Market Fundamentalism as a Religion

by Chet Gaines. Image from Wonkette of people praying to the Golden Bull on Wall Street for economic improvement.

Modern economic theory is presented as a science. Elaborate mathematics and diagrams are employed to derive principles that are assumed to be universal among economic actors, even though the specialized math used is a “dated version” (Keen 6) and such diagrams “often contain outright fallacies” (Keen 14). After a closer examination of the dominant economic theory and its critics, one might come to the conclusion that it is actually a belief system quite similar to a religion, not an actual scientific study. The following definition of religion is given by Clifford Geertz:

“(1) a system of symbols which acts to (2) establish powerful, pervasive, and long-lasting moods and motivations in men by (3) formulating conceptions of a general order of existence and (4) clothing these conceptions with such an aura of factuality that (5) the moods and motivations seem uniquely realistic.” (Bowie 20)

It is simple to see that economic theory is a system of symbols, that it establishes moods and motivations, and that it formulates a conception of existence and order. What is less obvious to the casual observer is the aura of factuality economic conceptions are clothed in. The content that follows should assist the reader in understanding how some of that aura operates to create the realism of economic motivation. It is because of this realism that people believe in economic concepts, regardless of the facts, and that belief in turn gives the concepts social power.

“The belief that economic theory is sound, and that it alone considers ‘the big picture’, is the major reason why economics has gained such an ascendancy over public policy. Economists, we are told, know what is best for society because economic theory knows how a market economy works, and how it can be made to work better, to everyone’s ultimate benefit… If this proposition were true, then economic theory would be clear, unequivocal, unsullied, and empirically verified. It is nothing of the sort.” (Keen 3-4)

First, let’s review the creation story of the monetary market, the birth of money.

“The story of money for economists always begins with a fantasy world of barter.” (Graeber 23)

The creation story of the monetary market economy lies in the myth of barter economies. Though “no example of a barter economy… has ever been described, let alone the emergence from it of money” and “all available ethnography suggests that there never has been such a thing” (Graeber 29), economists have long insisted that this model of economy led to the use of currency. One of the most well-known, though not the earliest, expressions of this myth comes from the work of Adam Smith, who had a specific motivation for telling the story.

“For economists, it is in a very real sense the most important story ever told. It was by telling it, in the significant year of 1776, that Adam Smith, professor of moral philosophy at the University of Glasgow, effectively brought the discipline of economics into being… it is, as I say, the great founding myth of the discipline of economics.” (Graeber 24-25)

Though people as early as Aristotle supposed the existence of a barter economy, no one was actually sure of how the transition from barter to monetary economics occurred. The prevailing assumption at Smith’s time was that since governments issued money, the origin of money must have been intertwined with the origin of governments. Smith objected to this notion, preferring the assumption that money and private property predated political institutions. In the process of recording his creation story of money, he created economics.

“…this story played a crucial role not only in founding the discipline of economics, but in the very idea that there was something called “the economy,” which operated by its own rules, separate from moral or political life, that economists could take as their field of study.” (Graeber 27)

The myth of barter economics never changed, even as more information became available regarding the practices of early economies. In the latter part of the 1800’s Stanley Jevons wrote “what has come to be considered the classic book on the origins of money” (Graeber 29) and borrowed from Smith a hypothetical description of barter in a Native American economy, though accurate descriptions of such economies existed and didn’t match at all what Smith had invented about their culture.

“Around that same time, missionaries, adventurers, and colonial administrators were fanning out across the world, many bringing copies of Smith’s book with them, expecting to find the land of barter. None ever did.” (Graeber 29)

The myth of the barter economy lives on even today, though economists sometimes avoid claiming it as historical fact by presenting it as a thought exercise. Economic textbooks often invite the reader to “imagine an economy something like today’s, except with no money” then point out that it “would have been decidedly inconvenient” and conclude for the reader that “people must have invented money for the sake of efficiency” (Graeber 23). It is this unyielding attitude in the face of historical data that leads one to question the scientific nature of economic inquiry. Why should our history of money be “precisely backwards” (Graeber 40) with the assumption that economic activity began with barter instead of debt?

“The existence of credit and debt has always been something of a scandal for economists, since it’s almost impossible to pretend that those lending and borrowing money are acting on purely “economic” motivations (for instance, that a loan to a stranger is the same as a loan to one’s cousin); it seems important, therefore, to begin the story of money in an imaginary world from which credit and debt have been entirely erased.” (Graeber 22)

The story is told without debt so that we can assume the concept of economic motivations to be sound, even though all ethnography suggests otherwise. This violation of economists’ assumption about human behavior leads us to our next economic myth, the rational self-interested actor.

“In practically no human society examined under controlled conditions have the majority of people consistently behaved selfishly.” (Benkler 14)

The “dominant assumption in Western society about human motivation” has been that “human beings are basically selfish creatures, driven by their own interests” (Benkler 2). The major debate has been not whether this assumption is warranted, but rather how to manage this seemingly intrinsic quality of humans. There have been two basic solutions put forth to this problem: the force of the state, known as the Leviathan, and the magic of the market, or the Invisible Hand. Over time society has alternated between these two solutions, finding one to be appropriate for a while, then reverting back to the other. But before we argue about which mechanism we should use to manage this intrinsic selfishness of ours, we should first question our assumption of self-interest.

“Perhaps humankind might not be so inherently selfish after all. Though the work of hundreds of scientists, we have begun to see mounting evidence in psychology, organizational sociology, political science, experimental economics, and elsewhere that people are in fact more cooperative and selfless, or at least behave far less selfishly, than most economists and others previously assumed. This isn’t just theory; dozens of field studies have identified cooperative systems, often more stable and effective than equivalent incentive-based ones. Even in the study of human biology, evolutionary biologists and psychologists are now finding neural and possibly genetic evidence of a human predisposition to cooperate. Though it may sound counterintuitive, there is much evidence that evolution may actually favor individuals (and societies that include these individuals) who are driven to cooperate with or help others, even at cost to themselves.” (Benkler 13)

While the presumption of universal selfishness has been shown to be faulty, the dominant economic thinking still reflects this age-old myth about our motivations. This assumption has led to an interesting development over the past few hundred years in economic thinking, the deity-like character known as the Invisible Hand. This concept has its roots in Adam Smith’s Wealth of Nations. In the second chapter of the fourth book, Smith writes about a hypothetical preference for domestic rather than foreign industry. This preference for one’s own nation leads to social gain for the nation as well, which was not part of the original intention of the preference. Smith’s basic claim was that this and other selfish acts can lead to social gain. This is the only place in the entirety of the whole five book series where the Invisible Hand is to be found, and yet it has become a rather prevalent metaphor in discussion of the market, reflecting the larger theme of Wealth of Nations.

“Smith’s Wealth of Nations argued that because humans are inherently self-interested and human decision making is driven by the rational weighing of costs and benefits, our action in a free market would tend to serve the common good. In other words, in our pursuit of self-interest we would work to fulfill one another’s needs, not because we care about one another’s well-being, but because it is mutually advantageous to do so.” (Benkler 4)

There may be some element of truth in indirectly assisting another through one’s own activities, but should such a mechanism be relied on for social well-being? Faith in the Invisible Hand metaphor has grown to justify all sorts of economic and financial behaviors that demonstrably reduce social well-being. By the close of the twentieth century, a narrower and more exaggerated version of Smith’s self-interested actor had been embraced by economists and business leaders. Unfortunately, when applied incorrect assumptions have real world consequences. Joseph Stiglitz, Chief Economist and Vice-President of the World Bank, has pointed out that time after time economic crises have been “precipitated by economists.” This is in spite of the fact that the economy now “looks a lot more like the economic textbook ideal than did the world of the 1950s” (Keen 2).

“Though mainstream economics began by assuming that this hedonistic, individualistic approach to analyzing consumer demand was intellectually sound, it ended up proving that it was not.” (Keen 23)

The facts are that we have followed “erroneous beliefs and ways of thinking about human nature” (Benkler 19), and that this model has permeated “not only… the business world or… the markets” (Benkler 10) but every facet of our lives.

“…our existing social and economic systems – from our hierarchical business models, to our punitive legal system, to our market-based approaches to education – are often designed with the wrong model of who we are, and why we do what we do.” (Benkler 14)

How do we come to these faulty notions of what economic behavior means? And how are such notions maintained? These are learned beliefs that result from specific training in economic theory that has its own versions of mathematics and statistics and that is also “ridden with internal inconsistencies” (Keen 18).

“Non-economists may criticize the economic representation of a human being as a totally self-interested entity, but they probably expect this economic representation to be internally consistent. It is not.” (Keen 26)

One of the problematic features of economic theory is its ability to “start with some key proposition, and then contradict that proposition at a later stage” (Keen 18). Professor Keen points out in his book Debunking Economics that economic theory assumes consumers to be both unique and identical in their behavior in order to resolve the issue of being “unable to extrapolate” the behavior of an individual into a coherent analysis of “society as the simple sum of its individual members” (Keen 26-27). But if such contradictions are as simple to recognize as Keen makes them sound, then why is it that most students of economics seem not to recognize these contradictions?

“Unlike many other critiques of economic theory, most mainstream academic economists are aware of this problem, but they pretend that the failure can be managed with a couple of assumptions. Yet the assumptions themselves are so absurd that only someone with a grossly distorted sense of logic could accept them. That grossly distorted sense of logic is acquired in the course of a standard education in economics.” (Keen 27)

Keen explains that “most introductory economics textbooks present a sanitized, uncritical rendition of conventional economic theory” (Keen 5) with conclusions “which would apply if the theory had no logical flaws” (Keen 27). Many only take an introductory course and move on to career oriented courses in accounting, finance or management where these concepts go unchallenged.

The minority of students who do persevere with their economic education learn the techniques of economics analysis “with little to no discussion of whether these techniques are actually intellectually valid.” Critical literature is “simply left out” of the instructional material and students are taught “specious assumptions” that resolve observed contradictions (Keen 5).

“However, most students accept these assumptions because their training leaves them both insufficiently literate and insufficiently numerate. Modern-day economics students are insufficiently literate because economics education eschews the study of the history of economic thought. Even a passing acquaintance with this literature exposes the reader to critical perspectives on conventional economic theory – but students today receive no such exposure. They are insufficiently numerate because the material which establishes the intellectual weaknesses of economics is complex. Understanding this literature in its raw form requires an appreciation of some quite difficult areas of mathematics – concepts which require up to two years of undergraduate mathematical training to understand. Curiously, though economists like to intimidate other social scientists with the mathematical rigour of their discipline, most economists do not have this level of mathematical education.” (Keen 5)

Keen goes on to elaborate about the problems of gaining a mathematical education through economics courses. He explains that the math used in economics courses is isolated from current mathematical methods, which would “undermine much of economic theory” (Keen 6) if applied. The reasoning for having separate courses for economic math is to teach specific concepts related to economics not covered in a more general math course, but the problem is that this separation has led to “peculiar versions of mathematics and statistics” (Keen 6) by not keeping up-to-date with modern mathematical methods.

“Economics students therefore graduate from Masters and PhD programs with an effectively vacuous understanding of economics, no appreciation of the intellectual history of their discipline, and an approach to mathematics which hobbles both their critical understanding of economics, and their ability to appreciate the latest advances in mathematics and other sciences. A minority of these ill-informed students themselves go on to be academic economists, and then repeat the process.” (Keen 6)

The process Keen lays out is more like the training program of a religion than a scientific discipline of skepticism and falsification. Myths like the barter economy and the self-interested actor are encouraged, while the evidence against these concepts goes undigested. These tales function more as cosmologically orienting stories than they do actual principles and laws of the physical universe. Furthermore, fresh views of our economic possibilities are hindered by market dogmatism which maintains the status quo.

A less indoctrinated view of what economics is reveals more than just a few myths, but a new economic paradigm about to unfold. The technology of automation is advancing more than ever, challenging human labor not only physically but also cognitively. Algorithms and robotics are being used to perform tasks once thought to be exclusively in the realm of human labor. The resulting displacement of workers by the automation of labor can be termed technological unemployment, a major factor in our current economic troubles.

“The ranks of the unemployed and underemployed are growing daily in North America, Europe, and Japan. Even developing nations are facing increasing technological unemployment as transnational companies build state-of-the-art high-tech production facilities all over the world, letting go millions of laborers who can no longer compete with the cost efficiency, quality control, and speed of delivery achieved by automated manufacturing… Life as we know it is being altered in fundamental ways.” (Rifkin 5)

Technological unemployment is often dismissed by market economists as it is generally believed that technological advancement tends to create more jobs than it destroys. This may have been true in the past, where only people’s physical abilities were challenged by automation. However, with modern applications of algorithms, our brainpower is now being challenged as well. It’s not only factory workers that must worry about losing their jobs to automation, but also journalists, lawyers, surgeons, and practically everyone else.

“We are being swept up into a powerful new technology revolution that offers the promise of a great social transformation, unlike any in history.” (Rifkin 13)

This new level of technology calls for a new level of economic understanding, one recognizing true resource efficiency rather than just market efficiency, which Keen notes “is itself flawed” (Keen 5). Through the application of technological advancements, a greater efficiency can be created resulting in an abundance of resources, a process known as ephemeralization. Since traditional economics defines itself as being concerned only with scarce resources, and since scarcity is a profitable notion, the theory is motivated against creating or recognizing abundance. However, there is a slowly growing appreciation for the abundance that is becoming available through technology, and the efficiency that could result from an abundance based approach, rather than one which assumes scarcity.

For example, a market behavior that could be described as ritualistic is that of ownership. Deeming physical or intellectual items as ‘property’ is an attempt at ensuring protection against scarcity. However, given our current ability to create an abundance of all goods needed to sustain society, does it make sense to create scarcity by artificially restricting access to goods? In other words, the ownership metaphysic is itself inefficient and only exaggerates scarcity. It takes a massive amount of resources to enforce this unnecessary notion. In 2011 there were 9,063,173 property crimes in the United States, compared to just 1,203,564 violent crimes (Disaster Center). If the resources used to prevent the vast majority of crimes were suddenly not needed, how much attention could violent crimes receive? Through automation, an abundance of goods could be created and made available to anyone in need of them, effectively bypassing any need for the concept of property because access itself has been guaranteed by the infrastructure. Direct access to goods also resolves the issue of technological unemployment, as it will be harder and harder to pool money from the market to purchase items necessary for living if unemployment continues to increase.

“The quickening pace of automation is fast moving the global economy to the day of the workerless factory.” (Rifkin 7-8)

This implies a new concept of economy; a concept not based on human labor, but on individual and social well-being as understood by science.

“Even some of the most committed economists have conceded that, if economics is to become less of a religion and more of a science, then the foundations of economics should be torn down and replaced.” (Keen 19)

The word “economics” comes from a Greek term meaning “management of a household.” As evidenced by the recent meltdown at Fukushima, externalities recognize no national borders. Our household is the entire planet, and we can only make efficient use of its resources by recognizing it as a single system. There is only one biosphere. What happens to it affects us all. We need to redefine economics so that it actually ensures our total well-being to the greatest degree possible while maintaining an ecological balance. We need a holistic economic theory based on empirical data, not traditional notions.

Works Cited

Benkler, Yochai. The penguin and the leviathan: How cooperation triumphs over self-interest. New York: Random House, 2011. Print.

Bowie, Fiona. The Anthropology of Religion. 2nd ed. Wiley-Blackwell, 2006. Print.

Disaster Center. "United States Crime Rates 1960 - 2011." The Disaster Center. Web. 24 Nov 2012.

Graeber, David. Debt, The First 5,000 Years. Melville House Pub, 2012. 20. Print.

Keen, Steve. Debunking Economics: The Naked Emperor of the Social Sciences. New York: Zed Books, 2003. Print.

Rifkin, Jeremy. The end of work. New York, NY: Jeremy P. Tarcher/Penguin a member of Penguin Group, 1995. Print.