All over the world everyone is constantly referring to “The Market” which purportedly rules our economic lives. Hardly any non-believer dares to challenge the infallibility of this revered expression of the NeoCon secular religion. Many see this latter-day sect as an ideological endorsement of capitalism. More revealing for our times is that almost no one can define exactly what this “Market” is and what it does.
I have previously written extensively about the myths surrounding the “Market” in my book, Dollars or Democracy.1 However, this year’s Nobel Prize in Economics has gone to three top economists for their work on the operation of the market. What is of note here is that their views on the market vary substantially: Prof. Eugene Fama does not believe that the “Market” has economic bubbles. Fama does not even believe they exist! And Prof. Robert Shiller of Yale is a firm believer
in housing bubbles and technology stock bubbles. Prof. Lars Peter Hansen is disturbed because his macro-financial model of how the market operates at times is thrown by the irrational exuberance of the way people invest their money.2
Perhaps economists find it hard to agree on “The Market” because there are so many varieties: The labor market, the bond market, the stock market, the global market, the energy market, the derivatives market, the housing market, the silver and gold markets, ad infinitum. Specifying each market helps in conversation, but similarities in the mode of operations combining the divergent theories dealing with services, communication, exchanges, distribution, and financial risk-taking are not so evident. Ordinarily when confronted with the term, we gravitate towards thinking about the far simpler, traditional “marketplace” as originally viewed by Adam Smith when first describing its social and economic functions more than two centuries ago.
The University of Chicago’s School of Neo-economics, led by such prominent figures at the end of the past Century as Milton Friedman, maintained that the market correctly prices shares, property and even derivatives in line with neo-economic models of behavior. As long as the stock market was on the rise, such faith in the market was applauded. The tech crisis which hit early on in the 21st Century started to undermine the certainties of the NeoCons. The wild mispricing of assets in housing and banks started to erode its much-hailed natural balancing abilities. As the Nobel Prize laureate Paul Krugman wrote in 2009 “the economics profession went astray because economists, as a group, mistook beauty, clad in impressive looking mathematics, for truth.” I would say that economists mistook greed and the booming profits to be made from derivatives and other wild forms of gambling for that best of all implausible worlds, “The Market.”
Even today, four years after the economic crisis of 2009, there is still a widespread belief, among hardened Republicans in the US and die-hard Tories who maintain their staunch faith, in the long-term benefits of “The Market.” I would like to poke fun at such NeoCons by imagining some challenging questions to which I am also providing brief, imaginary responses:
Q: How does the market cope with poverty?
A: Poverty is best left to charity. The market is correct in its balance that people who end up as poor must deserve to be poor. Let’s face it: Poverty is inevitable. If we turn a blind eye, it’s perhaps because there is so little profit to be made from the poor.
Q: Can environmental pollution cause problems for the market?
A: It does this naturally by diminishing corporate profits. The best way to combat pollution is by taking a freer, “laissez fair” approach to the environment. In essence: free the corporations from government intervention.
Q: What causes market failures?
A: Government intervention blocks informed and rational choice in a free market.
Q: Does a projected global population of 9 billion concern the market?
A: Growth has always been at the center of a thriving market. The more buyers, the greater the profits. Every politician around the globe embraces growth in these difficult times and consequently also embraces our free-market ideology.
Q: How does growing inequality affect those subjected to market discipline?
A: It permits some people to become rich and others to stay poor. We have effectively learned this lesson from the equilibrium displayed in economic history.
The neo-classical economists proceed from the misguided assumption that the market is an autonomous, self-regulating entity. Adam Smith never saw it this way. His approach to the market was radically different from the way it was to develop in the 19th Century. Following the French and American Revolutions, the idea of freedom as equality before the law – the so-called ‘isonomic freedom’ was promoted with complete disregard for the material concerns of the legally protected citizens. For Smith, the ‘Market,’ in singular or abstract terms, did not exist. What was real were the different forms of markets historically configured as a result of political options. Markets were the result of state intervention. It did not make sense therefore to oppose ‘the state’ to ‘the market’: Laissez-faire, or freedom for the markets, has been politically constituted through the steady intervention of the state. Today all markets that have emerged have done so with the aid of state intervention. Moreover, as John Maynard Keynes wrote: “Capitalist markets, regardless of their origin, need constant regulation because of the inherent instability of capitalism.”3
The meaning of the word ‘market,’ because of its semantic broadness, is largely dependent on the use to which it is put. To make sense out of the widely divergent interpretations is so challenging that it would seem to be a fitting subject for Oxford’s philosophers of language. The truth is that its complexity entails mathematics, politics, sociology, psychology as well as philosophy. Perhaps the inherent ambiguity of its meaning has been of the essence for economists themselves, unclear as they are about the complex overall functioning of the global economy. They may prefer to engage with the broad spectrum of possible meanings. Whether this may be to cover up their own uncertainties, or challenge those of others is unclear.
What is certain is there is nothing spiritual or moral or ethical involved in the word. It speaks not of humanity but of a moral vacuum. Adam Smith cautioned that the principal determinants of decision making in the market were among others: price, profit, greed, possession, availability convenience, speed, security, and information.4 I should very much like to encourage economists and linguists to carefully consider their use of the word and to come up with more exacting terminology in the interest of understanding the genuine workings of our increasingly complex global economic system.
A brilliant and outspoken economist, Mariana Mazzucato, contends in her latest book, The Entrepreneurial State (2013), that “rather than relying on the false dream that ‘markets’ will run the world optimally for us ‘if we just let them alone,’ policymakers must better learn how to efficiently use the tools and means to shape and create markets – making things happen that otherwise would not.”
1Yorick Blumenfeld, Dollars or Democracy, (2004)
2“Methods for all moments,” The Economist, p.81, October 19, 2013
3Quoted by Mariana Mazzucato, The Entrepreneurial State, p.30, (2013)
4Yorick Blumenfeld, Dollars and Democracy, (2004) pp.50-51