“The Market as God” was one of the most provocative topics of discussion during the Mobius Forum. As Zibby pointed out last week, Harvey Cox, professor at the Harvard Divinity School, demonstrated how the western cultures attribute God-like qualities to the Market. We all smile complacently at the Saudi’s spending 1/3 of their primary curriculum on Islamic studies, but if free markets is a dogma, isn’t it very similar to what we do here at HBS? And if this makes sense, what should we do to insure that knowledge does not turn into fanaticism?
The Market is God. This is so true that I don’t understand why it was not pointed out sooner. Just think about it. It is well known that the market knows better, that the market integrates all available knowledge, that non-performers will perish, that respecting free markets commandments brings to the economic nirvana. Omniscience, omnipresence, supreme justice and supreme recompense. Aren’t these God-like attributes?
When faced with troubled, should I say heretic, economic systems, IMF and World Bank experts usually relate to the free markets ideology-with dubious efficiency. Are they very different from the Roman Catholic missionaries in their evangelisation missions? And when a case protagonist says that “we were put on earth to increase shareholder value,” isn’t it a demonstration of a vocational ambition driven by a superior calling?
Some would argue that the devotion into the free markets ideology is deserved because it is fully backed by hard facts and scientific demonstration, which is not the case of religious beliefs. The earth rotates around the sun, free markets are the Truth, period.
Unfortunately, economics has always been struggling to fulfil its aspirations to scientific respectability. Because it adopt a social perspective, experimentation is impossible and parameter contaminations forbid perfect interpretation of real-life events. In particular, economics has often been accused of demonstrating nothing but trivial common sense.
Ricardo, in 1817, brilliantly built a simplified trade model, the hydrogen atom of the trade economic theory, and proved the existence of comparative advantage and the benefits of free trade. With relief, economists welcomed this infusion of hard skills into their rather soft knowledge area.
Open a physics textbook today. It will teach you that the hydrogen atom model was clever but incomplete, and then it’ll talk about quantum physics. Now, open an economics textbook. After 200 years, you’ll still find Ricardo’s demonstration. Of course, improved models exist, but the fundamental principles are the same. Even the BGIE teaching group, who usually does a great job in keeping an objective perspective, still teaches Ricardo’s old approach to free-trade, with a surprising deference. Religions may revere texts that are several millenniums old, but economics don’t seem that much different.
It is well known that we surrender our souls to dead spiritual leaders and are slaves of dead economists. But if economic theory is not a religious belief, we should be able to challenge its assumptions when they cease to be relevant. In 200 years, the economic, social and environmental contexts have changed so much that taking decisions based on models like Ricardo’s may have dramatic consequences.
As you may remember, the main conclusion of the comparative advantage model is that free trade between two countries, for a given work resource, increases the production of goods for both. This objective made sense 200 years ago, when increasing output was a global concern. Today, developed economies don’t care only about additional GDP (whose utility is marginal anyway, especially if the “splitting of the pie” is not correctly orchestrated), but pursue more complex objectives, with keeping their jobs high on the agenda, as the recent U.S. steel tariffs increase demonstrated.
As another illustration, the model’s only input is human work, i.e. it does not take into account the depletion of natural resources. It may be relevant when you are dealing, like Ricardo, with agricultural goods using only renewable inputs, but it is not applicable to an industrial economy consuming non-renewable energy sources and minerals. In this context, blindly increasing economic output and therefore resource consumption may provoke major crisis. As an example, Campbell, an expert geologist, forecasts that oil production could start to decrease in 2010 with major social and economic consequences if nothing is done to anticipate it. Again, if seeing the world resources as infinite made sense in 1817, it is the sign of criminal ignorance nowadays.
My plan is not to diabolise the Market-God. Clearly, economics have a long history of success, and they provide tremendous empirical insights. It is also a living discipline in constant improvement. I’m just saying that we should not forget that the emperor has no clothes, i.e. that free trade or free markets theories are not supported by absolute scientific facts. As such, they belong to the realm of the beliefs and should be treated with caution. The BGIE teaching group has a major responsibility in increasing our awareness of the limits of the economic theories that it teaches.
I agree with Montaigne when he writes that science without conscience is ruin for the soul. Being vigilant towards economic assumptions is fundamental as we come closer to the time when our knowledge, values and beliefs will shape critical decisions for our businesses, communities and countries. If we don’t develop our own critical perspective, if we confound faith and science, we may very well end-up as integrist worshippers of the Market-God. Personally, I’m not sure it is a Church that I would recommend.