The market is a god that has failed

The market is a god that has failed.

In earlier centuries, societies were centered on monarchs who derived their authority from divine will and today “markets” are treated in the same way — as a “natural order” ordained from above. European medieval peasants were kept in their place by church and lord, cementing the rule and wealth of the privileged. The lords made the laws and controlled the courts, and the churches provided the propaganda and justifications. God willed the arrangement, and who was a peasant to challenge it?

In fact, peasants frequently rebelled against the arrangement. Uprisings, often with explicit demands for equality, repeatedly broke out across Western and Central Europe in the fourteenth through sixteenth centuries, and strong religious movements challenging the feudal order were mercilessly drowned in blood in the early sixteenth century. The medieval era in Europe was not an era of peasants contentedly tending to the fields of their lords, contrary to common perception.

Nonetheless, those jacqueries did not bring down feudalism. They were localized, scattered and focused on immediate outrages. Crucially, there were no alignment of social forces, groups or classes with the ability to mount an effective challenge to the aristocracy that dominated feudal society. Peasants were isolated and illiterate, and artisans in the towns were highly heterogeneous.

Slow evolutionary changes eventually began to tip the balance against feudalism. Lords began pushing their peasants off the land to clear space for sheep grazing because wool had become a valuable commodity, and the capital accumulated from trade by merchants grew large enough to create surpluses capable of being converted into the capital necessary to start production on a scale larger than artisan production.

Forced off the land they had farmed and barred from the “commons” (cleared land on which they grazed cattle and forests in which they foraged), peasants could either become beggars, risking draconian punishments such as disfigurement and execution for doing so, or become laborers in the new factories at pitifully low wages and enduring inhuman conditions and working hours.

The earliest factories didn’t possess any innovative production techniques, but rather nascent capitalists rapidly accumulated capital by imposing long working hours, increasing the pace of work and drawing on more exploitable child and female labor. Although some artisans made the leap to manufacturing (as did some merchants), most artisans were forced to become wage laborers themselves, subsumed into the new system similar to peasants.

New forms of inequality require a new mythology

Further consolidation ultimately led to the rise of robber barons and giant corporations, and an entirely new mythology was created to justify the extremes of wealth. Rather than an aristocracy that inherited wealth and intermarried to maintain ties among its families, a capitalist class emerged, a class supposedly built on the sweat of hard work rather than circumstances of birth, in which individual merit rather than class status would be determinate.

The foundational work of capitalist ideology, Adam Smith’s Wealth of Nations (a book used selectively by its fans), got the ball rolling at the dawn of the Industrial Revolution. Smith disapproved of Britain’s aristocracy and celebrated capitalists, believing aristocrats unproductive and advocating that a progressive ground rent be imposed on them. Smith believed that feudal relations were demeaning to the poor and corrupting to the powerful, and argued that modern commercial activity would promote fair play and honesty.

As capitalism developed, the size of the economic enterprises of capitalists became bigger, partly because demand for manufactured products increased, but also because the pressures of capitalist competition required enterprises to become bigger. Doing so can be done through expanding a market, acquiring market share from competitors or swallowing the competition. A small number of human beings will be overly endowed with the ruthlessness to be the survivors in this dog-eat-dog world — those with a single-minded focus on amassing as much money as possible with little or no regard for all those squashed along the way. In the United States, those few who came to own vast conglomerates and previously unimaginable wealth became known as robber barons, and were so powerful thanks to their control of wealth and resources that they could routinely ask governments to use force to suppress their workers, or hire their own private armies to do so.

Today, we still have such people — in different industries of course as times change — and they are now known as “captains of industry” or “entrepreneurs” as one of the advances capitalism has brought us is the modern public relations industry. Nonetheless, a minuscule number of people own vast wealth and can use that wealth to bend public policy to their preferred outcome; that hasn’t changed. There are those who founded an enterprise that generates such wealth, but more often it is inherited: a class system in a new form.

The more wealth is concentrated, the less remains for everybody else. Pay is cut, people are laid off, benefits and retirements reduced — all so that still more flows to the top. Such a state of affairs can’t continue without a powerful ideology that makes this dramatic inequality a “natural order”; that a chief executive officer earning thousands of times more than employees or a Wall Street financier earning millions of dollars by “consolidating” working people out of their jobs is a “justified” result.

The cult of the market

And so we come to the mythology of markets, extolled as the indifferent arbiter of what should be. Extreme cults of individuality form a crucial prop of this mythology; attacks on unions and minimum-wage laws are two manifestations. An early incarnation of this ideology was the “Austrian School,” an economic belief system whose best known proponent was Friedrich Hayek. Remarkably, Hayek went so far as to claim that solidarity, benevolence and a desire to work for the betterment of one’s community are “primitive instincts” and that human civilization consists of a long struggle against those ideals.

Hayek remains highly influential today among conservative economists and those who benefit from neoliberal policies, so it is worthwhile to briefly examine his writings. In the conclusion to Volume 3 of Law, Legislation and Liberty, Hayek wrote: “Man has been civilized very much against his wishes,” emphasizing the words by placing them in italics. What Hayek asserted here is that “the discipline of the market” is the provider of civilization and progress.

That questionable assertion is not necessarily easy to reconcile with what he wrote in his best-known work, The Road to Serfdom, encapsulated in this passage:

“The higher the education and intelligence of individuals become, the more their tastes and views are differentiated. If we wish to find a high degree of uniformity in outlook, we have to descend to the regions of your moral and intellectual standards where the more primitive instincts prevail.”

The “primitive instincts” Hayek referred to here are beliefs in social solidarity or that an economy not based on all-against-all struggle could be constructed.

Installing Augusto Pinochet and Milton Friedman in Chile, 1973.

In summation, Hayek argued that unregulated capitalism is “civilization” and anything else is a product of “primitive” group instincts that have survived from our prehistoric hunter/gatherer ancestors. But if people who gather in groups or parties to promote a more humane world possess little morality and/or low intelligence simply by virtue of banding together in pursuit of a program, how is that such attributes do not apply to the world’s industrialists and financiers? The pervasive neoliberal ideology that floods the world doesn’t just fall from the sky; rather it is the product of group thinking, in this case grouping thinking by a minuscule minority who profit from it and those who serve them intellectually.

So we complete the circle and arrive back at the conclusion that Hayek judged morality, intelligence and civilized behavior strictly on whether or not an individual or group agrees with his viewpoints. Although it is tempting to simply dismiss such reactionary nonsense, we should remember that, to those hungering for ever more harsher neoliberal polices, Hayek’s writings, in particular The Road to Serfdom, are the most important bibles except possibly Ayn Rand’s novels.

One economist on whom Hayek had a strong influence was Milton Friedman, who become the leading figure in the Austrian School’s direct descendent, the “Chicago School” of economics, so named because it is centered on the economics faculty of the University of Chicago. Friedman is known for such delicate work as assisting Chilean dictator Augusto Pinochet, even coining the term “shock therapy” — Friedman repeatedly used the word “shock” in advising Pinochet to apply a maximum of pressure, helpfully reprinting this letter in his book, Two Lucky People: Memoirs.

Individuality without human beings

Chicago School economics — and standard “neoclassical” economics generally — stresses individuality, yet actual human beings seem strangely absent. Chicago economics claims to be scientific, yet one of its most significant leaders, Frank Knight, wrote in an academic economics journal that professors should “inculcate” in their students that these theories are not debatable hypotheses, but rather are “sacred feature[s] of the system.” Sacred? An odd word for a field of study that claims to be scientific, but what is sacred is often in the eye of the beholder.

A belief system that requires austerity, low taxes on the wealthy, and a lack of job security for workforces, and justifies a ceaseless upward flow of wealth, while presenting the package as the natural state of the world, is sacred, depending on if you are among the one percent or the 99 percent. “Neoclassical” economics, and in particular its most vigorous school, Chicago, became the dominant economic theory simply because it provided justification for extreme economic disparities.

Neoclassical economics is an ideologically driven belief system based on mathematical formulae, divorced from the conditions of the actual, physical world, and which seeks to put human beings at the service of markets rather than using markets to provide for human needs. Economic activity is treated as a simple exchange of freely acting, mutually benefitting, equal firms and households in a market that automatically, through an “invisible hand,” self-adjusts and self-regulates to equilibrium.

Households and firms are considered only as market agents, never as part of a social system, and because the system is assumed to consistently revert to equilibrium, there is no conflict. Production is alleged to be independent of all social factors, the employees who do the work of production are in their jobs due to personal choice, and wages are based only on individual achievement independent of race, gender and other differences.

New York Stock Exchange (photo by Elisa Rolle)

Underlying these assumption is a concept known as “perfect competition,” a model that assumes that all prices automatically calibrate to optimum levels, and that there are so many buyers and sellers that none possesses sufficient power to affect the market. The prominent economist Robert Kuttner, in a 1985 Atlantic Monthly article, summarized the unreality of this concept:

“Perfect competition requires ‘perfect information.’ Consumers must know enough to compare products astutely; workers must be aware of alternative jobs; and capitalists of competing investment opportunities. … Moreover, perfect competition requires ‘perfect mobility of factors.’ Workers must be free to get the highest available wage, and capitalists to shift their capital to get the highest available return; otherwise identical factors of production would command different prices, and the result would be deviation from the model.”

Does anything in the preceding three paragraphs in any way describe the real world to you? But the above summation, along with mystical concepts such as the “magic of the market,” are the intellectual core of the idea that “markets” should decide all social and economic outcomes. It is “markets” “impersonally” imposing “discipline” on working people, on entire countries, and those on whom “discipline” is imposed should shut up and take their medicine. But “market” is simply a nice word to mask the imposition of specific interests. In reality, financiers around the world are immiserating entire countries to guarantee gigantic profits for themselves.

 The ‘market’ says it is so, but who is the market?

Far from the often-told morality play of frugal Germans refusing to subsidize freeloading Greeks, the loans the Greek government received, at the cost of ever more painful austerity, was simply to reimburse big banks, primarily German and French banks, so that their questionable loans are paid back, with healthy interest. Moreover, many of those loans were sold by the banks to hedge funds — austerity is also being imposed on millions of people so that the gambling of speculators pays off. (Greek government debt is trading at 40 percent or less of face value, so the much discussed 50 percent “haircut” on debt repayments would actually give the speculating hedge funds a nice profit.)

The Greek government is merely a conduit, through which financiers can continue to collect fat profits. The “market” decided this was the only alternative because the financiers who control the market say it is the only alternative. From financiers’ point of view, that is true, because otherwise they would lose money.

The impersonal market seems to have a habit of favoring the interests of financiers (and industrialists). The “market,” so we are told, induced “technocratic” governments to be formed in Greece and Italy for the good of the two countries. But in fact bond traders and hedge funds applying pressure through the European Central Bank and International Monetary Fund — speculators — essentially hand-selected unelected central bank bureaucrats as those two nations prime ministers to ensure those governments would give their interests primacy.

The “market” also desired the massive bailout of the financial industry. In the United States, when the House of Representatives initially voted against the 2008 bailout, financiers quickly made their wrath felt; the benchmark Dow Jones Industrial Average lost 800 points that day, one of the biggest single-day losses ever. Only four days later, in the midst of widespread middle class worry over the falling value of 401(k) retirement funds tied to stock markets, the House bowed to the pressure and gave financiers what they wanted. (A splendid example of the “magic of the market” at work — by eliminating pensions, working people are yoked more firmly to the will of financiers.)

If the “market” keeps deciding more people should be unemployed, more education should be wasted, more people should not have a decent retirement, more public services should be eliminated, more wages cut while prices rise, and more money should be concentrated in fewer hands at the expense of everybody else, then why should the “market” be a holy sacrament that cannot be questioned?

What if we had a system based on human needs rather than the greed of a few? What if we had a system in which useful work is rewarded instead of financial legerdemain? An unobtainable utopia? Not at all — if working people decide it will be so. We are the overwhelming majority of modern capitalist societies.

The idea that God chooses one family to provide absolute rulers for generations was overturned by our ancestors, and would be laughable if offered today. The idea that a minuscule minority should accumulate most of the wealth is the natural order of the universe thanks to a mysterious God-given force known as a “market,” is an anachronism as well.