The Limits of Markets

One of the dirty little secrets of purely competitive market economics is that as soon as any seller gets a competitive edge, they seek to destroy competition.  John D. Rockefeller was particularly good at that; the annoyance of everyone else at his skills is what brought on the breakup of the Standard Oil Company, the first great American monopoly.  Economists call that kind of behavior “rent seeking”, and it includes, as well obtaining a sustainable monopoly, predatory pricing, arranging favorable regulation, tax breaks, subsidies, friendly pricing (ask defense contractors about that), patent protection, and resource allocations (like federal land leases and mining rights) at heavily discounted prices.  These are some of the ways government shapes “purely competitive” markets in a laissez-faire economy.  And let us not forget manipulation of imperfect information, a favored technique for confusing buyers about what they’re really getting.  That also includes attempts at manipulating our world view so that our preferred choices are to buy the products they want to sell.

Joseph Stiglitz, a Nobel-winning economist, points these out as the ways the early 19^th century idealistic farm-to-market, democratic “purely competitive” laissez-faire economy of rational economists’ fantasies has evolved into the plutocratic economy of today.  In his book, The Price of Inequality, he portrays little inequalities heaped on each other until they grew into the enormous burden of inequality we bear today.  He notes that the “Chicago School” of economics still regards these inequalities as good things, promoting market efficiencies.  But those who bear the brunt of them do not.  Stiglitz’s view amounts to  a system with five main components: you the consumer, the producers/sellers, government, social forces (which shape government) and markets.  The established sellers seek to use government to their own advantage to create the great inequalities in the market that produce plutocracy.

The other dirty little secret, though, always forgotten by the plutocrats and usually forgotten by the economists, is that the system is elastic; unbalance the markets too far in the direction of inequality, and social forces snap back.   That’s what caused the downfall of Standard Oil.  That’s how revolutions, financial panics, depressions, etc., are generated.  That’s what we’re seeing today in southern Europe, in the Occupy movements, and in the growing American unrest over the tax structure.  For “social forces” is another name for the consolidated expression of human nature, and human acceptance of unfair and manipulative behaviors has its limits.   Economists are always seeking a magic bullet to cure the unevenness of “the business cycle”; perhaps they should spend less time on econometric models and more time on acceptable human relationships.

Another author, Michael Sandel, in What Money Can’t Buy: The Moral Limits of Markets, has done just that.  He notes that the 2008 financial collapse can be viewed as a societal moral repudiation of the behavior of financiers and the financial markets.  Then Sandel lists the innumerable ways in which our contemporary economy has turned items of intrinsic value into commodities to be bought and sold for financial enrichment. Items like renting space on your forehead for advertizing, losing weight, the cell phone number of your doctor, prison cell upgrades, the right to immigrate ($500,000 gets preferred treatment), and a multitude of other things are given a price and “commodified.”  Sandel’s concern is less with Stiglitz’s worry about inequality than about the corrosive spread of a “market mentality” across our whole moral view of the world.  He sees markets as a useful tool for obtaining the things to make life better, but a tool which must be limited to its proper uses, and not allowed to take over our whole world.  At bottom, Sandel’s views rest on Emmanuel Kant’s moral principle that we should always treat other people as ends in themselves, and not simply as means to some ulterior, such as monetary, end.  That is a principle to which our humanity strongly responds; when, for example, some years ago, a little child fell down a well in Texas, it was a national cause to get her out.  The cost of doing so was not an issue.  When everything has been commodified, we have lost our humanity as well. 

I have mentioned before that laissez-faire capitalism lacks a built-in brake to keep it from collapsing of its own excesses.  The 2008 crisis was an example of that.  But perhaps at least a partial brake has always been there, lying unused.  No ethics guides the actions of our financial markets and large corporations, only doing what is legal.  Ethics is not taught as a subject in public schools, and in most colleges is limited to the philosophy department.  Ethics was always the only fully home-schooled subject; and homes differ a lot.  Our form of capitalism has become, in consequence, a bare knuckles brawl where no rules apply except survival and profit.  Professional groups in contrast, such as doctors, teachers and lawyers, have always had professional societies with ethical standards and the ethical training associated with them.  They are far from perfect, and there are many malpracticioners in each group, but they beat our experience with financiers and CEO’s by a long shot.   It is time to reintroduce our society to the need for and to the standards of ethical behavior in all areas, including finance and business.  Perhaps, when we learn how to treat each other better, our business cycles will improve as well.