Market fundamentalism
Encyclopedia
Market fundamentalism is a pejorative
term applied to a strong belief in the ability of laissez-faire
or free market economic views or policies to solve economic and social problems.
Critics of free market extremism have used the term to denote what they perceive as a misguided belief, or deliberate deception, that free market
s provide the greatest possible equity and prosperity, and that any interference with the market process decreases social well being. It can be shown that free markets maximize the total profits but not the highest level of well being for *all* of society. Users of the term include adherents of interventionist, mixed economy
and protectionist positions, as well as billionaires such as George Soros
, and economists such as Nobel Laureate Joseph Stiglitz. Critics cite as fundamentalist the unshakable belief, even against the evidence, that unfettered markets maximize individual freedom, that they are the only means to economic growth and that society should adhere to their specific ideas of progress. Ideas ascribed to fundamentalists include the belief that markets tend towards a natural equilibrium, and that the best interests in a given society are achieved by allowing its participants to pursue their own financial self-interest with little or no restraint or regulatory oversight. While this might have been true in the middle ages, with world-wide conglomerates, or even merely large companies, the individual has no protection against fraud nor harm caused by products that maximize income by imposing externalities on the individual consumer as well as society.
The expression is usually rejected as a pejorative term by the persons and organizations to whom it is applied.
According to economist John Quiggin
, the standard features of "economic fundamentalist rhetoric" are "dogmatic" assertions and the claim that anyone who holds contrary views is not a real economist. John Ralston Saul
claims this is simply a form of bullying. This approach follows from evidence that neoclassical economics
provides a scientific explanation of economic phenomena, an explanation that economists state represents the status of scientific truth (if, and only if, all of the assumptions involved in deriving the economic analysis are simultaneously satisfied). However, Kozul-Wright states in his book The Resistible Rise of Market Fundamentalism that "ineluctability of market forces" neo-liberals and conservative politicians tend to stress, and their confidence on a chosen policy, rest on a "mixture of implicit and hidden assumptions, myths about the history of their own countries' economic development, and special interests camouflaged in their rhetoric of general good".
activist, and philanthropist George Soros
in his book The Crisis of Global Capitalism (1998), in which he writes "This idea was called laissez faire in the nineteenth century... I have found a better name for it: market fundamentalism.".
P. Sainath
believes Jeremy Seabrook, a journalist and campaigner, first used the term. The term was used by John Langmore
and John Quiggin
in their 1994 book Work for All. http://www.uq.edu.au/economics/johnquiggin/JournalArticles95/WFA95.html.
A full description of the origins of the free market economics dating as far back to the conception of natural laws as mathematical, eternal and absolute—a reflection of some perfect mathematical form—derived from ancient Greek philosophers Pythagoras
(569–500 BC) and Plato
, and reinvigorated by the Enlightenment
is well beyond the scope of this article, but can be read on Chapter 4, A Brief Account of the Historical Origins of Economic Fundamentalism, in Dr. Lee Boldman's book (2007).
The expression is now used by various authors writing on economic topics to signify an allegedly unjustified belief in the ability of markets to solve all problems in a society. The term has been used, pejoratively, to criticize some groups which are mainly viewed as advocating strongly against "any" state regulation and defend a "totally" free market. It is also used to disparage the arguments of the proponents of "the virtues of radical free-market economics" or, in Soros' own words, against the "ideology
" which "has put financial capital into the driver's seat."
Joseph E. Stiglitz
used the term in his autobiographical essay in acceptance of Nobel Memorial Prize in Economic Sciences
to criticize some International Monetary Fund
policies: "More broadly, the IMF was advocating a set of policies which is generally referred to alternatively as the Washington consensus
, the neo-liberal doctrines, or market fundamentalism, based on an incorrect understanding of economic theory and (what I viewed) as an inadequate interpretation of the historical data."
; the derivative fundamentalist was added only on its second 1989 edition, with the meaning: "an economic or political doctrinaire" ), the concept of economic liberalism
is not; the ideas were re-born in the 18th century, with the works of Adam Smith
and Jean-Baptiste Say
. It was only in the 20th century that the relative sophistication found in Smith’s work would be reformulated by economists such as Friedrich Hayek
, Joseph Schumpeter
, and Milton Friedman
(of the Chicago School of economics
of the 1960s and 1970s), resulting in a recipe for a free market economy: deregulate business and trade, restrict state intervention, and let the energies of entrepreneurship and free-flowing capital generate wealth for all of those who participate in the economy.
After the influence of Friedman and the Chicago boys
(University of Chicago
-educated Chilean economists) on the Miracle of Chile
under the Augusto Pinochet
regime in the 1970s, similar models were adapted by Prime Minister Margaret Thatcher
of the UK (Thatcherism
) and President Ronald Reagan
in the U.S. (Reaganomics
) in the early 1980s.
In the late 1980s the Bretton Woods
Washington
-based financial institutions, (International Monetary Fund
and the World Bank
) and the U.S. Treasury Department embraced the Washington Consensus
, a standard set of policy prescriptions for crisis-wracked nations which include measures such as eliminating state subsidies, redirecting social spending into infrastructural development and reducing taxes, or as Stiglitz summarized, promoted the proselytism of a universal set of economic policy recommendations: "stabilise, liberalise and privatise" (Stiglitz, 1998:21-22).
, every time that credit expansion coincided with economic difficulties, the government intervened, injecting liquidity and stimulating the economy. This system of 'asymmetric incentives' (also known as "moral hazard
"), encouraged ever greater credit expansion, as its risks to financial institutions were mitigated by the state intervention. Financial regulations were progressively decreased in the United States from 1980 (when Ronald Reagan
became President) until the financial crisis of 2007–2008.http://www.fee.org/wp-content/uploads/2009/12/HouseUncleSamBuiltBooklet.pdf
The worldwide financial crisis of 2007-2010 is described by Joseph E. Stiglitz as the end of market fundamentalism:
Pejorative
Pejoratives , including name slurs, are words or grammatical forms that connote negativity and express contempt or distaste. A term can be regarded as pejorative in some social groups but not in others, e.g., hacker is a term used for computer criminals as well as quick and clever computer experts...
term applied to a strong belief in the ability of laissez-faire
Laissez-faire
In economics, laissez-faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies....
or free market economic views or policies to solve economic and social problems.
Critics of free market extremism have used the term to denote what they perceive as a misguided belief, or deliberate deception, that free market
Free market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...
s provide the greatest possible equity and prosperity, and that any interference with the market process decreases social well being. It can be shown that free markets maximize the total profits but not the highest level of well being for *all* of society. Users of the term include adherents of interventionist, mixed economy
Mixed economy
Mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety...
and protectionist positions, as well as billionaires such as George Soros
George Soros
George Soros is a Hungarian-American business magnate, investor, philosopher, and philanthropist. He is the chairman of Soros Fund Management. Soros supports progressive-liberal causes...
, and economists such as Nobel Laureate Joseph Stiglitz. Critics cite as fundamentalist the unshakable belief, even against the evidence, that unfettered markets maximize individual freedom, that they are the only means to economic growth and that society should adhere to their specific ideas of progress. Ideas ascribed to fundamentalists include the belief that markets tend towards a natural equilibrium, and that the best interests in a given society are achieved by allowing its participants to pursue their own financial self-interest with little or no restraint or regulatory oversight. While this might have been true in the middle ages, with world-wide conglomerates, or even merely large companies, the individual has no protection against fraud nor harm caused by products that maximize income by imposing externalities on the individual consumer as well as society.
The expression is usually rejected as a pejorative term by the persons and organizations to whom it is applied.
According to economist John Quiggin
John Quiggin
John Quiggin is an Australian economist and professor at the University of Queensland. Quiggin studied at the Australian National University, obtaining bachelor's degrees in Arts and Economics in 1978 and 1980 respectively, and completing a master's degree in Economics in 1984. Quiggin was awarded...
, the standard features of "economic fundamentalist rhetoric" are "dogmatic" assertions and the claim that anyone who holds contrary views is not a real economist. John Ralston Saul
John Ralston Saul
John Ralston Saul, CC is a Canadian author, essayist, and President of International PEN.As an essayist, Saul is particularly known for his commentaries on the nature of individualism, citizenship and the public good; the failures of manager-, or more precisely technocrat-, led societies; the...
claims this is simply a form of bullying. This approach follows from evidence that neoclassical economics
Neoclassical economics
Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...
provides a scientific explanation of economic phenomena, an explanation that economists state represents the status of scientific truth (if, and only if, all of the assumptions involved in deriving the economic analysis are simultaneously satisfied). However, Kozul-Wright states in his book The Resistible Rise of Market Fundamentalism that "ineluctability of market forces" neo-liberals and conservative politicians tend to stress, and their confidence on a chosen policy, rest on a "mixture of implicit and hidden assumptions, myths about the history of their own countries' economic development, and special interests camouflaged in their rhetoric of general good".
History of the term
The expression "market fundamentalism" was popularized by billionaire investor, left-wingLeft-wing politics
In politics, Left, left-wing and leftist generally refer to support for social change to create a more egalitarian society...
activist, and philanthropist George Soros
George Soros
George Soros is a Hungarian-American business magnate, investor, philosopher, and philanthropist. He is the chairman of Soros Fund Management. Soros supports progressive-liberal causes...
in his book The Crisis of Global Capitalism (1998), in which he writes "This idea was called laissez faire in the nineteenth century... I have found a better name for it: market fundamentalism.".
P. Sainath
P. Sainath
Palagummi Sainath is an Indian journalist. He calls himself a 'rural reporter', or simply a 'reporter' – and photojournalist focusing on social problems, rural affairs, poverty and the aftermaths of globalization in India...
believes Jeremy Seabrook, a journalist and campaigner, first used the term. The term was used by John Langmore
John Langmore
John Vance Langmore is an Australian academic and politician. He was a member of the Australian House of Representatives from 1984 to 1996....
and John Quiggin
John Quiggin
John Quiggin is an Australian economist and professor at the University of Queensland. Quiggin studied at the Australian National University, obtaining bachelor's degrees in Arts and Economics in 1978 and 1980 respectively, and completing a master's degree in Economics in 1984. Quiggin was awarded...
in their 1994 book Work for All. http://www.uq.edu.au/economics/johnquiggin/JournalArticles95/WFA95.html.
A full description of the origins of the free market economics dating as far back to the conception of natural laws as mathematical, eternal and absolute—a reflection of some perfect mathematical form—derived from ancient Greek philosophers Pythagoras
Pythagoras
Pythagoras of Samos was an Ionian Greek philosopher, mathematician, and founder of the religious movement called Pythagoreanism. Most of the information about Pythagoras was written down centuries after he lived, so very little reliable information is known about him...
(569–500 BC) and Plato
Plato
Plato , was a Classical Greek philosopher, mathematician, student of Socrates, writer of philosophical dialogues, and founder of the Academy in Athens, the first institution of higher learning in the Western world. Along with his mentor, Socrates, and his student, Aristotle, Plato helped to lay the...
, and reinvigorated by the Enlightenment
Age of Enlightenment
The Age of Enlightenment was an elite cultural movement of intellectuals in 18th century Europe that sought to mobilize the power of reason in order to reform society and advance knowledge. It promoted intellectual interchange and opposed intolerance and abuses in church and state...
is well beyond the scope of this article, but can be read on Chapter 4, A Brief Account of the Historical Origins of Economic Fundamentalism, in Dr. Lee Boldman's book (2007).
The expression is now used by various authors writing on economic topics to signify an allegedly unjustified belief in the ability of markets to solve all problems in a society. The term has been used, pejoratively, to criticize some groups which are mainly viewed as advocating strongly against "any" state regulation and defend a "totally" free market. It is also used to disparage the arguments of the proponents of "the virtues of radical free-market economics" or, in Soros' own words, against the "ideology
Ideology
An ideology is a set of ideas that constitutes one's goals, expectations, and actions. An ideology can be thought of as a comprehensive vision, as a way of looking at things , as in common sense and several philosophical tendencies , or a set of ideas proposed by the dominant class of a society to...
" which "has put financial capital into the driver's seat."
Joseph E. Stiglitz
Joseph E. Stiglitz
Joseph Eugene Stiglitz, ForMemRS, FBA, is an American economist and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences and the John Bates Clark Medal . He is also the former Senior Vice President and Chief Economist of the World Bank...
used the term in his autobiographical essay in acceptance of Nobel Memorial Prize in Economic Sciences
Nobel Memorial Prize in Economic Sciences
The Nobel Memorial Prize in Economic Sciences, commonly referred to as the Nobel Prize in Economics, but officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel , is an award for outstanding contributions to the field of economics, generally regarded as one of the...
to criticize some International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
policies: "More broadly, the IMF was advocating a set of policies which is generally referred to alternatively as the Washington consensus
Washington Consensus
The term Washington Consensus was coined in 1989 by the economist John Williamson to describe a set of ten relatively specific economic policy prescriptions that he considered constituted the "standard" reform package promoted for crisis-wracked developing countries...
, the neo-liberal doctrines, or market fundamentalism, based on an incorrect understanding of economic theory and (what I viewed) as an inadequate interpretation of the historical data."
History of the concept
While the term market fundamentalism is relatively new (until 1950 there was no entry for "fundamentalism" in the Oxford English DictionaryOxford English Dictionary
The Oxford English Dictionary , published by the Oxford University Press, is the self-styled premier dictionary of the English language. Two fully bound print editions of the OED have been published under its current name, in 1928 and 1989. The first edition was published in twelve volumes , and...
; the derivative fundamentalist was added only on its second 1989 edition, with the meaning: "an economic or political doctrinaire" ), the concept of economic liberalism
Economic liberalism
Economic liberalism is the ideological belief in giving all people economic freedom, and as such granting people with more basis to control their own lives and make their own mistakes. It is an economic philosophy that supports and promotes individual liberty and choice in economic matters and...
is not; the ideas were re-born in the 18th century, with the works of Adam Smith
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
and Jean-Baptiste Say
Jean-Baptiste Say
Jean-Baptiste Say was a French economist and businessman. He had classically liberal views and argued in favor of competition, free trade, and lifting restraints on business...
. It was only in the 20th century that the relative sophistication found in Smith’s work would be reformulated by economists such as Friedrich Hayek
Friedrich Hayek
Friedrich August Hayek CH , born in Austria-Hungary as Friedrich August von Hayek, was an economist and philosopher best known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought...
, Joseph Schumpeter
Joseph Schumpeter
Joseph Alois Schumpeter was an Austrian-Hungarian-American economist and political scientist. He popularized the term "creative destruction" in economics.-Life:...
, and Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...
(of the Chicago School of economics
Chicago school (economics)
The Chicago school of economics describes a neoclassical school of thought within the academic community of economists, with a strong focus around the faculty of The University of Chicago, some of whom have constructed and popularized its principles...
of the 1960s and 1970s), resulting in a recipe for a free market economy: deregulate business and trade, restrict state intervention, and let the energies of entrepreneurship and free-flowing capital generate wealth for all of those who participate in the economy.
After the influence of Friedman and the Chicago boys
Chicago Boys
The Chicago Boys were a group of young Chilean economists most of whom trained at the University of Chicago under Milton Friedman and Arnold Harberger, or at its affiliate in the economics department at the Catholic University of Chile...
(University of Chicago
University of Chicago
The University of Chicago is a private research university in Chicago, Illinois, USA. It was founded by the American Baptist Education Society with a donation from oil magnate and philanthropist John D. Rockefeller and incorporated in 1890...
-educated Chilean economists) on the Miracle of Chile
Miracle of Chile
The "Miracle of Chile" was a term used by free market Nobel Prize winning economist Milton Friedman to describe liberal and free market reorientation of the economy of Chile in the 1980s, 1990s and the purported benefits of his style of economic liberalism...
under the Augusto Pinochet
Augusto Pinochet
Augusto José Ramón Pinochet Ugarte, more commonly known as Augusto Pinochet , was a Chilean army general and dictator who assumed power in a coup d'état on 11 September 1973...
regime in the 1970s, similar models were adapted by Prime Minister Margaret Thatcher
Margaret Thatcher
Margaret Hilda Thatcher, Baroness Thatcher, was Prime Minister of the United Kingdom from 1979 to 1990...
of the UK (Thatcherism
Thatcherism
Thatcherism describes the conviction politics, economic and social policy, and political style of the British Conservative politician Margaret Thatcher, who was leader of her party from 1975 to 1990...
) and President Ronald Reagan
Ronald Reagan
Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....
in the U.S. (Reaganomics
Reaganomics
Reaganomics refers to the economic policies promoted by the U.S. President Ronald Reagan during the 1980s, also known as supply-side economics and called trickle-down economics, particularly by critics...
) in the early 1980s.
In the late 1980s the Bretton Woods
Bretton Woods system
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century...
Washington
Washington, D.C.
Washington, D.C., formally the District of Columbia and commonly referred to as Washington, "the District", or simply D.C., is the capital of the United States. On July 16, 1790, the United States Congress approved the creation of a permanent national capital as permitted by the U.S. Constitution....
-based financial institutions, (International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
and the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
) and the U.S. Treasury Department embraced the Washington Consensus
Washington Consensus
The term Washington Consensus was coined in 1989 by the economist John Williamson to describe a set of ten relatively specific economic policy prescriptions that he considered constituted the "standard" reform package promoted for crisis-wracked developing countries...
, a standard set of policy prescriptions for crisis-wracked nations which include measures such as eliminating state subsidies, redirecting social spending into infrastructural development and reducing taxes, or as Stiglitz summarized, promoted the proselytism of a universal set of economic policy recommendations: "stabilise, liberalise and privatise" (Stiglitz, 1998:21-22).
Fundamentalism and the financial markets
In late 20th century United StatesUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, every time that credit expansion coincided with economic difficulties, the government intervened, injecting liquidity and stimulating the economy. This system of 'asymmetric incentives' (also known as "moral hazard
Moral hazard
In economic theory, moral hazard refers to a situation in which a party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.Moral hazard...
"), encouraged ever greater credit expansion, as its risks to financial institutions were mitigated by the state intervention. Financial regulations were progressively decreased in the United States from 1980 (when Ronald Reagan
Ronald Reagan
Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....
became President) until the financial crisis of 2007–2008.http://www.fee.org/wp-content/uploads/2009/12/HouseUncleSamBuiltBooklet.pdf
The worldwide financial crisis of 2007-2010 is described by Joseph E. Stiglitz as the end of market fundamentalism:
See also
- Austrian schoolAustrian SchoolThe Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...
- Chicago school of economics
- Classical liberalismClassical liberalismClassical liberalism is the philosophy committed to the ideal of limited government, constitutionalism, rule of law, due process, and liberty of individuals including freedom of religion, speech, press, assembly, and free markets....
- Criticism of capitalism
- Criticism of libertarianismCriticism of libertarianismCriticisms of libertarianism include deontological criticisms and consequentialist criticisms.-Aggression:John Rawls and Ernest Partridge argue that implied social contracts justify government actions that harm some individuals so long as they are beneficial overall. They may further argue that...
- Criticisms of neoclassical economicsCriticisms of neoclassical economicsNeo-classical economics has come under critique on the basis of its core ideologies, assumptions and other matters.-Normative bias:Neoclassical economics is sometimes criticized for having a normative bias. In this view, it does not focus on explaining actual economies but instead on describing a...
- Invisible HandInvisible handIn economics, invisible hand or invisible hand of the market is the term economists use to describe the self-regulating nature of the marketplace. This is a metaphor first coined by the economist Adam Smith...
- NeoliberalismNeoliberalismNeoliberalism is a market-driven approach to economic and social policy based on neoclassical theories of economics that emphasizes the efficiency of private enterprise, liberalized trade and relatively open markets, and therefore seeks to maximize the role of the private sector in determining the...
- Post-autistic economicsPost-autistic economicsThe movement for Post-Autistic Economics was born through the work of Sorbonne economist Bernard Guerrien. The movement is best seen as a forum of different groups critical of the current mainstream: from behavioral and heterodox to feminist, green economics and econo-physics...
- Washington ConsensusWashington ConsensusThe term Washington Consensus was coined in 1989 by the economist John Williamson to describe a set of ten relatively specific economic policy prescriptions that he considered constituted the "standard" reform package promoted for crisis-wracked developing countries...