenting opinion in that case, their opinion stands as a clear expression of the concept of the marketplace of ideas, a phrase coined by Brandeis’ successor on the Supreme Court, William O. Douglas, who wrote,

“Some may like what [the defendant] publishes; others may disapprove… Like the publishers of newspapers, magazines, or books, this publisher bids for the minds of men in the market place of ideas…”

These are consequentialist arguments. They propose that aside from the intrinsic value of free speech as a moral right, society should value free speech because it leads to a better understanding of the truth. Under this schema, competition between ideas in the public commons pushes out weak or indefensible ideas, leaving only the well-argued truth, just as competition between products in the public market pushes out inefficient and low quality products.

This argument from analogy has merit, but also requires critical analysis. By examining the marketplace of ideas in the light of the robust economics literature on market failures, I propose to identify the circumstances where the marketplace for ideas does and does not work. In doing so, I accept the premise of the analogy, that the marketplace for ideas (henceforth MI) resembles a marketplace for goods (henceforth MG) with some form of competition between ideas for an audience, but rejecting the conclusion that competition in the MI necessarily leads society to truth.

In economic theory, the producers in the MG compete to satisfy consumers’ preferences and win their business, improving the quality and cost of products. However, this theory creates an issue when applied to the MI. Competition amongst ideas only produces truth if ‘consumers’ of ideas strictly prefer true ideas.

Yet the psychological evidence suggests that this is not correct. Research on cognitive dissonance shows holding two or more contradictory beliefs simultaneously causes mental stress. When an individual holds a false belief and faces a competing true belief, the strain of cognitive dissonance may cause them to prefer retaining their existing false belief over rewriting their belief system.

In economic terms, cognitive dissonance creates switching costs between beliefs. Per economists Farrell and Klemperer, markets with switching costs are generally not efficient. Instead, strong incumbency advantages and tendencies towards monopoly characterize these markets. In the MI, this means beliefs that take hold early in an individual’s life survive longer than their merit would suggest, as do ideas backed by tradition. Additionally, it creates a tendency for a few monopolizing ideas to dominate social course, rather than many diverse, competing ideas.

This argument still assumes that people prefer the truth, even if cognitive dissonance sometimes dissuades them. However, even this assumption is dubious. Other research suggests that people seek out information that confirms their existing beliefs, rather than seeking the truth, an effect called confirmation bias.

Additionally, research in social psychology suggests that conformity plays a significant role in people’s beliefs for several reasons: individuals trust members of their social circle more than outsiders, individuals who deviate risk social ostracism, conformity strengthens group cohesion, individuals seek like-minded individuals with which to associate, and individuals’ group identification strongly influences their self-identity. Thus, many individuals would prefer ideas favoured within their social group, not necessarily true ideas. If this theory is sound, then the MI is a competition for popularity, not for truth.

These preferences for ideas that confirm existing beliefs means that false or indefensible ideas will not be pushed out solely by competition in the MI. However, this impediment to competition is not a divergence from the MG, but a similarity to it. In markets with imperfect competition, inefficient producers can survive, sheltered from competition.

In economics, any firm operating under imperfect competition has market power. This market power can come from many diverse sources, such as economies of scale, access to limited resources, brand loyalty, or network effects, among many others. The result is always that inefficient producers can survive and even collect above-average returns, known as monopoly rents, using their market power.

In the MI, the equivalent of market power prevents indefensible ideas from being pushed out: social power. Power determines whose ideas survive in the market, not truth and competition. Power determines who gets a voice in the conversation and whose voice society hears.

For example, to quote the Intergovernmental Panel on Climate Change,

“[The] scientific evidence for warming of the climate system is unequivocal.”

Yet climate change denial persists. The public voices for climate change denial are often members of mainstream right-wing political parties, given a public platform due to their public office, or members of elite conservative think-tanks. Rich corporations, often from the fossil fuels industry, funded these politicians and think-tanks, leveraging their economic power to sway the MI.

Opponents of climate change claim they merely want discussion and debate, but there is no remaining debate on the facts. It is their power that enables these individuals to declare the debate open, not any sound argument or evidence. Just as in the MG, power allows weak and indefensible ideas to survive in the MI.

As the MI is imperfectly competitive, the rich literature on market failures can identify some specific flaws that create inefficiencies.

First, the MI faces high search costs. Unlike the perfectly competitive ideal, where every consumer knows about every product, people only know about ideas they encounter as they traverse the MI. As time is limited, finding new ideas is costly, so people favour ideas with existing publicity, irrespective of their quality. For example, one social media analyst estimates that the average post by a Facebook page receives between 100 and 500 likes. By comparison, Mark Zuckerberg’s last five posts received between 100,000 and 500,000 likes. Are Zuckerberg’s musings 1000 times more valuable than the average banal post? Probably not.

Second, ideas have externalities. When transactions impose harms or creates benefits for a third party, not involved in the transaction, the first welfare theorem does not hold, and competitive markets do not generate the efficient outcome. The archetypal example of a negative externality is pollution: society bears the cost of pollution generated by transactions between private individuals.

Likewise, ideas can impose harms or create benefits beyond the speaker and listener. Racist speech not only seeks to provide a viewpoint on society, but to delegitimize the targets of the speech to the listeners. Per philosopher Steven P. Lee,

“These uses [of hate speech] seem to have in common a tendency to create or reinforce social hierarchies, especially, to keep members of groups low on such hierarchies ‘in their place.’”

Since social power influences what ideas survive in the MI, speech that seeks to eliminate the social power of others and boost one’s own social power creates externalities and thus, inefficiencies. Since the speaker and listener do not internalize the cost of this speech, they will over-produce such negative speech, relative to the efficient level. Similarly, speakers will under-produce speech that creates external benefits, such as scientific research or critical analysis, relative to the efficient level.

Third, these markets face Coasean transaction costs, so private bargaining cannot achieve an efficient outcome. Under the Coase Theorem, private bargaining can resolve externalities, but only if transaction costs — the cost of bargaining — are sufficiently low. For example, private bargaining could resolve the externality of a neighbour’s loud music as bargaining between two familiar individuals would not be costly. However, private bargaining cannot resolve greenhouse gas emissions as there are millions of individuals and corporations emitting GHGs, so bargaining between all parties would be tremendously costly.

Unfortunately, the MI better resembles the ‘market’ for GHG emissions than the market for a quiet neighbourhood. On a social network like Twitter, speakers may face hundreds or thousands of trolls and bots sending slurs and threats. The trolls’ immense number and deep desire to offend belies any attempt to either engage or negotiate with them. Additionally, even if a speaker could negotiate with a troll and attempt to find a Coasean solution, the anonymity of the platform renders any negotiated outcome unenforceable. A troll who agreed to stop harassing someone could open a new account and continue their tirades.

Finally, the MI has many barriers to entry preventing competing ideas from dethroning existing ones. In his book, The Structure of Scientific Revolutions, Thomas Kuhn argues that a scientific paradigm dominates a field of thought until the weight of contradictions causes it to collapse. Then, a new paradigm replaces it and the cycle continues. When a field has a dominant paradigm, it forms entry barriers against alternative paradigms, limiting competition.

In the MI, these paradigms dominate each so-called ‘echo chamber,’ where adherents of one paradigm only interact with likeminded individuals. The combination of confirmation bias, social conformity, and algorithms designed to show content users will like, even when that content is biased or false, lead to an oligopoly of thought.

As the systems underlying the MI prioritize engagement over truth to boost advertising revenues, whether those systems are Facebook’s algorithms, Buzzfeed’s clickbait, corporate cable media’s vapidity, or the far right’s frothing rage, the MI will not produce truth.

The concept of ‘the marketplace of ideas’ is intellectually appealing. The image of striking down weak ideas through the force of rational discussion is both potent and flattering. However, just as markets for goods and services have flaws preventing them from achieving the efficient outcome, the marketplace for ideas has flaws due to human psychology, the nature of social power, and economic market failures, that inhibit the truth.

This argument should not be construed as a rejection of free speech: the right to free speech deserves protection as a bulwark against power. Yet the notion that speech competes on a perfectly competitive market as though it was a bottle of shampoo does a disservice to free speech and the complexity of the social world it inhabits. Defenders of free speech should discard such lazy reasoning and start the hard work of understanding the imperfections of social discourse and defending the freedom of speech on its true merits.