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The Market Economy and Its Limits
Transcript of The Market Economy and Its Limits
Presented By: Adnan Murad The Market Economy and Its Limits What is Market Economy? "An economy in which all economic affairs are organized within a society so that an un-regulated market is the means for conducting nearly all material transactions within the economy"
In such economies, decisions about production of goods, valuation, trade, distribution, etc. are all settled by individuals or small groups acting with maximum possible freedom, and a minimal set of legal or social constraints. Understanding Functions and Effects of Market Economy The Rise of Secular Thought Rise of Landed Aristocracy Cromwell’s victory shifted the balance of power permanently in favor of the landed aristocracy.
Enclosures were introduced.
Enclosure prevented poor from getting access to open lands.
According to Polanyi, "These enclosures resulted in social catastrophe. The lords did upset social order by literally robbing the poor of their share. The fabric of society was completely disrupted." Consequences of Social Disruption These events in England had far reaching consequences, both temporally and spatially. Some of them are: Money and Financial Markets Strength of a market economy lies in producing far beyond its minimal requirements.
Thus, surplus results in unstoppable demand.
Huge surplus necessitates trade and use of money for trading purposes.
Commodity money can't be used, as it can only work in a society where trade is peripheral.
Token money is used in market economies for trade purposes. Token money is a government guaranteed financial instrument.
The flaw for market economies in this regard is, high fluctuation in the quantities of money. Social structures in market economy conflict with traditional values. And thus, the transition to market economy collapses traditional values and norms. Market economies exist within ‘Market
society’. Market society includes supporting institutions, social structures, political structures, ideologies, and ways of
organizing knowledge. Global dominance of market economies is always praised. But, the damage inflicted by market economies to the world is always suppressed. Analysis of Market Economy in the Light of the views of Polanyi and Klein The Emergence of Market Economy Confluence of historical forces led to the emergence of market economy.
Most significant of these forces are: the weakening of the hold of religion and rise in the power of land aristocracy in England.
Both of these forces were represented in the realm of Oliver Cromwell; who beheaded King Charles I, and massacred large number of Irish Catholics. Social disturbance due to religious conflicts in Europe; led even religious leaders to uplift secular thoughts to organize society to attain harmony.
Release of the constraints of religion resulted in principles and norms that were totally against traditional values.
The replacement of the Biblical idea that “The love of money is the root of all evil” by Bernard Shaw’s sentiment that “The lack of money is the root of all evil.".
Market societies honor the wealthy, consider poverty as a vice, promotes luxurious lifestyles, and consider greed and selfishness as natural and socially useful. Where as, the traditional norms were just the opposite. Property Rights Instead of viewing land as a sacred trust, a gift of God to all humans, the idea of ownership and private property as a natural right was introduced.
Locke argued that the right to own property was prior to the social contract, so that governments could not alienate property.
Concept of Pareto Efficiency- which states that no one can be made better off without making at least one individual worse off. Market Ideologies and Consequences Essential Requirements of a Market Economy This coincided with the industrial needs for raw materials as well as the need for food for large numbers of laborers not engaged in agriculture. Changing Conception of Poverty Poverty was taken as an honorable condition in traditional societies. These societies took collective responsibility to feed poor.
An essential element of a market society is the idea of blaming the poor for their poverty, which was first introduced by Malthus.
According to him, it was over-breeding that led to poverty, while poverty led to vice and misery. He also added birth control as a tool to combat poverty. He said that helping poor would harm the society in long run,and over breeding will create even more poor.
The traditional concept of social responsibility for the poor was destroyed to let market economies function smoothly.
Reagan and Thatcher reduced taxes on the rich, arguing that this would increase growth because the rich would invest and increase productivity. The poor would only consume the tax cuts, reducing savings, investments and growth – this would hurt the poor in the long run. The many institutions and ideologies required for self-regulating markets to function are: (Polanyi) Labor Markets Production in a market economy depends on the ability to hire labor and a market for labor.
Enclosures gave a head start to industrial revolution, thus, building a surplus pool of labors.
Desperate condition of the people after enclosures; led them to earn livelihood by selling their labor. And this dire need of people to earn livelihood gave a boost to industrial revolution and gave birth to a labor market. The Market for Land Traditional societies value a harmonious relationship between man and nature.
But a market economy must separate the man from the land, and turn both into commodities freely available for sale and purchase. Strengthening of property rights and large scale enclosures created the possibility of agricultural capitalism, and the production of large amounts of surplus food as well as industrial raw materials like cotton. The remoteness of the owner from the land allowed him to view it as merely an input to a production process, a means for producing wealth. In a traditional society, a laborer invests his life energies and efforts, and enjoys the reward of bringing valuable products out of dead land.
But, in a market society, economic necessity compels the laborer to sell his time for money.
He is alienated from the land and the produce, both of which belong to his employer. The Market for Human Beings: The Collapse of Values Promotion of the “Invisible Hand” idea that individuals pursuing selfish goals will produce socially beneficial results has led widespread corruption. International trade can't be conducted in terms of token money that further intensify the problems in a market economy. Polanyi suggests that market economy is inherently unstable, and must be replaced by alternative mechanisms for productions and distribution of goods. Market economies encourage the pursuit of wealth “to the point of being absolutely irrational,” according to Max Weber.
Excess wealth is spent on luxuries and further multiplication of wealth but not for social welfare. Because in this economy it is believed that social welfare undercuts the labor market, strengthens the laborers against the capitalists, and results in reduced profits for investment and growth.
Classical economists Ricardo and Milton Friedman also propose this viewpoint.
The relentless demand for profits, the production of surplus goods, the legitimization of the pursuit of wealth, and greed and selfishness, has led many disasters and crises both local and global.
Klein has documented the disasters generated by market economy in three dimensions: land, labor and money. Erosion of sense of community and trust after 2nd World War.
A wife can't trust her husband. Neither a child can trust his parents nor parents can trust their child.
''We now have one of the highest divorce rates in the Western world and the fabric of family life has been stripped away in the past thirty years'' stated in a report on “Fractured Families” put out by the Social Justice Foundation(2006) in the UK.
According to the Center for Disease Control, USA also has the highest teen pregnancy rate in the world.
Leaders like Madoff pursue Ponzi schemes. All of these developments can be directly traced to promotion of the core idea at the heart of market societies: all is fair in the pursuit of wealth.
The Market for Land: Environmental Disaster Market Economy considers land, its products, and people living on it merely as inputs in process of production of wealth.
This has caused large scale damage to environment, depletion of forests and other natural resources, and created a looming catastrophe due to global warming.