Market System - its divorce from value

Fri Oct 8 09:39:24 1999

Hello Tony,

Nice to talk to you!

Most democratic societies have in fact mixed economies, which combine free enterprise and Government intervention in varying degrees.

It has always been recognized that some economic activity is best conducted at a state level e.g. national defense and social spending. Also intervention is often justified when market forces do no not work efficiently as in the case of monopolies. So in practice, political debate centers on the extent to which Government should be involved.

Political parties can be largely identified in terms of their view on these issues. In the States the Republicans traditionally have been more associated with the market system and "big business". In Britain the same would be true of the Conservatives.

Socialism nowadays is quite compatible with advocacy of the market system as exemplified by Tony Blair’s "new" Labor party (which is not really distinguishable from the "old" Conservative party).

Indeed since the collapse of Communism in Europe eight years ago, there has been generally a greater acceptance of market principles (reflecting perhaps the belief that this collapse decisively proves the "superiority" of the market system). Indeed with the demise of Communism in the former Soviet Union (with its European allies) and also China, there are very few example of Communism remaining. (Cuba would be one notable exception!)

Therefore in terms of dominant economic ideologies we, paradoxically, now have a near monopoly for the market system. I consider this very unhealthy as it means that the many deficiencies of this system – especially in terms of equity and social justice – will come under even less challenge in future.

I am not against the market system as such as I recognize full well its great achievements. However since I first studies Economics over 30 years ago I have been greatly concerned with the inadequate way in which economic activity is understood. Due to a desire to make it amenable to quantitative scientific notions, the interpretation has been distorted in a way that greatly depersonalizes its very nature.

When we reflect on it becomes clear that economic activity makes an extremely important contribution to the pursuit of meaning and happiness.

As consumers we look in varying ways for fulfillment from the goods and services we purchase; as producers, the satisfaction and monetary reward from our work is so central to our lives. And in the wider sense the way that the riches of society are distributed have a great bearing on happiness and social justice.

Despite the present unpopularity of the system that was loosely developed on his thinking Karl Marx remains perhaps the most profound thinker on the wider implications of economic activity. Indeed he saw it as so important, that he considered all the remaining structures of society e.g. social, political, religious, cultural and legal as being essentially based on the primary economic relationships.

I would not see Economics as being quite that important, but it would be foolish to ignore the immense implication that it has directly and indirectly in the search for meaning and truth.

However this vital human dimension is greatly missing from conventional interpretation, where understanding has become largely divorced from authentic notions of value and morality.

For example, value as used in Economics had a merely impersonal monetary meaning as exchange value.

So houses here in Dublin which have been escalating in price by 40% p.a. for the past few years have now great value (in economic terms). However they have little genuine value for the increasing number of young couples who cannot afford to buy them. Rather the rich - already propertied - classes are increasingly acquiring them as sound financial investments.

So much for the efficacy of market forces!

Also the very word "free" that we apply to the market system i.e. "free market system" again is a notion of freedom largely divorced from any authentic value notion. Even from a scientific point of view the conventional explanation of how a market works is deeply flawed. Market equilibrium on which the whole edifice rests can be shown to be a mere tautology. It is based on the in-built assumption that markets naturally tend to equilibrium but the dynamics of this assumption are never properly spelt out.

My particular interest would be in defining economic notions in proper dynamic - and human - terms (where both physical and psychological aspects interact). So Holistic Economics would be concerned – in any context - with maintaining dynamic balance as between the four quadrants. Within this context a far richer role for (differentiated) analysis would be possible where the insights from each of the four quadrants could be examined in turn. So for example in the examination of the housing market, I mentioned earlier, true equilibrium would involve not alone changes (as defined at present in terms of the UR quadrant) but also possible changes with respect to each of the other quadrants. Distortions that presently exist in markets – from a social perspective – invariably reflect a very narrow one-quadrant interpretation of their behavior.

However to be honest, I do not see any great change taking place in the near future. Indeed I see an even greater emphasis, in developed societies, on materialism before there is any widespread search for an alternative.