market fundamentalism

Image: Francesco Paggiaro
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By RICHARD D. WOLFF

Market fundamentalism maintains an “optimism” quite parallel to what fundamentalist religions attribute to prophets and deities

A changing world order, a declining US empire, migration and related demographic shifts, and major economic downturns have fueled religious fundamentalisms around the world. In addition to religions, other ideological fundamentalisms also provide reassurances that are widely welcomed. One of them – market fundamentalism – invites and deserves criticism as a major obstacle to navigating this time of rapid social change. Market fundamentalism attributes a level of perfection to this particular social institution, maintaining an “optimism” quite parallel to that which fundamentalist religions attribute to prophets and deities.

However, markets are only one of many social means of rationing. Anything short of demand raises the same question: who will get it, and who should go without it? The market is an institutional way of rationing the scarce item. In a market, some cause the price to rise causing others to fold because they cannot or will not pay the higher price. When higher prices eliminate excess demand over supply, scarcity disappears and bidding is no longer necessary. Those able and willing to pay the highest prices are pleased to receive distributions from the available supply.

The market thus rationed the scarce supply. It determined who receives and who does not. Clearly, the wealthier a buyer is, the more likely he is to welcome, endorse, and celebrate "the market system." Markets favor rich buyers. These buyers, in turn, are likely to support teachers, clergy, politicians, and others who advance arguments that markets are “efficient,” “socially positive,” or “better for all.”

However, even the economics profession – which routinely celebrates markets – contains considerable, but under-emphasised, literature on how, why, and when free (i.e., unregulated) markets do not function efficiently or socially positively. This literature developed concepts such as “imperfect competition”, “market distortions” and “externalities”, to identify markets that fail to be efficient or benefit social welfare.

Social leaders who had to deal with real markets in society also repeatedly intervened when and because markets functioned in socially unacceptable ways. So we have minimum wage laws, maximum interest rate laws, price fixing laws, and tariff and trade wars. Practical people know that “leaving things to the market” has often produced disasters (eg the crashes of 2000, 2008 and 2020) overcome by massive and sustained government regulation and intervention in markets.

So why do market fundamentalists celebrate a rationing system – the market – which, in both theory and practice, is more riddled with holes than a block of Swiss cheese? Economic liberals go so far as to promote a theoretical “pure” market economy, claiming that it is an achievable utopia. Such an imaginary pure market system is the theoretical basis of their policy to fix the huge problems they admit to exist in contemporary (impure) capitalism. Such liberals are always frustrated with their own lack of success.

For many reasons, markets shouldn't claim anyone's allegiance. Among alternative shortage rationing systems, markets are clearly inferior. For example, in many religious, ethical and moral traditions, basic precepts insist or insist that scarcity be met by a rationing system based on their respective concepts of human need. Many other rationing systems – including the American version used in World War II – dispensed with the market system and replaced a needs-based rationing system, which was managed by the government.

Rationing systems may also be based on age, type of work performed, employment status, family status, health conditions, distance between home and workplace, or other criteria. Their importance in relation to each other and in relation to some composite notion of “necessity” could and should be democratically determined. Indeed, a genuinely democratic society would allow the people to decide which (if any) shortages should be rationed by the market and which (if any) by alternative rationing systems.

Market fetishists will certainly bring their favorite rationalizations to fill students' heads. For example, they argue that when buyers raise prices on scarce items, other entrepreneurs rush in with more supply to capture those higher prices, ending scarcity. This simplistic argument fails to understand that entrepreneurs who profit from higher prices for scarce items have all the incentives and many of the means to prevent, delay, or completely block the entry of new suppliers. Real business history shows that they often do this successfully. In other words, the guarantees about reactions to market prices consist of ideological noise and little else.

We can also catch market fetishists in their own contradictions. In justifying the sky-high salary packages of mega-corporate CEOs, we are told that their scarcity necessitates their high prices. The same people explain to us that to overcome the shortage of salaried labor, it was necessary to cut the unemployment supplement of pandemic-era American workers, not to increase their wages. In times of scarcity, markets often reveal to capitalists the possibility of making greater profits with smaller volumes of products and sales. If they prioritize profits and when they can shut others out, they will produce less and sell at higher prices to a wealthier clientele. We are seeing this process unfold in the United States right now.

The neoliberal turn in US capitalism from the 1970s onwards yielded huge profits from a globalized market system. However, outside the purview of neoliberal ideology, this global market catapulted the Chinese economy forward much faster than the United States and much faster than the United States found acceptable. Not now.

So now the US has discarded its market celebrations (replacing intense “security” concerns) to justify massive government interventions in markets to thwart Chinese development: a trade war, tariff wars, chip subsidies and sanctions. Clumsily and unpersuasively, the economics profession continues to teach about pure or free market efficiency, while students learn from the news all about US protectionism, market management, and the need to get away from free market gods. formerly venerated.

The health system in the United States also challenges market fundamentalism: the United States has 4,3% of the world's population, but was responsible for 16,9% of deaths from COVID-19 in the world. Could the market system have a significant share of blame and blame here? So dangerous is the potential breakdown of ideological consensus that it is vital to avoid asking the question, let alone seek a serious answer.

During the pandemic, millions of workers were told they were “essentials” and “frontline heroes”. A grateful society appreciated them. As they have often observed, the market has not rewarded them accordingly. They received very low wages. They weren't scarce enough to command more money. That's how markets work. Markets do not reward what is most valuable and essential. They never did. They reward what is scarce relative to people's purchasing power, no matter how socially important we place on actual work and the roles people play. Markets turn to where the money is and where it grows fast. No wonder the rich subsidize market fundamentalism.

The question is why does the rest of society believe or tolerate this?[1]

Richard D Wolff is an economist. Founded the portal Democracy at Work. Author, among other books, of Capitalism's Crisis Deepens (haymarket books).

Translation: Eleutério FS Prado.

Originally published on the portal counter punch.

Translator's note

[1] The implicit answer could have followed: because there is continual alienation and alienating propaganda; why the rich have the power in liberal democracy.


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