Market society and market fundamentalism

Continuing the theme of my previous blogs this week I wanted to say something further about market institutions and the tendency towards market fundamentalist (or libertarian) thinking. I have said that the market economy is the only way to secure economic prosperity and freedom. It’s the only economic game in town as it incentivises people to work, save and innovate. Markets also automatically facilitate the exchange of huge amounts of information through constantly shifting prices. However, I have also said that market prices lead some people to an “everyday libertarianism” whereby people think that pre-tax exchanges are in some way just or correct.

It is important that, as Michael Sandel puts it, we do not move from a market economy with useful market institutions to a market society. This is a society in which everything is valued through the lens of market interaction. This is hardly a novel thought; it has been presented in many forms by religious preachers, Marxists (including Marx), and many political philosophers (such as Deborah Satz). However, even though there are big differences between my views and those of these thinkers, the basic shared point needs to be repeated regularly for reasons that are apparent from my previous blogs. This is that market institutions can lead to this everyday libertarianism or market fundamentalism.

Resources should be valued in accordance with their market value when they are exchanged or when taxation is calculated. The market value of items of property will represent the scarcity of their component parts and the cost of putting them together and transporting them. People should have to pay this amount. However, that does not mean that people should only value themselves or the resources they might obtain for what others will pay for them.

It is a real shame when people judge themselves according to the money they make in the labour (or even investment) markets. Markets are competitive and often where one person wins another person loses; we can’t all win. If people judge themselves according to their market earnings then many people will feel inferior not because they are incapable but because they are slightly less capable (or in some cases less fortunate in their social connections or simply not being in the right place at the right time).

If we want to use market values to judge the contribution that we ourselves or other people make to society then market prices are useful up to a point. After all, if someone is performing unpopular and socially valued labour then they usually will be financially rewarded. And if someone is inventing or investing in useful products then they should receive a good return. However, market returns do not always indicate contribution. People can contribute in ways that aren’t rewarded by the market, such as volunteering, performing services in their local community, and caring for relatives or neighbours. Conversely, markets can provide handsome rewards for behaviour that makes little or no contribution; if some captures a monopoly (such as Bill Gates with Microsoft), obtains rent on something they did not pay much—or anything—for, or if they take advantage of a strong bargaining position then they are not really contributing as much as the money indicates. Market outcomes do not tell us much about a person.

Regarding the resources themselves, people will hopefully value these resources for their ability to help them live their life in the way that they wish. The market value simply represents the opportunity cost to other people of those resources. If market fundamentalism takes hold, however, people may come to value resources for their market value alone rather than what they can do for people. If this happens then people engage in unproductive and bizarre behaviour, such as seeking resources to use as status symbols for display to others rather than resources which provide some kind of benefit to their holder. The desire for status is very prominent in the human psyche, but it is a zero sum game in that one person’s plus point is another person’s minus point. This point has also been made by utilitarians such as Richard Layard. It can be even worse than this as the misery of those with status anxiety probably outweighs the happiness benefits that the fortunate obtain (not that I think everything should be evaluated on the basis of the happiness caused, of course).

Of course, being a liberal I’m not going to suggest that someone should be unable to use her resources to attempt to buy a feeling of superiority; that’s entirely up to her. What I am pointing out is that (very positive) market institutions can lead towards (very negative) market fundamentalism and that right-thinking people need to take note of this phenomenon and resist it. I don’t agree with radicals that this unfortunate tendency overrides the benefits of the market economy—there aren’t any better proposals to organise an economy. Nor do I think it is the job of the state to counteract the tendency. Rather, it is the job of all of us to ensure that we are not ensnared by this kind of thinking. We can also challenge others who attempt to impress through the purchase and display of status items; it don’t impress us much.