Questionable scientific foundations of the market economy

We now equate capitalism with a market economy. But nothing could be further from the truth: there are different types of capitalism. Just think of the difference in typology between American and European contexts.

Market economy is another method. This corresponds to the fact that the distribution of goods and services, as well as their price, is determined by the conflict between supply and demand, which is determined by the free play of the market. But that’s not all: the market price, based on its constant destabilization, is considered superior to any other assessment. Indeed, in a world full of perfect oil, the price of goods and services always corresponds to the terms of trade. If the market values ​​goods and services more accurately than public impulses, why bother with barriers to its flow?

The term market economy became popular in the 1980s. The door was therefore open to a different political order than the one that prevailed after World War II: neoliberalism from the United States. Ultimately, regulation had to be deregulated and abolished so that the law of supply and demand could flourish freely. Neoliberal economics later became normative when it was enshrined in the 1990 Washington Consensus. the owner of the motu the ideological superiority of American capitalism by formulating ten principles derived from the teachings of the Chicago School, including the privatization and regulation of the economy. Among the ten mandatory affirmations of this Washington Consensus, we read the following requirements: directing public spending priorities to areas offering high economic returns, lowering taxes, liberalizing foreign trade, and privatizing monopolies or state participation or public enterprises. , deregulation of markets and economy, etc. You don’t need to be an expert to see that this market criterion in no way promotes labor rights or environmental protection.

From that moment everything became a “market”: the labor market and the capital market, in the dizzying excitement of the auction hall. This brings us back to the theories of Léon Walras (1834-1910), one of the most famous mathematicians in economics. He suggested that the economy moves toward equilibrium under perfect competition. This postulate leads to the “Walrasian trial and error” theory, which can be generalized as a stock market as a place of exchange where prices are formed by trial and error, or rather iteration, until the intentions of supply and demand coincide. . This market value has even spread to corporate accounting, which is now based on fair value and is considered superior to any other criterion.

But if it is intelligible to talk about the capital market, it is impossible to talk about the labor market, except to temporarily transform a person into a productive fungible motive. However, this objection has been swept away by the dominant thinking, as we have seen in the US, that work needs to be made flexible and mobile to adapt to the sources of growth.

In addition, the idea of ​​managing the state as a company operating in the market emerged. This idea was based on the proven failure of public policy in the 1970s, when service industries crowded out manufacturing companies. Of course, some have emphasized that the state is not managed like a company, and the decision-making process of the latter is not democratic, despite what the neoliberal postulate tries to confirm. A company seeks a monopoly and obeys the laws of profitability it seeks to influence. The state is a moral formation that expresses itself in the delicate balance of individual well-being. These sad spirits were quickly banished.

But this market dominance required a vague scientific justification. It came through modern finance, which began to be taught in the 1970s under the term CAPM. Capital Asset Valuation Model. Under certain conditions (which, of course, we never confirm), the expected return on an asset is closely related to the return on the market. Everything is marginal and diluted compared to the last. It does not make sense to imagine the price and yield for an asset outside the market, because the latter contains this asset. As with all things, there is no escape. If we apply this claim to the real economy, we understand its political power. But this famous CAPM, which has been taught for half a century, says something more dominant: that diversifiable risk is not compensated by markets. That’s why we need to diversify. And this naturally leads to the fragmentation of everything, including the work that neoliberalism wants to see fragmented and fragmented, and above all the lack of collective bargaining power.

But he had more, that is, the efficient market hypothesis, that is, the prices of the factors of production reflect all the information relevant to them. The efficiency of financial markets, developed mainly by the French mathematician Louis Bakelier (1870-1946) and the American economist Eugène Fama (1939 -), who received the Nobel Prize in Economics in 2013, is the basis of modern finance. If markets are efficient and have all information, their advantage is established because no one person can consistently claim to hold information that is unknown to other participants. Everyone is “in the market” and they can’t avoid beating it.

We understand the schizophrenic nature of this concept, because economic agents know that they must confront the market with their speculative actions, but it is impossible for them to systematically outperform its indicators. Men struggle against perfection and a result that is forbidden to them. Is it all very intellectually sound? Honestly, even though I’ve been teaching for thirty years, I don’t know anything about it anymore. It is similar to horoscope or haruspici, i.e. the art of divination, reading the entrails of a sacrificial animal to draw omens about the future. Be that as it may, this axiom of efficiency was seized upon ideologically to legitimize the primacy of efficiency of neoliberal economics.

But what about this market economy? It is bilateral. Attracts with the ability to create progress and increase wealth. But at the same time, he fears, even stifles, his own narcissism. Deprived of memory, he adapts himself only to financial aid. It does not tolerate inactivity and proves to be as volatile as the stock prices it manages.

However, one thing seems clear: the market economy is a model in which work is implicitly, sometimes exogenously, even a regulatory variable. This definitely leads to the idea that the market and the State responsible for social balance should be two sides of the same coin.