The ideology and reality of markets

For ten years, while I was Professor of Law at the University of Hull in North-East England, I lived in what is usually described as the old ‘market town’ of Beverley. Beverley does indeed have a market. The centre of the town is dominated by the old market square, going by the name of ‘Saturday Market’. And indeed today, as on every Saturday throughout the year, market stalls will have been erected and the casual shopper will be able to purchase a wide variety of goods, from fresh fruit and vegetables, through electrical and consumer good, to textiles and footwear – with lots of other things in between. People will come from the surrounding countryside, and in some respects the scene will not be that different from what it has been for hundreds of years. Markets such as this were usually established in the Middle Ages when the monarch granted the right to local noblemen (usually), so that people from something like a six-mile radius could purchase goods that would have been produced locally.

A ‘market’ in this sense (and in pretty much any other sense) is a place or an interaction where buyers and sellers of goods or services meet to agree a price for the transaction. It works best when there is ‘competition’, that is where there are several buyers and sellers, thereby assuring a reasonable rate for the exchange based on its objective value. Or put another way, a market is a distribution mechanism for goods and services, designed to ensure that the price is objectively reasonable.

As the analysis of trade became more sophisticated by the 17th and 18th centuries, the concept of a market acquired more and more significance in the emerging economic theory. The basis of modern market theory was in particular expressed by the philosopher Adam Smith, in his famous book An Inquiry into the Nature and Causes of the Wealth of Nations (1776), in which he argued that a free market was both the most efficient and also the most benign way of securing and sustaining prosperity.

In England supporters of the concept of free markets as an economic and political tool were by the 19th century styled ‘Liberals’, and in some contexts the label of ‘liberal’ still has that meaning. Indeed ‘liberal’ ideology not only pursued free market goals in economics and trade, but also in personal morality and conduct, as liberals disliked restrictions and regulations and taboos in these areas, thereby providing the bridge to what most people nowadays consider a ‘liberal’ outlook.

Not everyone was enthusiastic about markets as a form of liberalisation or even liberation. Hegel and Marx both were opposed to the free market concept – a particularly interesting critique of Adam Smith can be found in Marx’s Grundrisse der Kritik der Politischen Ökonomie (1861); although it might also be added that the concept of ‘market socialism’ emerged later in the 19th century.

By the 20th century – and the late 20th century in particular – the market had for some become a major ideology in the economics sphere. Markets were no longer just rational mechanisms for the exchange of goods and services, they were a mystical concept with opaque but unstoppable powers. The expression that you could not ‘buck markets’, which was popular in particular in the British Conservative government of Margaret Thatcher and in the writings of some of the high priests of the intellectual movement underpinning Thatcherism and Reaganism (particularly F.A. von Hayek), suggested that markets were not trading or policy devices but forces of nature. The ‘market’ became the God of the capitalist West, set against the ‘Evil Empire’ of the Soviet-style planned economy based on Marxism.

Of course all things must pass, and this particular form of market ideology did, too. And as the ideological battlegrounds of the Cold War disappeared from view after the fall of the Berlin Wall, the certainties of market ideology were also somewhat diluted.

Perhaps the early 21st century is a good time to re-assess markets. I have had a long interest in the idea and use of markets. It is arguable, for example, that you could trace the development of social policy through law by using market metaphors of supply, demand and distribution. And closer to my own current professional life, you could look at universities and education and ask whether markets can provide a useful tool for the development of policy. Furthermore, the restraint and regulation of markets is of major significance in almost all modern activities, and deserves close attention.

In other words, markets are not just locations (as in Beverley) or activities, but a market is also a metaphor for the analysis of policies, activities and conditions.

From time to time in this blog I shall develop this thinking a little further. This is a selfish activity, as I am working on a book on this general topic, and I am looking here for feedback and stimulation. So I am hoping for comments here. Maybe I also need to write a piece on plagiarism, so that I remember to give proper credit to any inspiration I may get.

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7 Comments on “The ideology and reality of markets”

  1. John Flood Says:

    We take the freedom of markets for granted nowadays and it is the continued efforts of some to distort them through, say, cartels and insider trading that produces the distortions. How then does the state intervene to regulate these activities without actually hindering the market operations. This is of course compounded once one begins looking at this on a global level, of which the current credit crisis emerging from a local subprime mortgage market failure in the US is the most blatant example. John

  2. Ultan Says:

    Like it or not, the market, or more true to say, *economics remains a central force in how we organise ourselves – whether you’re Marx or Bill Clinton (OK, by way of James Carville) the message is the same: “It’s the economy stupid.”

    I think the real question is why at this stage of our evolution we’re not so ready to adopt somekind of Feyerabendian (?) approach and allow the various ideologies behind this truism to bump up against each other and to analyse situations on a case by case basis.

    Btw, I’m tempted to quote back at you your comments in 1987 about your economics colleagues “touching faith” in the market while the evidence all around them might have told them otherwise….:)

  3. universitydiary Says:

    Thanks, Ultan – I would actually still say the same thing today. I think markets are interesting, and can be extremely useful – but they are not manifestations of the deity…

  4. Iain MacLaren Says:

    There’s a relevant book review (“Challenging the assumptions of ‘marketopian’ economics”) in today’s Irish Times on a publication (Basic Instincts: Human Nature and the New Economics by Peter Lunn; Marshall Cavendish Business. ) which is following a fairly contemporary theme in various magazines and amongst commentators these days that essentially argues that the basic premises of economics are essentially unrealistic and hence fundamentally flawed.

    I wonder to what extent your idealised market model would suffer similar difficulties. Perhaps a more refreshing perspective would be to look at how much of social policy and economic relations can actually be based on a more collective, community-based and even altruistic model of genuine human interaction, rather than on homo economicus, who incidentally I’ve never met in person.

  5. universitydiary Says:

    Iain’s comment is interesting. I’d have to say, however, that I do meet homo economicus all the time, and what is more, he takes determined possession of the polling booths every four or five years. If I were to put my ideological cards on the table, I’d say I am broadly in favour of what the Germans called the ‘social market model’, based on a market economy and the recognition of market forces, but circumscribed by a policy of securing the community. The problem has been that governments in some countries, including latterly Germany, appear to have believed that the social element can best be secured through increased bureaucratisation.

  6. Iain MacLaren Says:

    Good point. I stand clear of Irish politics much too strange for incomers like me to fathom in detail. However, one of the points I was making, in response to the book review, is that if economic models are based on an ‘idealised’ set of presumed behaviours that are coldly rational profit seeking, then what would systems look like if you based them on completely different starting assumptions about behavour? If we have a structure based on certain implicit individual and collective attributes then it is likely in many ways to reward those behaviours, thus the suggestion of a different approach more in tune with less selfish behaviours.

    Of course the other recent book looking at related themes is ‘Nudge’ but given that it is receiving huge amounts of publicity and its authors are being courted across the political spectrum and by journalists on both sides of the Atlantic, I don’t need to say too much about it.

    Good luck with your dealings with homo bureacratus by the way. The way things are going in your recent post these may soon be the ‘prison diaries’ of a president!

  7. ronnie munck Says:

    Well here is an interesting debate and more than a little topical! Having been long very interested in Karl Marx which I cannot read in the German unfortunately, I recently came across another Karl who helped me even more to understand globalisation and its discontents particularly as regards its impact in the developing world. Karl Polanyi, who took refuge in Britain during the Second World War and taught night classes for the Workers Educational Association (WEA), came out with his classic The Great Transformation in 1944 (recently re-released with a Foreword by Joseph Stiglitz late of the World Bank). Karl II shows how the self-regulating market is a myth and how if given fee rein it leads to social and environmental degradation. More optimsitically he shows with a wealth of historical examples how there is always a counter-movemnt whereby society protects itself from these effects and seeks to regain control over this type of market (not the farmers market in Balyymun of course). Maybe this counter-movement is beginning to be felt in this day and age when even the World Bank is advocating globalisation ‘with a human face’?

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