“The Market” is simply “Too Cheap to Meter”

"The Market" is simply "Too Cheap to Meter"

by Jay Hanson, 11/01/98

BEFORE WE CAN proceed to the discussion of the laws governing a market economy, such as the nineteenth century was trying to establish, we must first have a firm grip on the extraordinary assumptions under-lying such a system.

Market economy implies a self-regulating system of markets; in slightly more technical terms, it is an economy directed by market prices and nothing but market prices. Such a system capable of organizing the whole of economic life without outside help or interference would certainly deserve to be called self-regulating. These rough indications should suffice to show the entirely unprecedented nature of such a venture in the history of the race.

Let us make our meaning more precise. No society could, naturally, live for any length of time unless it possessed an economy of some sort; but previously to our time no economy has ever existed that, even in principle, was controlled by markets. In spite of the chorus of academic incantations so persistent in the nineteenth century, gain and profit made on exchange never before played an important part in human economy. Though the institution of the market was fairly common since the later Stone Age, its role was no more than incidental to economic life. — Karl Polyani

Can "the market" solve the problems that it has caused? Can disease cure the patient? Consider the analogies between the two technologies "nuclear power" and "the market".

Confident of their ability to overcome all problems with the new technology, policymakers simply KNEW [1] that nuclear power would ultimately be "too cheap to meter". But this knowledge was not empirical; it was "belief" based on false assumptions.

Besides driving some utility companies into bankruptcy, it now appears that the United States will be lucky if the nuclear industry eventually produces as much energy as it has consumed. [2]

We see history repeating itself! Most economists simply KNOW that the market can be used to solve many or most of our environmental problems. But economics is not empirical science; it is more "belief" based on false assumptions.

For instance:

  • The assumption that "Homo economicus" accurately describes human behavior, and its corollary, that the media provides "information" rather than "manipulation". This assumption has been shown to be false. [3]
  • The assumption that governments can regulate "the market" for the common good. But $650 billion of perverse subsidies [4] show us the inverse is true: market interests regulate our governments.

In his new book, Douglas Booth sheds light on the problems of market regulation by describing economic development in the Schumpeterian term: "creative destruction".

According to Booth (and I agree), economists will never "get the prices right" because economic development is not like the model encountered in neoclassical microeconomic theory (which he describes as "competitive equilibrium driven by price competition"). Instead Booth sees old technologies replaced by new technologies which bring new environmental problems and new "vested political interests" who oppose environmental regulation.

The combined economic and political cycle can now be summarized. Specific industries emerge and grow, creating new environmental problems. Inside interests, or, as Bosso (1987) calls them, subgovernments, rule the regulatory process in the early stages of industry development before environmental issues enter the glare of wide public awareness. Problems are quietly solved by concerned parties and a few affected politicians. When publicity brings environmental problems to broad public attention, new interests favoring regulation organize and win legislative and legal victories against industry interests. When the issues recede from public attention and concern, the newly organized environmental interest groups remain, but vested industry interests are able to recover, and regulatory stalemate results. The regulatory war continues, battles are won and lost, but the rate of real regulatory change slows dramatically. Evidence for this process is provided by the U.S. political history regarding air pollution, water pollution, and pesticide regulation as well as management of the national forests. [5]

Booth concludes (and I agree) that economic-growth-as-we-know-it can not be made sustainable and calls for a new type of steady state economy.

History teaches us that "the market", money [6], and advertising are technologies that can not be controlled for the common good. In truth, they will all be largely eliminated from Spaceship Earth — one way or another.

Any incremental gain made by activist-martyrs throwing themselves in front of bulldozers only displaces the problem slightly into the future and makes the ultimate crash even worse. Logic dictates that one should either change the fundamental nature of the system or simply take names and wait.

After all, its just a matter of time…

Although it is an ancient fact of life, or rather an ancient technique, money has never ceased to surprise humanity. It seems mysterious and disturbing… It was a novelty more because of what it brought with it than what it was itself. What did it actually bring? Sharp variations in prices of essential foodstuffs; incomprehensible relationships in which man no longer recognized either himself, his customs or his ancient values. His work became a commodity, himself a "thing." — Fernand Braudel

[1] “The human mind evolved to believe in gods… Acceptance of the supernatural conveyed a great advantage throughout prehistory, when the brain was evolving. Thus it is in sharp contrast to [science] which was developed as a product of the modern age and is not underwritten by genetic algorithms." The Biological Basis of Morality, E.O. Wilson http://www.theatlantic.com/issues/98apr/bio2.htm

[2] See Titanic Sinks at: http://dieoff.com/page143.htm

[3] "Neoclassical economics is based on the premise that models that characterize rational, optimizing behavior also characterize actual human behavior. The same model is used as a normative definition of rational choice and as a descriptive predictor of observed choice. " p. 137,  QUASI RATIONAL ECONOMICS, by Richard H. Thaler http://www.amazon.com/exec/obidos/ASIN/087154847X

"One of the peculiarities of economics is that it still rests on a behavioral assumption — rational utility maximization — that has long since been rejected by sociologists and psychologists who specialize in studying human behavior. Rational individual utility (income) maximization was the common assumption of all social science in the nineteenth century, but only economics continues to use it.

"Contrary behavioral evidence has had little impact on economics because having a theory of how the world ‘ought’ to act, economists can reject all manner of evidence showing that individuals are not rational utility maximizers. Actions that are not rational maximizations exist, but they are labeled ‘market imperfections’ that ‘ought’ to be eliminated. Individual economic actors ‘ought’ to be rational utility maximizers and they can be taught to do what they ‘ought’ to do. Prescription dominates description in economics, while the reverse is true in the other social sciences that study real human behavior. " — Thurow, 1983 http://dieoff.com/page162.htm

Also see Lunatic Politics at: http://dieoff.com/page141.htm

See Lunatic Politics at: http://dieoff.com/page141.htm

[4] Natural Wealth of Nations, by David Roodman; Worldwatch, 1998; http://www.worldwatch.org/pubs/ea/nwn.html

[5] p. 104, The Environmental Consequences of Growth, Douglas Booth; Routledge, 1998; http://www.amazon.com/exec/obidos/ASIN/0415169917

[6] See Its the Money, Stupid! At: http://dieoff.com/page149.htmand Opposing Globalization Could Justify Resource-Based Basic Income, by Mary Lehmann http://dieoff.com/page152.htm

Faith and Credit: The World Bank's Secular Empire
by Susan George, Fabrizio Sabelli
Paperback – 282 pages (September 1994)
Westview Press; ISBN: 0813326079

"The Thing"

In the late 1980s the Italian Communist Party was undergoing a full-blown identity crisis. Italian Communists had no idea what to call whatever future Party might emerge from the ruins of the post-Gorbachev world. In all the documents, in all the discussions of the time, this as-yet undefined Party was referred to as la Cosa — the Thing — an institution in search of a new personality. Since The Godfather, Cosa Nostra — Our Thing — has entered all our vocabularies, whatever our language. Calling the Mafia Cosa Nostra is one way of not having to say what it really is.

At Bretton Woods, the founding fathers didn't know what to call the Bank either — it got its name more or less by default and "Bank" it has remained. Throughout these pages we have tried to determine what the Bank is and at the end of the enterprise we, too, are tempted to call it the Thing because, although we think we have made progress, to some degree it remains fascinating and mysterious. One of the chief attributes of power is not having to say what it is, not having to reveal its true identity, not having to give up its secrets to even the most diligent search.

Thus the question "Why is the Thing so powerful?" is crucial. One thing about the Thing is certain: it is not powerful because it is a bank; that is, in ordinary language, a purely economic entity. Nor is it powerful because it has some of the characteristics one would expect of an international public service organization. It is a political and cultural enterprise, even a modern version of what the pioneer sociologist Marcel Mauss called the "total social phenomenon" (le fait social total). The obvious, financial and economic side of the Bank is only the tip of the proverbial iceberg. The multiple roles it plays and the many functions of power it assumes, like the difficulty of defining it, make the Bank a total social phenomenon, a Thing.

This is why throughout the book we have spoken of beliefs, faith, doctrine, prophecy, and fundamentalism; of ancestors, initiation, esprit de corps, intellectual leadership and rule. This is also why, in addition to the facts and the documentary evidence, to the economic and political analysis we have tried to provide, we have made a few unorthodox sorties we called "Interludes" into the world of the imagination. If the Bank were just a bank we would have had no reason to call on fiction.

We hope the reader will have found in each chapter and interlude partial answers to the question "Why is the Thing so powerful?" This is the thread we have tried to follow, the one that should bind the book together.

Borrowing from French sociologist Pierre Bourdieu, we can say that the Bank is powerful because of its capacity constantly to exchange economic capital for symbolic capital and vice versa. Its economic activities generate money — well over a billion dollars a year in profits — but also immense prestige. Its prestige in turn generates more financial and economic power. The Bank has dug passageways and built bridges that allow it continually to shuttle between material and non-material wealth, to transform one kind of capital investment into another and to reap all the rewards of both.

The Bank is thus in a position to assume functions which are at once economic and symbolic: integration, guidance and, most important, maintenance of a programme of truth. The Bank is the visible hand of the programme of unrestrained, free market capitalism.

The Bank’s first function is to be an instrument of integration through the market. This market is (or should be) co-extensive with the world; like that of the Church, its vocation is universal. All nations and all people must become ever more tightly bound to it. In this setting, the doctrine of export-orientation finds its natural home. All countries must trade as much as they can and rely for their subsistence first on the world market, last on their own resources.

Until quite recently, even in wealthy countries, communities provided for most of their wants from their domestic, local economies. What they could not find close at hand, they sought at the regional or national level. Only rarely, usually for luxury items, would they have recourse to the world market. This historical pattern has been turned on its head: we are now exhorted to satisfy our needs first from the international, global market, then the national or regional one and so on, down the ladder to the domestic economy, lowliest of all.

The Bank's second function is to act as a guide. Those who believe that its own doctrine is that of laisser-faire are mistaken. The Bank is, in fact, far more interventionist than the interventionist governments whose policies it seeks to transform. If the Bank were to leave people and societies alone, anything could happen — they might operate not on the basis of the marketplace but on principles of reciprocity, redistribution or solidarity. In modern societies, the state has attempted, with greater or lesser success, to organize redistribution and solidarity. Thus the state, like the traditional society based on reciprocity, is under threat from the Bank.

Here we face a contradiction. The marketplace cannot be the natural habitat of humankind. If it were, the Bank's interventions would be unnecessary. Everywhere the market would already be the sole guiding principle of society and, if it were, in the Bank's own view, there would be no underdevelopment, no South, no need for modernization or for structural adjustment — and no need for the Bank.

Why do we think we need the Bank? For the same reasons we think we need the Church. Frail, imperfect humanity needs constraints, guardrails, continual instruction in, and interpretation of, the doctrine. Those who have not yet reached the full expression of market capitalism and consequent development, those who fall by the wayside, must be goaded along the path to salvation.

To change society one must also change individual men and women. Man must be ontologically reconstructed and redeemed as homo economicus. What is redemption if not the passage from one state to another, from darkness to light? The virtues of the New Economic Man, whose dwelling place is the market, are the will and the capacity to accumulate, to follow self-interest and to maximize profit in all things. His wants are unlimited; to satisfy them, he must learn to struggle against his fellows. Scarcity is a fact of life. There is not enough to satisfy the unlimited desires of all nor to provide a place in the sun for everyone. If unemployment in their country is twenty per cent or more, the New Men and Women will pit themselves against each other to find work at any price, at all costs.

The Bank's third function is to be the standard-bearer of a programme of truth. If the world market is the Bank's fundamental organizing principle, price is its instrument. One of the Bank’s major articles of faith is "getting the prices right", which it translates in French as la vérité des prix, the truth of prices. A price has a metaphysical quality because it is supposed to be the invisible point at the intersection between hundreds, thousands, millions of individual transactions. Price, if governments do not meddle by providing subsidies and otherwise distort the natural balance of things, will regulate human activity and necessarily bring order out of apparent chaos.

Those who deny a programme of truth defy the law, in the case of the Bank the laws of economics, structural adjustment and the market. With the International Monetary Fund, the Bank is the keeper of laws which, like the Ten Commandments, are immutable. Once revealed, they must be followed. Defiant countries that refuse them outright are blacklisted, literally excommunicated from the international community. Governments which receive the law halfheartedly must be exhorted to better performance. The Bank will reward or punish them by the granting or withholding of loans and credits. Thus it helps return them to the straight and narrow path or, in its own words, puts them back on-track.

If the New Man finds his life in the market, what of his death? All great truths must in one way or another speak of last things; the Bank’s is no exception. The Bank’s nominal mission is to promote development. Development in its biological sense means an organism's attainment of its inherent potential, inexorably followed by decay and death. In the Bank’s vocabulary, however, this biological meaning is replaced by a concept of never-ending growth. The Bank’s priesthood specifically denies limits to growth and promises an ersatz eternity in the here-and-now.

If such endless growth is supposed to lead to an American or European middle-class standard of living for over five billion people today and who knows how many tomorrow, we already know this to be an ecological and biospheric impossibility, even assuming tremendous and rapid changes in technology. The Bank refuses to confront this last of all last things — not merely individual or societal death but the possibility of species extinction, including that of the human species. Incantations like "sustainable development" stave off the moment when the finite must at last be faced.

The Church's traditional imagery of heaven and of hell is graphic and explicit. Although it cannot prove that anyone has ever gone there, it still issues the visas to the promised land. The Bank paints no pictures with saints, angels and demons but it does put up signposts pointing towards paradise, exhorting the faithful to imitate the blessed — the now-developed rich market-economy countries or at least those who are well on their way, like the Asian tigers.

The very vagueness of the concept of development and the great number of candidates who hope to attain it legitimize the Bank's functions, justify its existence and explain its power. As long as the fragile planet's heavenward journey lasts, as long as the poor are with us, as long as salvation is sought where it cannot be found, the World Bank will find for itself a role and a mission. [pp. 245-251]

Faith and Credit: The World Bank's Secular Empire
by Susan George, Fabrizio Sabelli
Paperback – 282 pages (September 1994)
Westview Press; ISBN: 0813326079