Suspicions of Markets: Critical Attacks from Aristotle to the Twenty-First Century

198 Pages·2016·3.86 MB·English

by  Donald Rutherford (auth.)

Suspicions
of
Markets
Critical Attacks from Aristotle to
the Twenty-First Century
Donald Rutherford
Suspicions of Markets
Donald   Rutherford
Suspicions of
Markets
Critical Attacks from Aristotle to the
Twenty-First Century
Donald   Rutherford
University of Edinburgh
Edinburgh , United Kingdom
ISBN 978-3-319-40807-1 ISBN 978-3-319-40808-8 (eBook)
DOI 10.1007/978-3-319-40808-8
Library of Congress Control Number: 2016953879
© Th e Editor(s) (if applicable) and Th e Author(s) 2016
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Contents
1 Introduction 1
2 Th e Case for Markets 11
3 Th e Start of the Criticism: Aristotle 39
4 After the Greeks 63
5 Nineteenth-Century Critics 81
6 Later Critics 109
7 An Analysis of the Principal Criticisms 141
8 How to Deal With Flawed Markets 169
v
vi Contents
Bibliography 185
Index 189
1
Introduction
Markets are under much discussion and attract a great deal of criticism.
Whenever unemployment is high, the failure of markets to provide jobs
is often mentioned. In times of fi nancial crashes, such as in 1929 and
2008, inevitably markets come under close scrutiny, but the criticism
has become more persistent. Th e fi nancial crisis of 2008 spawned many
books about the banking crisis in particular and the shortcomings of
markets in general. Th e attacks were wide ranging, sometimes on market
mechanisms, often about the market economy as a whole and frequently
about the market behaviour of dealers.
Markets often get a bad press. Th ey are regarded as the citadels of
greed and the dwelling places of packs of robbers. “Market forces” are
equated with an economic organisation which ruthlessly ignores the
needs of consumers in relentless pursuit of profi t. Th e market is regarded
as encouraging selfi shness at the expense of the society as a whole, pro-
moting individualism rather than the society as a collectivity. Also, there
is a great dislike of the outcome of the workings of a market especially
in terms of the income distribution. Th e cyclical instability of markets,
the questioning of the existence of effi cient markets and the prevalence
of market failure excite repeated comment. Specifi cally noted are fraud
© Th e Editor(s) (if applicable) and Th e Author(s) 2016 1
D. Rutherford, Suspicions of Markets,
DOI 10.1007/978-3-319-40808-8_1
2 Suspicions of Markets
over weights and transactions, an unequal distribution of income, which
neglects the poor, an irrational allocation of goods and services, igno-
rance of the needs of society and electronic trading in modern markets
which behave as casinos which prefer speculation to responding to the
reality of the economy.
Supporters of market principles point out that competition, social net-
works and entrepreneurship prevalent in markets are natural and benefi -
cial to all society. Th e market is not necessarily a rough and vicious place
as it can be modifi ed in variants such as the social market or the caring
market economy, which is sensitive to the demands of society.
I n Britain attacks on markets were probably most hysterical in the
1980s when Margaret Th atcher was the British prime minister. Attacks
on free market economics came from within the Conservative party
and from the opposition (Letwin 1 992 : 116–7). Th e author contrasts
Th atcherite policies with others:
Th e dichotomies here and clear and classically Th atcherite – between main-
taining a framework and managing, price-setting and rationing, the mar-
ketplace and planning, the labour market and wage control the commercial
market and price control. For the Th atcherite the fi rst item in each of these
pairs represents freedom for the individual under a framework imposed by
government. (Letwin 1 992 : 127)
She goes on to write:
Th e Th atcherite commitment does not then assume that human beings are
aggressive combatants locked in a struggle for power it assumes rather that
they are creators of human intelligence which enables them to associate
with others in an unlimited variety of ways. (Letwin 1992 : 349)
Derived originally from Adam Smith, free market economics was
within the law but not controlled by it in much of economic decision-
making. In the 1980s Friedrich von Hayek was Mrs Th atcher’s principal
philosophical inspirer. (Ebenstein 2001: 4). He was a great supporter of
the market economy in opposition to planning and opposed to trade
union monopoly power.
1 Introduction 3
Attacks in Britain on markets in the 1980s were within the context of
the general programme of the Th atcher government. It did two things
which were unforgiveable to socialists: it privatised nationalised indus-
tries and curbed trade union power, hitting with a sledgehammer the
two pillars of the Labour party—state ownership of basic industries and
the rights of trade unions. Privatisation made clear that the industries
would be profi t seeking, working according to market principles. With
less power, trade unions would shed much of their monopoly power and
have to face more competition in the labour market. Private property,
private profi t and competition, much criticised aspects of markets, were
encouraged. Th e pendulum had swung from an economy with a large
state sector to a more open free market economy.
W hen the new era dawned, criticism of the market was answered with
expressions, often uttered by the prime minister, that “it is a matter of
market forces” and “you can’t buck the market.” Rising unemployment
especially through redundancies was a very sensitive issue, and changes
in wages were blamed on the market. Both the exercise of market mecha-
nisms and the new society of the market economy came under scrutiny,
which was often hostile.
But attacks on markets have existed for centuries. Th e Code of
Hammurabi in the reign of King Hammurabi of Babylon dates from his
reign of 1792 to 1750 BC. Th e code provides a multitude of instances of
price and wage controls. For hiring workmen it states what payment is to
be given; for example, to hire a herdsman costs six gur of corn per annum
and to hire a 60-ton boat for a day costs a sixth part of a shekel of silver
(Schuettinger and Butler 1 979 : 153).
Th e ancient Indian text Arthashastra was written by Kautilya (origi-
nally known as Chanakya) who lived during 350–275 BC. Th is is a com-
prehensive manual of government administration including economic
and military policies in Book IV. In chapter I the wages for a variety of
occupations are laid down. Th e rules for the protection of merchants are
set out in chapter II. Th ere are fi nes for deception and adulteration of
goods. Th e incomes of persons engaged in trade are stated.
it is the duty of the trader to calculate the daily earnings of middlemen and
to fi x that amount on which they are authorised to live; for whatever falls