Market Fundamentalism: Frequently Asked Questions
What is Market Fundamentalism?
Market Fundamentalism is the exaggerated faith that when markets are left to operate on their own, they can solve all economic and social problems. Market Fundamentalism has dominated public policy debates in the United States since the 1980's, serving to justify huge Federal tax cuts, dramatic reductions in government regulatory activity, and continued efforts to downsize the government’s civilian programs. While Republicans and conservatives have been most aggressive in pushing Market Fundamentalist ideas, many Democrats and liberals have embraced much of this belief system.
What are the consequences of Market Fundamentalism?
Market Fundamentalism is a set of ideas—a conceptual framework—that shapes the way that people understand problems and helps them select among the possible solutions. For more than twenty-five years, it has effectively kept people in this society from recognizing certain problems or from developing effective solutions to them.
The most dramatic example is global climate change. The use of fossil fuels for energy has increased greenhouse gases that are steadily warming the earth with potentially catastrophic consequences. Yet, under the sway of Market Fundamentalism, the U.S. has resisted global efforts to reduce the production of greenhouse gases. Market Fundamentalism assumes that, if a problem is serious, consumers will recognize it and take their business to companies that provide a solution. But mobilizing consumers is difficult when big oil firms are funding major campaigns to deny the existence of global warming.
The problem of corporate corruption is almost as dramatic. The wave of corporate scandals that began with ENRON and WorldCom continues with recent reports that dozens of firms were engaged in the illegal backdating of stock options given to executives and that several pharmaceutical companies marketed products without publicizing the risks to consumers of their products.
All of these developments are contrary to the predictions of Market Fundamentalism. In the first case, MF assumes that the market will reward effective companies and eliminate ineffective ones, but if companies lie about their effectiveness to survive, the market cannot determine their true worth. In the second case, MF assumes that consumers will reject risky products, which will take them off the market, but if consumers are not aware of the risks, and do not have the expertise to identify the cause of complications, then the market cannot remove dangerous products. The solutions that Market Fundamentalists come up with involve even greater reliance on markets to improve corporate governance, but each of these “solutions” generates new scandals.
Why use Market Fundamentalism as the label rather than Neoliberalism or some other term?
Market Fundamentalism is meant to convey the quasi-religious aspect of these ideas. Market Fundamentalists are like Christian, Jewish, Hindu, or Islamic Fundamentalists in that they accept certain core beliefs simply on faith. This may be fine in matters of religious belief, but it is not how our society should choose its social and economic policies.
Where do Market Fundamentalist ideas come from?
The core ideas were first elaborated by English economists Thomas Robert Malthus and David Ricardo in the first decades of the Nineteenth Century, but later generations of economists rejected their unquestioning belief in self-regulating markets. However, two Austrian economists, Ludvig von Mises and Friedrich Hayek, revived Market Fundamentalism in the period between the First and Second World Wars. After World War II, they gained support for their views from Milton Friedman and other “Chicago School” economists in the United States. In the 1970's and 1980's, these ideas were heavily pushed by conservative think tanks and they gradually came to dominate public debates.
What do academic economists think of Market Fundamentalism?
While Market Fundamentalism flourishes at right wing think tanks, most academic economists reject it as simplistic and outmoded. Contemporary economists have identified a wide variety of circumstances in which market competition produces inefficient and undesirable outcomes. They also reject the view that markets spontaneously emerge and automatically produce orderly outcomes. They tend to emphasize the necessary role of shared understandings and rules in allowing markets to operate effectively.
If academic economists are skeptical, why are Market Fundamentalist ideas so dominant in the United States?
The answer has to do with politics. Starting in the 1970's, major corporations in the United States decided to ally themselves with social and religious conservatives, and this unusual alliance has dominated the Republican Party and national politics ever since. Market Fundamentalism was the key idea that these two groups shared; it is the glue that has held together their coalition. Ever since, tax cuts, reductions in government regulation, and campaigns against established government social programs have dominated our politics.
But Big Business’s insistence on self-regulating markets is disingenuous. They know that their success depends on government involvement and lobby heavily for it. An economy that truly adhered to Market Fundamentalist teachings would be terrible for big businesses. However, if the private sector can convince the public that we ought to and do live in a free market economy, the public will not demand that private firms give anything back for the benefits they receive from public money.
What is wrong with Market Fundamentalism?
A full answer cannot be provided in a couple of paragraphs. The plan is to use this website to provide a detailed analysis of the key shortcomings of Market Fundamentalism. But one quick way to understand is through the folk tale of the Sorcerer’s Apprentice, popularized by Goethe and Disney.
The story is about a boy who had often watched as the wizard used a spell to make the broom carry pails of water up from the river. When the sorcerer was away, the disobedient boy used the same spell to command the broom to carry water. He soon realized, however, that he had failed to learn the command to halt the process. In desperation, he breaks the broom in two, but both halves continue to fetch water at an even more rapid rate producing a disastrous flood.
The Sorcerer represents the accumulated wisdom of society that has found ways to harness dangerous forces. The Apprentice demonstrates what happens when those forces are unleashed without wisdom or restraint. Market Fundamentalists, in short, are cheerleaders for the Apprentice. They disregard the accumulated wisdom of history, and imagine that unleashing market forces will automatically produce positive outcomes. But they are utterly oblivious to the risks to the social order of greed and selfishness. They fail to understand that the market will become a destructive force unless the pursuit of self‑interest is balanced by respect for law, morality, and the needs of others.
What is the alternative to Market Fundamentalism?
At Longview, we believe that the idea of a Moral Economy can provide a new conceptual framework and a practical alternative to Market Fundamentalism. In a Moral Economy, we could still enjoy the positive aspects of markets and the pursuit of self-interest, but there would be restraints to prevent market forces from becoming destructive. We would draw on our shared history and collective wisdom to fashion a shared commitment to responsible competition, reciprocity, cooperation, and conservation that would help us have an economy that is highly productive, environmentally sustainable, and true to our deepest values of fairness and justice.
Market Fundamentalists insist that either we let the market run everything without restraint or we will suffer a catastrophic fall in our standard of living, but they are wrong. The truth is that our economy remains productive precisely because we already restrain and supplement the market in many different ways. It is the rules and regulations that Market Fundamentalists continually criticize that safeguard our prosperity. And without the government’s role in underwriting scientific and technological advances, our economy would be much weaker.
Market Fundamentalists want to dismantle these productive restraints on the market. We believe that these restraints can be developed and improved to make the economy both more productive and more just. An illustration of how this would work is provided in Fred Block’s essay, “A Corporation with a Conscience.”