Markets are under much discussion and attract a great deal of criticism. Whenever unemployment is high, the failure of markets to provide jobs is often mentioned. In times of financial crashes, such as in 1929 and 2008, inevitably markets come under close scrutiny, but the criticism has become more persistent. The financial crisis of 2008 spawned many books about the banking crisis in particular and the shortcomings of markets in general. The attacks were wide ranging, sometimes on market mechanisms, often about the market economy as a whole and frequently about the market behaviour of dealers.
Markets often get a bad press. They are regarded as the citadels of greed and the dwelling places of packs of robbers. âMarket forcesâ are equated with an economic organisation which ruthlessly ignores the needs of consumers in relentless pursuit of profit. The market is regarded as encouraging selfishness at the expense of the society as a whole, promoting individualism rather than the society as a collectivity. Also, there is a great dislike of the outcome of the workings of a market especially in terms of the income distribution. The cyclical instability of markets, the questioning of the existence of efficient markets and the prevalence of market failure excite repeated comment. Specifically noted are fraud over weights and transactions, an unequal distribution of income, which neglects the poor, an irrational allocation of goods and services, ignorance of the needs of society and electronic trading in modern markets which behave as casinos which prefer speculation to responding to the reality of the economy.
Supporters of market principles point out that competition, social networks and entrepreneurship prevalent in markets are natural and beneficial to all society. The market is not necessarily a rough and vicious place as it can be modified in variants such as the social market or the caring market economy, which is sensitive to the demands of society.
In Britain attacks on markets were probably most hysterical in the 1980s when Margaret Thatcher was the British prime minister. Attacks on free market economics came from within the Conservative party and from the opposition (Letwin 1992: 116â7). The author contrasts Thatcherite policies with others:
The dichotomies here and clear and classically Thatcherite â between maintaining a framework and managing, price-setting and rationing, the marketplace and planning, the labour market and wage control the commercial market and price control. For the Thatcherite the first item in each of these pairs represents freedom for the individual under a framework imposed by government. (Letwin 1992: 127)
She goes on to write:
The Thatcherite commitment does not then assume that human beings are aggressive combatants locked in a struggle for power it assumes rather that they are creators of human intelligence which enables them to associate with others in an unlimited variety of ways. (Letwin 1992: 349)
Derived originally from Adam Smith, free market economics was within the law but not controlled by it in much of economic decision-making. In the 1980s Friedrich von Hayek was Mrs Thatcherâs principal philosophical inspirer. (Ebenstein 2001: 4). He was a great supporter of the market economy in opposition to planning and opposed to trade union monopoly power.
Attacks in Britain on markets in the 1980s were within the context of the general programme of the Thatcher government. It did two things which were unforgiveable to socialists: it privatised nationalised industries and curbed trade union power, hitting with a sledgehammer the two pillars of the Labour partyâstate ownership of basic industries and the rights of trade unions. Privatisation made clear that the industries would be profit seeking, working according to market principles. With less power, trade unions would shed much of their monopoly power and have to face more competition in the labour market. Private property, private profit and competition, much criticised aspects of markets, were encouraged. The pendulum had swung from an economy with a large state sector to a more open free market economy.
When the new era dawned, criticism of the market was answered with expressions, often uttered by the prime minister, that âit is a matter of market forcesâ and âyou canât buck the market.â Rising unemployment especially through redundancies was a very sensitive issue, and changes in wages were blamed on the market. Both the exercise of market mechanisms and the new society of the market economy came under scrutiny, which was often hostile.
But attacks on markets have existed for centuries. The Code of Hammurabi in the reign of King Hammurabi of Babylon dates from his reign of 1792 to 1750 BC. The code provides a multitude of instances of price and wage controls. For hiring workmen it states what payment is to be given; for example, to hire a herdsman costs six gur of corn per annum and to hire a 60-ton boat for a day costs a sixth part of a shekel of silver (Schuettinger and Butler 1979: 153).
The ancient Indian text Arthashastra was written by Kautilya (originally known as Chanakya) who lived during 350â275 BC. This is a comprehensive manual of government administration including economic and military policies in Book IV. In chapter I the wages for a variety of occupations are laid down. The rules for the protection of merchants are set out in chapter II. There are fines for deception and adulteration of goods. The incomes of persons engaged in trade are stated.
it is the duty of the trader to calculate the daily earnings of middlemen and to fix that amount on which they are authorised to live; for whatever falls between sellers and purchasers (i.e. brokerage) is different from profitâŠ. The Superintendent shall fix a profit of five per cent over and above the fixed price of local commodities, and ten per cent on foreign produce [p. 215]. Fines would be imposed on offenders.
Also there was provision for curing a market disequilibrium:
Whenever there is an excess supply of merchandise, the Superintendent shall centralise its sale and prohibit the sale of similar merchandise elsewhere before the centralised supply is disposed of. (p. 215)
This is a remarkably sophisticated document recognising the possibilities of misconduct in markets and setting out wages, prices and profit margins.
Of many ancient texts, the books of the Bible are widely known and much quoted, covering thousands of years and including commentaries on many aspects of life. Matters of economics and of markets inevitably are part of their concerns. In the Pentateuch, the books of the law, there is condemnation of false measures, as in Deuteronomy 25 verses 13â15. This is also a recurrent theme of the minor prophets of the Old Testament. In Hosea, chapter 12 verse 7, âFalse scales are in merchantsâ hands and they love to cheat.â More strongly in Micah, chapter 6 verses 9â12: âListen, you tribe and assembled citizens, can I forgive the false measure, the accursed short bushel? Can I connive at misleading scales or a bag of fraudulent weights?â In Haggai, chapter 2 verses 16â17: âIf someone came to a heap of grain expecting twenty measures, he found only ten; if he came to a wine vat to draw fifty measure, he found only twenty. I blasted you and all your harvest with black blight and red and with hail, yet you had no mind to return to me, says the LORD.â In the Book of Proverbs, there are many allusions to false scales, for example, in chapter 11, verse 1 and chapter 16 verse 11. In the major prophets, a greater variety of market misdeeds are recorded. In Isaiah, chapter 3 verse 12, there is the complaint that âMoneylenders strip my people bare, and usurers lord it over them.â In Ezekiel, chapter 18 verses 8 and 9, âthe righteous man never lends either at discount or at interest, but shuns injustice and deals fairly between one person and another. He conforms to my statutesâ; in verse 18 dishonest trading is regarded as a sin. Thus in the Old Testament it was market behaviour not markets as institutions which were condemned. In the New Testament the famous attack by Jesus often known as âthe moneychangers in the Templeâ incident was more than a criticism of banking. In St Johnâs Gospel, chapter 2 verses 14â16, we read in the New English Bible translation:
In the temple precincts he [Jesus] found the dealers in cattle, sheep, and pigeons, and the money-changers seated at their tables. He made a whip of cords and drove them out of the temple, sheep, cattle, and all. He upset the tables of the money-changers, scattering their coins. Then he turned on the dealers in pigeons: âTake them out of here,â he said; âdo not turn my Fatherâs house into a market.â
The other three gospels also record Jesusâ attack in the Temple. More than an attack on crooked dealing, this is an attack on the existence of markets for money, sacrificial animals and birds. It is very puzzling because the purchasers were only trading, as they were required to make sacrifices and to use the high quality silver coins required by the high priest. To rescue the legitimacy of the market as an institution, an interpretation of the incident is that what was being attacked was the location of the market, an invasion of holy space with commerce.
The Edict of Diocletian of 301 AD described in detail by Kent (1920) set maximum prices for most goods and services. Many traders disobeyed the Edict despite risking the death penalty. The failure of the policy contributed to the abdication of Diocletian in 305. It seems that the Edict applied to only parts of the empire. In paragraph 8, Diocletian mentions that avarice leads to profit and paragraph 10 that profiteers have forced up prices more than eightfold, eroding the real pay of soldiers. Paragraph 11 makes it clear that maximum prices were not fixed prices since some provinces have low prices. Paragraph 13 states that there should be mutual restraint between buyers and sellers; traders were not allowed to buy where prices are low and resell elsewhere. Workersâ pay was set at a daily rate but teachers were remunerated per pupil monthly and lawyers paid per case. The Edict of 301, notes Mitchell (1947), applied to over 900 commodities (no metal or clay products), 130 different grades of labour and many freight rates. The majority of goods in the edict enter military states; the army was the largest buyer of commodities, thus these goods affected the price level. In the end the Edict failed because it was too simple and rigid.
Another example of interference in markets was the Assize of Bread of medieval England which started in the reigns of John and Henry III, that is, the thirteenth century, starting with supplies to the royal household (Davis 2004). Although, from 1256 the justices of the peace published the Assize of Bread, and Ale bread was monitored more than ale production, which was more entrepreneurial and part time.
The principle followed was that âa unit loaf would be sold at a constant price (usually a farthing or halfpenny) while its weight would vary according to changes in the market price of grainâ (Davis 2004: 486). The Assize both tried to protect consumers and provide bakers with adequate living. However, town officials were more concerned with supply, forestalling and engrossing, rather than with the price of grain.
The Assize was the basic package for the average baker in terms of his daily output and a standard turnover. Creators of the Assize sought stability in demand, output and the profits of bakers.
Like most laws, the assize of bread was idealistic and not always attuned to varied every day conditions. (Davis 2004: 495)
Early attempts to remove the faults of markets failed. Criticisms of markets continued and were diffused, changing from one issue to another. A way of classifying the criticism is to consider separately market mechanism, the market economy and market behaviour.
Market mechanisms arouse suspicion. The motive for using a market is often described as the search for profits, not for increasing economic welfare. Selling and buying are seen as a kind of warfare with sellers and buyers in opposition to each other, all trying to gain at the otherâs expense. Also the market is discovered to be inefficient because what is offered for saleâwhether goods or labourâcan remain unsold for some time. Markets are slow to âclear.â Many markets are seen to be in a chronic state of disequilibrium. Prolonged shortages of goods and lengthy periods of unemployment provoke the verdict that âthe market is not working.â The market is accused of failing to respond to need, devoting too much attention to the richer consumer. This is partly because market activity is alleged to promote the inequality of incomes.
The market economy changes the nature of society. Instead of, say, feudalism, which is mentioned with moderate admiration by some nineteenth-century critics, interpersonal bonds and many types of association are replaced by a bleak impersonal world where contact between persons is transient with no concern for the condition of others. Much of human activity is commercialised: anything can be bought or sold. The boundary between the benevolent public sector and the ruthless working of the market disappears. Individualism replaces common concerns and activities. Everyone is concerned for themselves and not for the wider community. It is significant that many critics, especially from the nineteenth century, fiercely opposed the existence of private property.
Market behaviour gives rise to the most long-standing criticism of markets. From ancient times we have records of bad behaviour in markets, usually perpetrated by the sellers. Awareness of fraud through adulteration of goods and other deceptions and cheating through meddling with weights and measures have existed for centuriesâand attracted legal penalties. Also there has been criticism of markets for unjust prices for goods and unfair wages. Dissatisfaction with them has been great enough to establish regulation through price fixing. Unjust gains in markets have been rated as intolerable.
Does this matter? Cheats, thieves and fraudsters have been identified and condemned throughout recorded history. However, criticisms do not disappear, rather they become broader and more strident. Capitalism as an economic system inspires books about it repeatedly. As capitalism is complex, inevitably the market economy is examined and its activities put under a microscope. Attitudes towards markets are the underlying theme of many policies. In times of inflation the sources of price increases are closely scrutinised. In democracies governments are expected to respond to public clamour for something to be done which takes the form of moderating the work of markets in detail through examining all aspects of their operation. Just as capitalism is criticised, there is no shortage of defenders of the free market who warn of excessive interference in markets.
In modern economics, there has long been awareness of the imperfections of markets, especially the existence of monopoly with its welfare implications. Since the Cambridge economist A.C. Pigouâs Economics of Welfare, originally published in 1920, there has been much concern about the external costs generated by markets, especially pollution. There is less awareness of how long and old the debate on markets is.
The central aim of this book is to present the criticisms of an economic nature which have been made of markets for centuries and to consider how justified they are. In the next chapter, the case for markets as made by Adam Smith and others is outlined in order to be aware of what was being criticised. The major critics are presented in the next four chapters beginning with Aristotle and his precursor Plato. From there Aquinas, a great disciple of Aristotle, is discussed with reference to the idea of the just price; the long period, to 1800 of the Mercantilists, engaged in trade and writing about it, is searched to look for criticisms of markets in literature, which was quite sympathetic to them. The following two chapters discuss the sharpest critics. The nineteenth century saw ...