Idols of the Marketplace

As last week’s post suggested, the forces that keep American families stuck on an economic treadmill, trying to meet new and challenging conditions with old and increasingly dysfunctional responses, are by no means entirely economic in nature. Despite the polite fiction that all players in the economic game are rational actors pursuing their own interests in free exchanges, most of the decisions individuals make in the course of that game involve precious little of the sort of rational deliberation the fiction suggests.

To begin with, of course, a great many of the choices are enforced. I think it was Anatole France who pointed out that equality under the law, as often as not, amounts to forbidding the rich as well as the poor to sleep under bridges, steal bread, or beg for coins in the street. For many Americans, and most people elsewhere in the world, the freedom to exchange their labor for money amounts to a Hobson’s choice between sweatshop labor at poverty wages, on the one hand, and starving in the streets on the other. America’s caste system is somewhat more flexible than average, and its privileged classes long ago figured out the advantages of opening their doors to a trickle of aspirants from below, but access to economic opportunity in America still depends to a very large extent on how much money your parents made.

Yet the power of cultural narratives and myths, a frequent theme in these essays, also plays a massive role in leading supposedly rational actors into the irrational decisions that shape so much of our collective lives these days. The twilight of the household economy, the theme of last week’s post, is a good example. A number of my readers responded to the post with emails describing couples they knew who maintained two salaries, even though the costs incurred by doing so – professional childcare, commuting, office clothing, and more – far exceeded the income of the less lucrative of the two jobs. This is quite common nowadays, because the cultural narratives surrounding employment make it impossible for most American families to notice that their economic status might be improved noticeably by giving up one salary in exchange for full-time involvement by one family member in the household economy.

Behind the narratives that prop up this curious blindness, though, lies a broader pattern, and it’s this that I want to discuss this week. For reasons rooted in history, it’s difficult to talk about the theme I have in mind without stirring up passions of the most irrational and intemperate kind. Still, the attempt has to be made, because the narrative in question is turning out to be a massive barrier to constructive change as we approach the twilight of the industrial age. The cultural story I have in mind is the myth of the market.

The measure of a narrative’s power is the extent to which its believers miss the fact that it’s a culturally conditioned narrative, and treat it as an objective reality obvious to any unbiased observer. This condition is widespread enough in the case of today’s market mythology that it’s probably necessary to sketch out the narrative in some detail. In simplest terms, the myth of the market starts from the belief that all human economic activity naturally involves free exchanges of value in a free market, mediated by an accepted measure of value – that is, by money. The myth goes on to claim that any economic activity outside the world of market exchanges either doesn’t count, doesn’t contribute to prosperity, or is a bad thing that can only be redeemed by bringing it within the sacred precincts of the market. Finally, the myth insists, anything that restricts or regulates the choices made by participants in market exchanges is a bad thing, guaranteed to hinder prosperity, because the market itself – guided by Adam Smith’s famous “invisible hand” – inevitably maximizes the benefits received by all its participants, so long as it’s given the freedom to do so.

I have used the word “myth” here deliberately, with an eye both of its current meanings. Its older meaning – the sense possessed by its source, the Classical Greek word muthos – defines a myth as an important cultural narrative, a story that every full participant in the culture can be expected to know, that serves as a paradigm for some aspect of humanity’s experience of itself and the world. Its more recent, derivative, and polemical sense defines a myth as an important cultural narrative that happens to be false. In this second sense, proving that something is a myth doesn’t mean showing that it plays a crucial role in some society’s view of the world; it means showing that whatever it says about the world is untrue.

Now it so happens that some cultural narratives are myths in both senses of the word: they are crucial elements of a society’s view of the world, and they also make statements about the world that can be shown to be untrue. The myth of the market falls into this interesting category. Just now, in America and some other industrial nations, it plays a central role in defining how people think about the economic dimension of their lives. At the same time, some of its core assumptions, and many of the statements about the world that derive from it, are hard to support on any basis but blind faith.

This is where the intemperate passions I mentioned earlier enter the picture, of course, because the myth of the market is not simply a cultural narrative; it’s also an ideology supported by a great many people just now. There’s a complicated history behind its current ideological role. The grand geopolitical struggle between the American and Russian empires that occupied most of the twentieth century, and still makes headlines today, followed the usual custom and borrowed ideological garments to provide a scrap of decency to the clash of naked ambitions.

The American empire’s first choice of ideologies to counter Russia’s Marxist polemics was Christianity – this is why, for example, the words “under God” were tacked onto the Pledge of Allegiance during the Eisenhower administration, and why the word “Russia” rarely appeared in American political speech for more than two decades without the adjective “godless” in front of it. This turned out to be a bad choice, though, not least because it had little appeal outside America’s borders. A secular ideology had to be coined, and free market capitalism filled that need. It’s not accidental that many of its active proponents in recent years were Marxists during their years of adolescent rebellion in the 1960s; much of what now passes for economic thought in America simply takes Marxist assumptions and stands them on their head, in the same way that Satanists borrow most of Christian theology but root for the other side.

The Siamese-twin relationship between Marxism and today’s free market ideology can be seen most clearly, perhaps, in the insistence on both sides that the only valid position on the spectrum of possible relations between government and the economic sphere lies at the two extremes: either all economic activity should be controlled by the government, or the government should have nothing to do with the economic sphere at all. I doubt anyone just now needs to be shown that the Utopian promises of Marxism don’t work in practice, but the current ideology of the free market is another matter. Still, the evidence of history simply doesn’t support the claims made by free market advocates.

Track the economic history of the United States in the 20th century, for example, and an interesting pattern emerges. Until the 1920s, a free market ideology far more principled than its current equivalent dominated American politics; government kept its hands off business until the crash of 1929 and the Great Depression made that politically impossible. During the Depression years, politicians imposed an alphabet soup of regulations on the American economy, and those remained in place until the early 1980s, when most of them were removed. If the myth of the market is to be believed, the American economy should have been more prosperous before the mid-1930s and after the mid-1980s than in the intervening period.

The problem, of course, is that this isn’t what happened. Until the 1930s, the American economy was racked at regular intervals by a disastrous cycle of booms and busts that drastically limited American prosperity and made severe economic depressions a frequent experience. As the New Deal took hold, the economic cycle damped down to livable levels, and the United States entered the longest period of general prosperity in its history. That prosperity waned in the 1970s as US oil production peaked and began to decline, but the deregulation of the 1980s did not bring it back. For most Americans, per capita income in constant dollars has declined since the early 1970s, and many other measures of effective wealth have slumped accordingly; the rate of infant mortality in America today, for example, is roughly on a par with that of Indonesia.

What has returned, and in spades, is the old cycle of boom and bust. Since the beginning of the Reagan years, speculative booms and their inevitable implosions have once again become a dominant feature of the economic landscape. So far, the US government has responded to each popping bubble by ignoring its own free market rhetoric and flooding the economy with borrowed money. There seems to be some doubt about whether that strategy will work in the aftermath of the most recent incarnation of the process, the real estate frenzy of 2002-2006; one way or another, though, US government, corporate, and individual debt has soared to unsustainable levels after these binges of borrowing, and a reckoning cannot be avoided forever.

Of course it’s possible to argue that the regulations established in the 1930s and eliminated in the 1980s had nothing to do with the period of relative economic stability and rising national prosperity that arrived in the 1930s and ended in the 1980s. Look beyond US borders, though, and the same patterns show up. The nations with the highest standards of living today, for example, are not those that have embraced an unrestricted free market, or for that matter those that have subordinated all economic activity to the political sphere. Rather, they’re nations that have found a middle ground, leaving economic activity in private hands but regulating it where necessary for the public good, and in particular, preventing it from indulging in the self-destructive excesses it pursues when left to itself.

That middle ground, granted, lacks the simplistic good-and-evil categorization that makes for a popular ideology these days. It’s pragmatic, it’s sloppy, and it requires constant tinkering and a willingness to deal with the reality of conflicting interests. All that can be said for it is that, by and large, it does seem to work better than the alternatives.

Well, that may not be quite all that can be said for it. One of the fundamental axioms of ecology is that an ecosystem becomes more stable and productive as it becomes more balanced. Cycles of boom and bust are common in marginal ecosystems, where nothing controls populations except the crude forces of food supply and starvation; as ecosystems develop complexity and richness, subtler factors come into play, and conflict and chaos give way to equilibrium. Economic systems may well be subject to the same rule.

Political systems certainly are; the success of democratic systems of governance, after all, depends precisely on the extent to which they establish and maintain a balance of powers in which no one has unchecked authority. Today’s market economies may be badly in need of a dose of the same medicine. Part of the countervailing force that’s needed to pull them out of the vicious cycle of speculative boom and bust will likely come from government regulation, but the same principle may need to be applied in other ways, not least to keep government power from ballooning further out of control than it already is.

Just as it’s clearly not true that the unregulated market automatically brings prosperity – the invisible hand, it turns out, is quite capable of giving us the finger – the issues raised in the last two posts suggest that it’s also not true that all economic activity ought to be subject to the market’s vagaries. Economies outside the market system could play a large role in helping to balance out the market’s wobbles. The household economy is one potential balancing force; another could come from local economies driven by the very different forces of reciprocity and custom, in which surplus products are exchanged as gifts between neighboring families. Other economies beyond the market also deserve exploration.

The crucial thing to keep in mind, it seems to me, is that subservience to the intellectual idols of the contemporary marketplace may well turn out to be profoundly counterproductive in the years ahead of us. The market economy is already having to deal with rising transportation costs and the twilight of the short-lived global marketplace, and will shortly have to face the desperate need to retool our lives and productive capacities to meet the requirements of the dawning age of scarcity industrialism. In such a context, remaining stuck in a rigid, ideologically based stance about the proper relationship between the market economy and other sectors of society may be a luxury we can no longer afford.