In Defense of Market Fundamentalism

4 December 2008


nyse

A New Bogey Man: Market Fundamentalism

The purveyors of economic ressentiment have introduced a novel term of abuse — market fundamentalism. We are to understand that the ills that have been with us since the dawn of civilization — poverty, war, exploitation, injustice, inter alia — so recently credited to globalization and other bogey men, are now to be laid at the door of market fundamentalism. Part of the abuse heaped upon market fundamentalism can be put to hardships following upon the business cycle in contraction (such criticism is muted during periods of expansion), part to perennial discontent on the political left, and part to the widespread belief in Europe that they have transcended the crude capitalism that brought them to their current enviable economic success.

If by market fundamentalism we mean an economic system in which market forces are allowed to function with a minimum of interference from government regulation and centralized economic planning, then the closer we approximate market fundamentalism, the more rapidly the market will be able to accommodate changed conditions, and the smoother the transition will be in times of dramatic economic change. This does not mean that a dramatic economic disruption can be smooth in an absolute sense, only that it will be less disruptive and less prolonged than if well-intentioned intervention prevents market forces from operating. The more vigorously we try to delay the market’s day of reckoning, the more brutal the reckoning will be when it arrives.

Marx Knew Better

If we attempt to fix industrial, commercial, and financial arrangements in a manner that reflects the economic reality of one particular moment in history, as soon as that moment passes the fixed arrangements cease to function and there is not only an economic reckoning, but a potentially disastrous reckoning on the part of a society that deluded itself into believing that it could define the terms of its own participation in History. Marx knew better. In The Eighteenth Brumaire of Louis Napoleon he wrote, “Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past. The tradition of all dead generations weighs like a nightmare on the brains of the living.” (1852)

"History does nothing; it does not possess immense riches, it does not fight battles. It is men, real, living, who do all this." Hence the role of individual intiative and self-interest, thought Marx didn't see it this way.

Marx: "History does nothing; it does not possess immense riches, it does not fight battles. It is men, real, living, who do all this." Hence the role of individual initiative and self-interest, thought Marx didn't see it this way.

The attempt to regulate our way out of market adjustments to prevailing conditions will foster precisely the catastrophic economic crises that Marx predicted, and if the response to such crises is more regulation, the severity of these crises will increase and perhaps even lead to a generalized economic crisis. Moreover, the institutions that manage financial crises on behalf of nation-states (or, at least, which attempt to manage financial crises) must be counted along with the industries they regulate as part of the economic system (not least due to regulatory capture). They, too, must be allowed to fail. If they are ineffective, they will be swept away as certainly as a failing industry.

Time and Tide

Time and tide, we are told, wait for no man. The business cycle is a tide, and it is no respecter to persons or nations but ebbs and floods according to market forces. Marx thought he could prove that the crises of industrialization that follow from the business cycle would increase in severity until the system of capitalism destroyed itself and was superseded by communism. Marx’s vision was somewhat myopic in this respect. Compared to the Great Depression of the first half of the twentieth century and the Great Inflation of the second half of the twentieth century, our financial crises are, in general, less severe than those of the past. We have, quite simply, gotten better at managing the business cycle.

The business cycle is the concrete embodiment of what Schumpeter famously called creative destruction. The upswing of the business cycle is the creative phase; the downside of the business cycle is the destructive phase. Let us not mince our words: the destructive phase of creative destruction can be excruciatingly painful. Industries are destroyed, careers are ruined, families suffer and individuals are reduced to despair.

Machiavelli Knew Better

The ugly truth of capitalism is that obsolete and decrepit industries must be ruined, and the uglier truth is that all who invested in or are employed by doomed industries will be ruined along with them. From the ashes of the ruins will rise the Phoenix of a transmogrified economy, but those who have been ruined will not be able to derive much hope or enjoyment from the perspective of their drastically reduced circumstances. This rude awakening to what the market can do if it turns against you is perhaps more than many can bear. Machiavelli claimed that a man would sooner forgive the execution of his father than the loss of his patrimony.

"...when it is necessary for a prince to proceed against the life of someone, he must do it on proper justification and for manifest cause, but above all things he must keep his hands off the property of others, because men more quickly forget the death of their father than the loss of their patrimony." The Prince, Chap. XVII

"...when it is necessary for a prince to proceed against the life of someone, he must do it on proper justification and for manifest cause, but above all things he must keep his hands off the property of others, because men more quickly forget the death of their father than the loss of their patrimony." The Prince, Chap. XVII

Most advanced industrialized economies have a social welfare net, the intention of which is to catch those who have been ruined and to save them from the most abject poverty. This, however, is cold comfort to those who have once experienced affluence. To be saved from starvation and homelessness is a profoundly humiliating experience to those who have been more accustomed to handing out charity rather than receiving it.

We might call these sad souls financial exiles, as their condition is analogous to the ancient punishment of exile, the poignancy of which Ovid so eloquently attested. Financial exiles retain their lives, their families, their citizenship, and a few tokens of their former affluent lives, but they have come down in the world abruptly, and are unlikely to again enjoy the considerable rewards of financial success.

Dreams of a Post-Industrial Twilight

If it were the case that all the political entities in the world could unanimously agree to desist from the ruthless ways of capitalism, and the great globe of the earth could be handed over whole to collectivist cooperation, the entire internationalism system could quietly allow itself to slip into a long, post-industrial twilight, in which each sector of society gets to keep the privileges and standards of living of the immediately previous generation by preserving the economic arrangements of that generation in the economic equivalent of a glass case, like a museum piece. However, we already know this not to be the case.

Whatever the absurdities of collectivist rhetoric that may come from the leaders of Russia and China, it is evident to the most cursory examination that these are nation-states bent upon economic dominance at any cost. Capitalism, by any other name, is just as ruthless. Whether the currency of competition is technology, natural resources, armaments, population, or any other measure by which one state can gain an advantage over another, we can be certain that other nations will pursue these advantages to the best of their abilities. As a result of historical accident, the West currently retains economic and technological advantages that can keep it from being swept aside by other powers, but this dominance could be forfeited in a single generation so that the historical accidents of our time could efface those of earlier times.

As Husserl noted in another context, though not a necessarily unrelated context, “The Dream is over.”

. . . . .

“Après moi le déluge.”

Edmund Husserl: "The dream is over." In other words: “Après moi le déluge.”

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Grand Strategy Annex

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