Title: Rethinking the Market
Duration: 36 Months: October 2013-September 2016
Funded by: ESRC Professorial Fellowship
Project Lead: Professor Matthew Watson, Department of Politics and International Studies, University of Warwick
I have received a three-year Professorial Fellowship from the UK's Economic and Social Research Council to undertake a research project that looks at ways of rethinking the concept of 'the market' beyond the routine association with simple demand-and-supply dynamics. The Fellowship lasts officially from October 2013 to September 2016, but having had the good fortune to receive it at a relatively early stage of my career I will be able to use it to lay down a programme of research that will sustain me into the long term. I have my priorities for the official three years of ESRC funding, but these will be accompanied by further additions to the overall breadth of the project as my initial research uncovers many more trails for me to follow in due course. Overall, this will see me explore through multiple workstreams leading to multiple publications the issues of what we know about 'the market', the context in which such ideas originally arose and the political consequences they still exert today. Details of my progress will be posted on this website throughout the lifetime of the project.
Popular Assumptions about the Market
Public discourse surrounding the market typically forwards the image of market mechanisms as some sort of disciplinary force as demand is satisfied through automatically finding its own supply. No external intervention is deemed capable of improving on internally generated outcomes that are considered, in any case, to be the best of all possible results. There is no evidence from the history of economic thought that the reason for first trying to conceive of 'the market' is this way was anything more than a thought experiment designed to isolate moments in which the underlying behavioural content could be considered to be purely economic. There is also no evidence from the history of economic thought that this rationale was anything other than intensely controversial, sparking deep divisions and constant struggle for the soul of the subject field. These historiographical findings provide an important antidote to the confidence with which the disciplinary force of market outcomes has been seized upon in contemporary politics. Market mechanisms are thus today given a will of their own and are widely believed to have the capacity to act upon that will to enforce outcomes which otherwise would not have arisen. Neither of these assumptions are recognisable in those moments in which economists first began to envision a market system that would encompass the whole of the economy and to ask the retroductive question of what conditions would need to be in place for such a system to be operative.
You can't buck the market
The populist phrase 'you can't buck the market' is the perfect illustration of the more modern way of thinking, as well as of the distance that has been travelled from the economic theory out of which all ideas about the market as a system originally arose. The basic language of 'the market' might appear similar across this temporal divide, but greater insight is provided into each moment by recognising just how different they are from one another. The contemporary political usage only has contemporary parallels in economic theory insofar as the latter feeds perceptions of powerlessness, whereby people are deemed to have lost control of their own destiny in the face of an abstract but compelling market logic.
Yet behind these pronouncements of the omniscience of market mechanisms there lie any number of analytical assumptions which tend not to be reflected upon at all, perhaps because to do so would reinforce the image of the distinct break they entail with so much of the economic theory that it is claimed sustains them. We are told that the market is able to assert particular behavioural priorities onto us, but typically we are not told why. The power of the image of a disciplinary force is usually enough on its own to render believable the deeply politicised message contained within the image about the dangers of rebelling.
The Market Co-ordindation Problem
The most significant of the covert assumptions underpinning such social passivity is that markets are able automatically to coordinate individual economic activity in pursuit of the most favourable outcomes imaginable. In technical language this is the presumption that they 'clear' perfectly if left alone to perform their task of matching supply faultlessly with demand. An iterative process of price adjustment is posited which has as its single goal the ability to ensure that no consumption possibilities are left unmet and that no productive capacity is ineffectively utilised. Viewed from a distance the market thus appears to possess an all-seeing eye. This is how the populist conception accounts for the fact of market coordination, through which myriad instances of everyday economic decision-making cohere into a functioning economic system. All that is necessary is to leave well alone and to allow the market to sprinkle its own brand of magic over the whole of society.
Unfortunately, real-world markets have a tendency to depart from the accompanying vision of allocative efficiency, as was demonstrated only too vividly by the unprecendentedly large allocation failures which occurred in and around the global financial crisis. Such real-world difficulties are almost certainly related to the fact that at no point in their subject field's history have economists offered an unequivocally economic solution to the issue of market coordination: solutions couched in logical and mathematical terms, yes; solutions couched in empirically verifiable economic terms, no. The so-called market coordination problem is described specifically as a 'problem' for good reason, then. However, this is a finding that is almost always overlooked. Indeed, it relates to a question that is hardly ever asked, because is it not natural to think that economists must have solved the issue of market coordination decisively in economic terms if they are to continue working with such models as the touchstone of their subject field?
Moreover, it is always a mistake to think that market outcomes can be made to operate in society's interests simply by withdrawing intervention from them. The politics of espousing market regulation certainly does rely on an image of leaving markets to their own devices because it is beyond the capacity of any social planner to second-guess the process of market coordination as a means of improving upon it. Yet this image is almost wholly misleading. The supposedly 'free' market continues to be sustained by a whole host of interventions which make the participants within them increasingly 'unfree'. This is a necessary condition for any functioning system of markets, and the maintenance of that functionality over time tends to involve more and more enforcements being enacted upon society. What we have seen is people being increasingly required to reconstruct themselves as market agents if they are to carry out routine tasks of everyday life that were previously placed beyond the reach of market institutions. Often this has been both against their will and against their interests.
Why it is time to Rethink the Market
My project seeks to reveal some of the ways in which the ongoing inability to resolve the market coordination problem has been rendered increasingly unimportant for academic economics. Professional developments have occurred within economics which have allowed that problem to be almost entirely sidestepped. Yet this means that the most important question that it is possible to ask about markets is the one that does not get asked. How close does the textbook model of allocative efficiency really come to describing how different markets produce their actual outcomes? What sort of commentary do those outcomes deserve once the textbook model is seen instead as an ideological diversionary tactic?
It is possible from a history of ideas perspective to identify a number of turning points from the 1820s to the 1930s which increasingly turned economics into the so-called science of choice, thus eliminating interest in the socialising effects of the broader market environment in which individuals are called upon to choose. In these moves, economists tended to declare themselves to be the guardian of the fundamental principles on which self-sustaining economic forms were to be based, believing that their major task was to formulate abstract understandings of those principles at one stage removed from the much messier dynamics of everyday economic life. The whole realm of economic institutions was to be passed to other social scientists to study.
'The market', as a substantive phenomenon of concrete everyday relationships of buying and selling, has consequently all but disappeared from economics research. My project workstreams come together in an attempt to put a substantive understanding of market dynamics back at the heart of discussions of economic possibilities. They do so by adopting a Janus-faced approach. The backward-looking aspects of my research involve identifying those moments at which the struggle to define the nature of their subject field resulted in economists taking increasingly bolder steps towards the creation of a science of choice. 'The market' can be put back into economics most effectively by learning more about the traditions of thought that were lost through the series of steps which led to it first being taken out. The forward-looking aspects of my research involve constructing alternative political possibilities by breathing new life into what was sacrificed in advance of a science of choice. 'The market' might today be discussed as something that exists beyond politics, but the reproduction of particular types of market institution is a deeply political process. Our political future does not have to continue mimicking the political present, but to be able to imagine new possibilities creatively it is almost certainly necessary to become more aware of past forms of economic thought that currently lie dormant.
(1) How and why has economics methodology evolved so that the issue of successful market coordination of individual economic behaviour is increasingly treated as a given of allocation functions?
(2) How and why are allocation axioms passed on to new economics students as the preferred means of conceptualising the essence of market institutions?
(3) How and why has orthodox economics opinion managed to renew and reassert itself in the face of a global financial crisis rooted in quite clearly dysfunctional allocations?
Each of these questions will eventually be answered in book-length treatment.