Market Economy

The economic order on which modern society depends.

The “Great Transformation” in politics, economics and society came when the market economy hit its stride in Britain in the late eighteenth century. Before it, cohesion was sustained to a large extent through the social capital of reciprocal obligation, loyalties, authority structures, culture and traditions. The Great Transformation consisted of their replacement by market exchange, income and price, and by the impersonal principles of economics.M8

Around these, cooperative arrangements can be sustained with little need for a common culture of shared values or for a practice of reciprocal obligation. The stability of the market economy can be maintained because it depends on individual self-interest, which is in abundant supply. It requires little intervention to support networks of at least a degree of social cohesion, so it tends to protect and promote liberty. It provides suppliers with the incentive to know their markets and respond to them; it uses pull rather than relying on top-down regulation, and it learns from experience, so it is effective and efficient. It supports a more egalitarian society than any other large-scale state has been capable of.

But it has weaknesses. First of all, its competitiveness, demanding ever-increasing technical innovation and productivity, sets it up as a dynamic equilibrium whose stability depends on perpetual growth, which is an impossibility, and which will lead in due course to its destruction. Former civic societies have also been enabled by growth: improvements in productivity are necessary to release labour for the intensification on which they depended—the building and maintenance of infrastructures, and the provision of food and other primary goods over ever-greater distances and in the face of ever-diminishing returns. But only the market economy, with its taut efficiency and pricing and its insistence on the right to life for everyone, including the unemployed (cf. Unlean), has the unconditional commitment to convert advances in productivity into increases in output, relying on growth as a condition for its survival.

Other weaknesses, plain for many years, are now pressing. It derives its energy from stocks of fuel which are becoming depleted. It destroys its climate and ecology. It depends on price signals for most of its information, but they are liable to be incomplete and too late, indicating that radical action should have begun many years ago. It allows the growth of population to reach levels which, in any ecosystem, would predict a crash. It supplies goods—such as tobacco, junk food, etc—which many of its consumers want not to want. It works for insiders only; people who fall out of the system are in trouble. It can be captured: big organisations may dominate and destroy it. It develops technologies whose significance and power it cannot understand or control. It is itself such a powerful concept that it has developed a global reach: nowhere is protected from it. It sees value in terms of money, so it thinks in abstractions. And it tends to usurp all other values, including social capital and the culture which sustains it—those essentials for a slack, non-market economy. These have now substantially atrophied, and the need for them will become pressing after the market itself fails.

And yet, when it is gone, we will miss the essential simplicity of the market, its price mechanism, its self-stabilising properties, its impersonal exchange, the comforts it delivers to many, and the freedoms it underwrites. Its failure will be destructive. It is the aim of Lean Logic to suggest some principles for the design of a replacement.M9

 

Related entries:

Big Stick, Economics, Lean Economics, Regrettable Necessities, Needs and Wants, Globalisation, Climacteric.

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David Fleming
Dr David Fleming (2 January 1940 – 29 November 2010) was an economist, historian and writer, based in London. He was among the first to reveal the possibility of peak oil's approach and invented the influential TEQs scheme, designed to address this and climate change. He was also a significant figure in the development of the UK Green Party, the Transition Towns movement and the New Economics Foundation, as well as a Chairman of the Soil Association. His wide-ranging independent analysis culminated in two critically acclaimed books, Lean Logic and Surviving the Future. A film about his perspective and legacy - The Sequel: What Will Follow Our Troubled Civilisation? - was released in 2019, directed by BAFTA-winning director Peter Armstrong. For more information, including on Lean Logic, click the little globe below!

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