February 5, 2008

Free Market Capitalism as Religion?

Every individual necessarily labours to render the annual revenue of
the society as great as he can. He generally neither intends to promote the public interest, nor knows how much he is promoting it... He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for society that it was no part of his intention. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. - Adam Smith, The Wealth of Nations

Okay, this passage from the founding father of Capitalism, Adam Smith, may be taken out of context. Smith's invisible hand is really a metaphor for his prediction that self-interest will drive the market to a relative balance. He admits later in his landmark work, The Wealth of Nations, that the system would not be perfect and would require some regulation to prevent corruption, collusion, and monopoly.

250 years later, the substance of Smith's work has been forgotten, and the invisible hand has suddenly become a god in itself. Many on the Christian right have taken the hand literally to mean that of their own god. Contemporarychristianity.org writes:

If one holds to a strong theology of Providence and common grace it is possible to believe that God uses the market mechanism (Smith’s “invisible hand”) to achieve “least worst outcomes” in a Fallen world.

But more so, even the non-religious have assumed the belief that the market will always just correct itself, and that any regulation or intervention is harmful. When a leading hedge fund lost billions and shocked the market, and people cried for regulation, former Fed chairman Alan Greenspan testified before congress that the market should stay self-regulated and that regulation would make things worse. Greenspan said this about the famous Sherman Anti-Trust Act passed to break up corrupt monopolies at the turn of the 20th century:

No one will ever know what new products, processes, machines, and cost-saving mergers failed to come into existence, killed by the Sherman Act before they were born. No one can ever compute the price that all of us have paid for that Act which, by inducing less effective use of capital, has kept our standard of living lower than would otherwise have been possible.

This kind of absolute faith is harmful whether in religion or economy. In the last decade, broadband internet in the US has slowly been falling behind Europe and Asia in speed and access. Just a few days ago, the Bush administration released it's strategy for pulling America back to the forefront. What was that plan? Do nothing. Rather than providing steps for better broadband, the report simply regurgitates the arguments that regulation is bad, government intervention is bad, and if we leave the market alone it will catch itself up. Here's a sample from the "plan" Network Nation: Broadband in America 2007:

Experience teaches that when government tries to substitute its
judgment for that of the free market, or otherwise anticipate consumer
demand by favoring one product or vendor over another, it can easily
distort the market place

The free market has many positives. It is fairly stable, it fosters innovation, and it allows a lot of personal freedom, but we would be no different from religious zealots if we believed absolutely that the market will perfect itself without human intervention. Smith's invisible hand was just a metaphor for people's tendency to make society better through self interest. People drive the market, and people need to fix it. There is no invisible hand. It's a shame Smith has been taken so out of context.

On a side note - interesting that those who believe in the invisible hand of god and those who believe in the invisible hand of the market both tend to be in the same political party...


Cloudberry said...

Wow, this is fascinating. Another example of metaphor being mistaken for reality, as Joseph Campbell said that people have done with the metaphor of God.

MarkT said...

Great post, Josh!

I must admit I'm no expert on "Free Market" Capitalism. However, it seems to me that the unrestrained "free market" policies & corporatism of the last 25 years have succeded in undermining the economic infrastructure of our nation.

The company I work for (a family business) provides a typical example:

Our chief product for the last 50 years has been "American Meter" gas meter bodies.

Several years back, American Meter was purchased by a group of European investors (!).

Of course, being the global "free marketeers" that they are, the Europeans went sniffing around for a lowest bidder... in China, of course.

Now our company is fighting a losing battle against the Chinese... company possibly doomed.

So I don't worship any gods, and I sure don't worship what passes for a "free market" nowadays.

Brock said...

Whoa, excellent work. I've never seen this blind support of "free markets" countered so succinctly.

Mano Singham (CWRU physics prof and advisor to the Campus Freethought Alliance) has been writing rather similar ideas lately (see Feb. 4-6 posts).

Michael said...

I have been advocating Socialism my entire life. I love how now, only after we have been knocked off of our economic pedestal, are people beginning to accept the value of interventionism and regulation.


Helen Keller said...

YOu gotta change the font color. You're killing my eyes.

Anonymous said...

In the original post, it was noted:

On a side note - interesting that those who believe in the invisible hand of god and those who believe in the invisible hand of the market both tend to be in the same political party...

The same could be said in the following way "
On a side note - interesting that those who do not believe in the invisible hand of god and those who do not believe in the invisible hand of the market both tend to be in the same political (Communist) party ...

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