"Mainstream economics" has been a bone of contention for more than a century and the tussle continues today. Just look around. You can see this history repeat itself in the estimable New York Review of Books, where Princeton economist Alan Blinder reviews Jeff Madrick's book Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World and then the two talk past each other to arrive at the same dead end.
Madrick proclaims that economists have bad ideas and are somehow too influential. It should be hard to disagree with this. However, Professor Blinder makes it easy. He returns us to Adam Smith's "invisible hand" and declares, yet again, that everyone agrees with this great idea. His appeal is strong because even as Madrick calls this "the worst idea in economics" he admits that, as actually employed by economists, "the Invisible Hand is an approximation, usually not applicable in the real world without significant modification." Pointing back to the textbook he co-authored with the equally illustrious William Baumol -- Economics: Principles and Policy, where "The Case for Free Markets" (Chapter 14) is balanced by "The Shortcomings of Free Markets" (Chapter 15) -- Blinder simply asks "what is the quarrel?" It feels like "we" are all saying essentially the same thing.
As criticism goes this is pretty lame. But however weak Blinder's claims against Madrick, his observations with Madrick are strong. His crucial and disarming question is persuasive because both authors join an inadequately recognized orthodoxy. One proudly sports "emperor's new clothes" and the other cannot quite expose him. Few readers will see any substantial disagreement because for the most part we partake in the same fairytale. And what is the fiction to which we are so attached? It is belief that the market itself exists.
Of course, real markets exist. There are even real markets in fantasy objects like "derivatives." People are engaged all the time in competitive buying and selling; we haggle and adjust, trade goods, money, and contracts. But the "mainstream economist" presupposes and proselytizes about something that purports to be more than that. The disciplinary strictures guiding professional inquiry in economics require a clearly defined "object." Thus, the market appears in economic understanding as one distinct thing, an abstract but objective form of human relationship with exact boundaries that are supposed to distinguish this mode of human activity from other ones.
In the tussle over the Invisible Hand, this is where the dog begins to chase its tail. You may say that everyone agrees that no such thing exists. The "mainstream economists" happily differentiate between their ideal model and the messy reality. They may even say with pride that "no serious economist will claim that the model represents reality -- models are simplifications to show salient features to help us understand or interpret reality."
But why isn't this conceptual retreat understood as defeat? How can you do any of the interpreting without a bit of the representing? Which actual economist who makes successful predictions does not, when the microphone is turned off, believe that one of the decisive functions of models is to represent reality in some way? Does any serious person accept the implication that standards for "representation" in science--the ones economists pretend to reject--should come from the aesthetics of Richard Wagner or advocates of "virtual reality? How do you "simplify" or find "salient features" or understand the world around you if you do not start with something touched by reality? And how can a debate go forward if every time real stakes are on the table the cards are abandoned?
Few debates are replayed with more frequency and less result. In the tit for tat of this tussle another obvious question almost always arises: if ideal and reality diverge, what is the relation between them? What relevant reality does the model display if not the messy one? This should be a tough question. "Mainstream economists" are constantly pushing it off, together with responsibilities and anxieties that arise with the practical consequences of economic modeling. It is not enough to ward them off these issues by declaring one thing a "simplification" or an "abstraction" or an "approximation" of another.
So, take a step back. For one side, the Invisible Hand is the first bad idea of economics. For the other, as Blinder puts it, "the invisible hand is one of the great thoughts of the human mind" and adds that "every mainstream economist" sees things this way. Of course, this is easily proven wrong. So he calls forward another familiar line of defense. Behind a bit of coy hesitation, economics is made out to be a "real" science. The Invisible Hand is compared to the law of gravity. Of course, this too is absurd. But it does re-open a perennial discussion.
When is our knowledge true? We know that the law of gravity operates wherever physical mass is present. The Invisible Hand cannot refer back to any such singular and general condition. It can have predictive value only in a much more limited domain. Insofar as any such domain exists in the real world today, it arose from a particular convergence of social and historical facts that only came into existence in the early 19th century. Even if no one creates it or controls it, the Invisible Hand is an outgrowth from human history and action.
So any analogy between gravity and market forces is not simply wrong. It misleads by suggesting that we look for the wrong kind of knowledge and do so in the wrong place.
Rarely are such analogies dispelled. They rather proliferate. Blinder, to stick with our example, goes on to add that "market failures" are like "friction." Isn't this silly? Friction is a force governed by natural laws. By contrast, markets fail due to the inadequacy of a constitutive rule to its purpose. That is, just as the rules of chess cannot guarantee that everyone will win, markets cannot provide everyone with, for example, a living wage or deliver so-called public goods.
While knowledge must be apt to our demands upon it, the search for adequate and impersonal knowledge requires certain common sense commitments no matter what the domain. When Galileo noted that feathers don't fall like stones, it was not because -- as the economist likes to say about the Invisible Hand -- gravity is merely an "approximation" or a "simplification" or an "abstraction." If something does not follow the law of gravity it is because some other natural force counteracts it. The explanation for why rockets escape gravity is not "I made a rocket." In that instance a physicist explains the effect with reference to more than one force or principle. The explanation is complex rather than simple.
Imagine again (falsely) that the Invisible Hand is indeed a law of nature. It remains that Mercantilism -- the economic "friction" of Adam Smith's time -- is human artifice. Even in this fantasy world where markets are an "independent variable," the explanation for "market failure" is not "I am a Mercantilist." The explanation must involve powerful theories of human creation and making of the sort developed by historians, sociologists, anthropologists. We need precise accounts of how trade and pricing and resource allocations are conducted and interact under Mercantilism. Smith and the best institutional or historical economists after him have seen in markets a play of many forces, not the operation or interruption of one single force.
When "mainstream economists" evade this essential difference by averring that "the Invisible Hand is right in theory but it doesn't work in practice" it is like saying "I made a rocket that didn't work." Why would you continue to do that?
This is not to say that returns to Adam Smith must be sterile. But if that historical exercise is to provide real insight it had better not be conducted by inept historians. It also helps if you actually read the text.
Here is what we find in the single passage in Smith's Wealth of Nations (Book IV, Chapter ii) where the image of an Invisible Hand occurs. I am adding numbers to guide us back to each point. Smith tells us that every individual (1) "intends to support his own security" and therefore (2) "employs his capital in the support of domestic industry;" it follows (3) that each person "necessarily labors to render the annual revenue of the society as great as he can" without (4) "intend[ing] to promote the public interest;" the individual (5) "intends only his own gain," but (6) "he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention." This production of unintended consequences of action is (7) "not always the worst" thing for society: (8) "by pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. (9) I have never known much good done by those who affected to trade for the public good."
That's what Smith actually says. What does it amount to? Let's go by the numbers I inserted into Smith's lines above. It is obvious that (1) is often true. However, today's increasingly globalized markets ensure that (2) is less frequently the case than it may have been in the past. Therefore, as stated by Smith, (3) is clearly false. This renders (4) moot. Although (5) may also be common, it is important to situate Smith's way of thinking here. Unlike in statement (1) he is not just offering a description by the time he gets to (5). For Smith and his contemporaries, the main topic in such a sentence would have been the moral worth of the entrepreneur. By contrast, asserting in (6) that outcomes in political economy are not only the result of individual human agency, Smith reverts from moral discourse to a descriptive mode. (There is the hint of theology here, too, but that is a separate issue.) Against the moral background invoked in (5), (6) shows that sometimes individual vices like greed or self-interest do not result in social evil. Smith goes on to add (7) that unintended consequences of action are not always negative (n.b. he does not say that they are always positive) and (8) can promote social benefits beyond the plans of individuals (n.b. he does not say that they always do that). Finally, Smith enters his own opinion that (9) individuals attending to the public good are not likely to advance it (n.b. he does not say here that the state mucks things up -- the problem for him is, roughly speaking, philanthropists).
Whatever Smith really meant by the Invisible Hand, nearly everyone else's use of his phrase display its inherent complexity. Whenever the phrase appears today several different topics come into play. We can distinguish them as follows. First is an image of "unintended consequences of action" (I call these UCAs as a shorthand). Of course Smith, like many before him, understood that effects produced by human beings do not always correspond to the plans that guided their action (but are nonetheless not simply attributable to divine Will). UCAs are real social facts, not natural or supernatural ones. Next is the value we attribute to UCAs. They can be good or bad. This ambiguity is a general characteristic of UCAs. It is not resolved into "they are always good" just because UCAs are produced by or directed through the operation of a market. The idea that UCAs are always in some sense optimal will only enter the brains of those who also imagine markets distinct from every other social value -- Smith knew perfectly well that such a view is wrong and our everyday experience concurs with his judgment. A third topic concerns what happens where UCAs proliferate. We are not just talking about a glass of spilled milk; market society is a world in which many people, as individuals and in groups, are spilling some milk every day. It has been said that Smith believed that action in accordance with "natural liberty" gives rise to a system of UCAs. While reading Smith this way makes sense, it should be added that he does not comment on whether other principles of action would also produce such a system. In other words, it might be that something other than "natural liberty" gives rise to a system of UCAs as well. Thus, the significance and policy consequences thought to flow from the Invisible Hand are much more open-ended than most people realize.
That brings us to the final, and pivotal, issue marked by Smith's metaphor. What constitutes order within a system of UCAs? That there can be such a system says nothing about whether it is "self-regulating" or organized in some other way. In fact, Smith saw and we can easily see today that much of the order of real markets and existing market systems derives from their connection to the social and cultural environments in which they exist. This point encompasses the idea of governance but is much more comprehensive. Markets are always piggy-backed onto and integrated with presumptively non-economic rules, practices, behavior, and association.
I am saying, therefore, that the Invisible Hand brings together several issues, including unintended effects, the measure of what is optimal, interconnections that make up a system, and the order that holds systems together and makes them work. Each of these need to be treated carefully and separately when it comes to justifying policy choices. Markets may or may not be systems of UCAs. They will have varying degrees of feed-back or self-regulation. They can be optimal for this but not for that. In every instance they will both create and destroy social values.
In other words, it is a bad idea to assume that the Invisible Hand guarantees uniform and beneficial results from market activities and relationships.
Missing from debates like the one played out by Madrick and Blinder is a clear sense of what sustains both professional and common sense versions of this bad idea. The Invisible Hand depends on a false assumption. We all ordinarily assume that "the market" is a single thing and that it exists solely or primarily in the domain we call "the economy." This is a false belief. It is worth asking how it so often escapes critical attention.
The image of an impersonal market that overcomes individual vice to produce ordered and optimal results without outside regulation has some obvious attractions. With regard to the everyday social reproduction of life and the distribution of material goods, it presents a bracing prospect of egalitarianism. By the end of the 18th century it seemed as though persons without distinction might try to make their way through commerce and capital, and to do so without the visible hand of authority blocking one person or facilitating another. The new and specifically modern forms of the market seemed to offer a small but intriguing power to free labor and thus a haven from servitude. It is not by chance that readers in the age of democratic revolutions began to take Adam Smith's ideas in directions familiar today.
A century later the egalitarian attraction of a "system of natural liberty" centered around a free, self-regulating market was dramatically reconfigured. The experience of free labor valorized and disciplined through markets had shown the market to be not so much a haven in a heartless world but rather an impersonal iron cage where "wage slavery" took the place of the other kind. Faced with the brutal realities of the Industrial Revolution and the Gilded Age, academic inquiry into markets increasingly abandoned the inherent complexities of sociology, history, and "political economy." It retrenched into the new discipline of economics. Narrowed and increasingly formal analysis saw instead as the essential motor of markets this: an automatically self-adjusting price mechanism through which greed produced, as an unintended consequence of action, the socially "optimal" result of efficient allocations of values and distributions of resources. That earlier experience of markets -- as an escape from unequal treatment by regulatory authorities -- was displaced by an invigorating but lopsided image of "equality of opportunity" (which notion enters professional economics from its beginning -- around 1890 -- after broader skeptical discussion by socialists like William Morris).
This was the context in which the image of the market -- the one you learned in school -- as a price-calibrated information processing machine worked its way to the foreground. This permitted a much higher degree of abstraction from real human struggles. It seemed to provide a kind of release from ethical demands in a rapidly changing world: with the market's automatic assignment of qualities resembling vice and virtue, capitalists could locate praise and blame without assuming corresponding responsibilities.
At the same time, this hardened and impersonal image made the idea that markets form closed and self-regulating systems appear irrefutable. It is that "object of inquiry" -- sharply defined and able to stand on its own two feet -- that is the mainstay for the plausibility and secular coherence of the Invisible Hand. It is what "mainstream economics" defends today.
Since the advent of this idea there has also been a limited amount of pushback against it. No one has done this with more coherence than Karl Polanyi (1886-1964), who identified the image of a market cut off from all real circumstances as the central error in "our obsolete market mentality." Although some sociologists are now arguing for a return to Polanyi, you can see how little success such challenges have had from the way that the likes of Madrick and Blinder are still tussling.
The facts are simple enough. A market is not a distinct whole the way, let's say, a planet is. A market cannot have a geologically separate existence like a rock. Markets emerge from rules; rules emerge from practices; practices emerge from associative behaviors; association emerges from the inherent insufficiency of any one person to meet his or her own needs. (Don't confuse this with "scarcity," that's another story.)
Moreover, the relevant rules, practices, behavior, and association do not stem from markets themselves. They derive from the many-faceted time-bound every-day practical experience of human life together. Take society or politics out of the picture, dry up the rules, practices, behavior, and association, and what is left of markets? Nothing. Keep all that in the picture, and you can be sure that markets remain distinguishable from other forms of human relationship. But that in no way makes them autonomous -- they cannot exist distinct and apart from everything else.
So, if a market is not some distinct thing, what is it? Markets are just one mode of social life, which is to say they are one way of turning several things we already do towards specific purposes like setting a price, allocating a resource, promoting competition, etc. The musical image of a mode may help here: one song in a minor key is experienced as sadness or trepidation while another song in its relative major key comes to us as an ode to joy -- even though both use the same notes.
Concerning the Invisible Hand, this means that as markets occur within the fabric of social life they involve an on-going confluence of intentions and unintended consequences of action -- both of which are social facts (not, as bearers of our "obsolete market mentality" would have it, one social and one natural fact). What can never happen is that the market becomes completely detached from the rest of social life. The really bad idea -- the one that "mainstream economists" adore and promote with overwhelming success -- is the mistaking-the-part-for-the-
So, the orthodox, and even the less-than-orthodox (see Dani Rodrik's forthcoming Economics Rules), are vociferous in defending the unreality of their models. They would have you dance to an old philosophical tune: here is the "ideal" and there the "real," and never the twain shall meet. But this position makes it nearly impossible to locate the problem, no less discover its solution. Bad metaphysics is really not what the debate between Madrick and Blinder and all the rest is about. Not by a long shot.
The problem is not that there is a true fact that can only be expressed in an ideal model and that this ideal is sometimes contradicted or mucked up by reality. The problem is that from the perspective of the Citizen "mainstream economists" have a model that cannot be connected with reality in the relevant ways. They start from a premise that dissolves its avowed object. They present us with a classic "you can't get there from here" situation. Whatever qualities their ideal may have -- perhaps it is simple, elegant, persuasive -- it is not in fact a model of the real, effect-producing, life-changing human experience to which we have given the name market.
Could there be a better way of understanding real markets? Could a model with increased "realism" also be sufficiently abstract for broad application? Could it promote more effective policy-making?
Perhaps. But what stands in the way is not a simple mistake. We are blocked by a long-standing convergence of bad ideas that function for the benefit of some and to the detriment of many. And it is not just economists who cling to these misleading beliefs. We would all need to see and accept that the world of human relationships is shot through with economic activities. That economic activities must be built up from almost everything else we do, despite the fact that they appear to be driven by nothing more than the most elemental of needs like survival. (If other social scientists and humanistic scholars feel superior to economists in this regard, they should consider that even someone as extraordinarily sophisticated as Hannah Arendt made this mistake of priority). We would have to understand that economic facts only become separated from other social facts in limited and short-lived ways. We would have to come to grips with how destructive this separation can be.
Economists cannot by themselves displace our obsolete market mentality. Their narrow conception of economics itself is the problem. It would be against their professional interest to give up the idea that the economy and specifically markets constitute a distinct and separate sphere. What we need is a new kind of collaboration that blends the special knowledge of sociology, history, anthropology, and other disciplines to investigate in new ways the reality of human relationships when those relationships are configured as markets.
No clear-sighted person will deny that there are general conditions for the emergence and operation of markets. It depends on "supply" and "demand," the emergence of price signals, the motivating consequences of bidding, and so forth.
But there is more than that. Every real market is a process instituted in a particular time and place and under particular conditions. The "game" in each instance is composed and played in a specific way.
Markets produce or transform values and motives. They are therefore at the same time emergences and forms of human energy and forces. There is nothing general like "gravity" at work in this. These operations are what they are because they are specific or particular. A market is neither a spontaneously created nor a perfectly predictable machine. It is a complex drawn-out accident-laden improvisational composite of rules, practices, behavior, and association.
This is a rich empirical fabric. If you can bring yourself to see that, it will also be clear that market outcomes are not always "optimal." They will never be optimal for everyone. There is a simple but profound reason for this. The changing and plural values that make up the real world in which we live today are themselves largely generated by market forms of relationship.
Another overdose of agreement stops us from taking stock of this. Both the "mainstream economists" and critics of capitalism since Karl Marx and Max Weber (despite his remarkable attention to a diversity of social practices) tend to see a single element like "efficiency" or "surplus value" or "rationality" governing market society. Such views are both too narrow and short-sighted. They ignore the additional fact that after a century and more of intensifying market activity the multitude of countervailing values -- even including pastoral or communitarian nostalgia -- also take shape under the predominant influence of market relationships.
In this plethora, it often happens that a market outcome does not conform to other values prevalent in that same moment. (It is in such moments that disputes like the one between Madrick and Blinder heat up again.) It is common and not ridiculous to call this "market failure."
However, to better grapple with such core issues we really need to go back to the drawing board. How can our thinking be more realistically oriented around common social processes of actual market relationships? What kinds of policy choices should we make when things, inevitably, go wrong?
Our "obsolete market mentality" promotes a particular orientation towards social problems: we are inclined to wait until the market produces its result. Then, after the fact, an attempt is made to alter that new state of affairs. For example, if you believe that people are or should be at liberty to negotiate their own salaries, the imposition of a progressive income tax at the end of the year might look like an adequate solution to income inequality.
Leave aside your own view of this particular policy. The example brings us directly back to the very bad idea that sustains the debate between Madrick and Blinder and all the rest. A policy like this depends upon and maintains the orthodoxy that markets are closed self-regulating systems. Such morning-after adjustments allow one to keep faith with the Invisible Hand. Of course, you may support such policy and still believe that adjustments are imperfect. But at least, you will tell yourself, they remain outside. At least they do not muck up the machine.
In this view adjustment is the lesser of two evils. It is believed to be far better than intervention. Intervention crosses the boundary from outside to inside. Intervention invokes the specter of foreign penetration into the pure. To intervene is to disorder the system, destroy the salutary impersonality of the machine.
It is difficult to imagine an advocate of "mainstream economics" self-consciously working with, or even acknowledging, the deep cultural roots of their fundamental position. Nonetheless, there is no other empirical basis for belief in the autonomy of the market. Our "obsolete market mentality" is maintained with symbols and language that are structured in a particular way. An anthropologist might say that a logic of the sacred is operating here, in which transgression plays between purity and pollution. From this perspective, intervention appears not just as bad policy -- it is taboo.
The debate about markets -- which is thoroughly entangled with the use and justification of markets in the course of social problem solving -- can be oriented in a different way.
What happens, for example, when a produce market moves from one neighborhood to another? This can be described in terms of cost-cutting efficiency (or, more convincingly, as a chain of economizing moves that distinct actors make or fail to make). But it may also involve a balancing act between several values. Locally-oriented entrepreneurs may at the same time both seek profits and attempt to bring fresh fruit and vegetables and jobs to a neighborhood where these are lacking. The first perspective presupposes a market that is akin to a machine with a single motor. The second perspective considers various factors that enter into the composition of this particular market. It suggests how these parts can be arranged into one whole so as to achieve simultaneously several goals. "Mainstream economists" will see the several goals as contradictory and inefficient; the alternative identifies value in the fact that the several goals may both facilitate and constrain one another. The balance of factors and motives is also a balance of means, ends, and powers.
Consider, as another example, the use of powerful computers precisely situated in a communications network so as to place execution of some securities trades slightly ahead of others. This concerns the infrastructure of high-speed/high-frequency trading. The adequacy of that infrastructure (together with advantage-seeking practices that depend on that infrastructure) became a topic of hot debate last year with the publication of Michael Lewis's Flash Boys, a book that led many people to again ask "are the markets rigged?"
It is worth asking why this question appears in this form. One precondition is that "mainstream economics" creates a specific expectation. We suppose that buyers's access to priced offers should be and will always be equal and simultaneous. This assumption obscures the fact that such access is a changing rather than a fixed condition. Intrinsically complex and dynamic markets are continuously creating differences in timing and position. Rules that constitute the "game" give rise to or suppress such consequential differences. The "playing field" does the same (thus the recent attraction of reconstituting "laissez faire" with policy to guarantee universal access to broad-band internet technology). Less obvious from the perspective of "mainstream economics" is that differences also emerge and fade away in contingent ways in the course of the "play" -- if you stand next to the quarterback or at the goal-line, sometimes it helps, sometimes it hurts. These contingencies will be called "market conditions" as long as no particular deleterious consequences appear. When others gain comparative advantage from the same conditions, one may begin to see the market not just as failing but as "rigged."
The common and orthodox response in this case is to repeat that "real markets are never perfect" and that we should strive to bring the real ones into conformance with the ideal model. In this view, "intervention" to correct "market failures" may be called for, although only as a last resort.
The alternative realist perspective I am suggesting starts by surveying the whole scene in a different way: markets are made up of many components, each component is attached to a value, a variety of values implies organization, organizational complexity is subject to composition, and composition affects outcomes. Where our "obsolete market mentality" imagines "the market" as a sort of tool or methodology that can be brought in whole to solve a problem or accomplish a task, understanding the detailed and specific composition of a market at the outset is a better basis on which to formulate the problem itself. When Karl Polanyi offered the paradoxical maxim "laissez-faire was planned" he also meant something like this: the very organization of a particular market is part of any problem that is susceptible to a market-oriented solution.
Overcoming our "obsolete market mentality," policy that concerns markets becomes more like preventive medicine than emergency intervention. Accept that differential positions and timing are both inevitable. Accept that we have various goals in addition to efficiency and income -- equality, equality of opportunity, fairness, justice, public health, sustainability, to name just a few. Accept that differential positions and timing will distribute value in ways contrary to some of our goals (including the supposedly universal goals of efficiency and income).
From such altered assumptions, it becomes possible to stop pretending that the social value of markets is equality and that market differences can be eliminated. It becomes necessary to set aside the ideal model of the market. In a profound glass-half-empty to glass-half-full sort of shift, we can turn attention away from ex post intervention towards the ex ante conditions around which such differentials take shape. We can develop policy through the composition or institution of the real markets. Inherent and inevitable differentials can be assigned to participants through prioritization, preference, rotation, lot, and so forth. In the example of stock markets, for instance, the impact of high-cost and inequality-multiplying computer technologies can be diminished by deliberately slowing the pace of trading and aligning at random those buyers and sellers who have matching prices rather than first-come-first-served (an approach like this is being tried by the new stock exchange IEX).
In other words, the reason to adopt a realist rather than an idealist perspective is that it would help us achieve important social goals by deliberately governing the use of markets prior to the onset of crises that quickly reduce to ineffective binary thinking, impose bad choices, and radically escalate costs. It should be obvious that if we do not believe that markets are composed and instituted, it is difficult if not impossible to orient policy-making by way of the composition and institution of the market itself.
Such a switch in perspective is compatible with many approaches to public policy, even ones that are quite amenable to "mainstream economics." The illuminating work of someone like Nobel-Prize laureate Elinor Ostrom is a good example.
Nonetheless, to adopt as a general principle the prior composition or institution of complex market processes will sound to most people like the corruption of the market. "Mainstream economists" will see a torrent of inefficiencies flowing from it. Like-minded Libertarians will again raise the specter of socialism and Friedrich Hayek's "road to serfdom."
Whatever Hayek had in mind, three generations of "cold war" in America have shown that such reactions do not rely strictly on extremism. Fear of economic impurity and fear of rational public planning for the private sector -- fears that sustain what might be called our obsolete political mentality -- have been held in place by a sort of behavioral training in the public sphere rather than by rational debate or even ideological fervor. What underpins the plausibility of such fears? An important factor is what I consider here: the "mainstream economics" view of the market as a single thing and the economy as a distinct sphere.
These are not new issues. Many careful thinkers have pointed to a third sort of human relationship for the conduct of common life. Accept, they say, that "the market" is one thing, with its "natural order" and "self-regulation." Accept, too, that "the state," with its willful "authority" and corresponding "hierarchy," is an entirely different animal. Between them, these thinkers insist, there is an overlapping zone in which the mixture of the two constitutes more than the sum of the parts. That, they say, is where we should direct our attention.
For the alternative orientation offered here these are but weak allies. We cannot learn much or gain much from a compromise between things that do not exist. The fact is this. Just as there is no market in the sense of the "mainstream economist," there is no state in the sense of the monolithic all-encompassing decider feared by self-styled proponents of the Invisible Hand. These are both errant beliefs. Each one facilitates commitment to the other. Well-intentioned reformers rarely see this. They take the familiar dichotomy of market-and-state as a framework for conceptual compromise. Rather than enhancing supposed alternatives, they diminish them.
What is proposed here may be an affront to "mainstream economics" but, again, it is hardly novel. You can find something similar in the "institutional economics" that stems from Thorsten Veblen (1857-1929) or more recently in the American Political Development movement within political science and sociology. The historical anthropology of Karl Polanyi drew on and supports a lot of other people's ideas. New social conditions in America may be beginning to move debate back in this direction.
All these variations tend to share some very basic assumptions: a market is a complex, not a simple, fabric of practices; it is an instituted, not a spontaneous or natural, process; it integrates many rules, practices, behaviors, and associations that are not themselves "economic;" it needs therefore to be seen more as a mode of our common life together than as an object that confronts us. With these assumptions comes an obligation to look in much closer detail at this composite fact.
Interdisciplinary knowledge of the everyday experience of the livelihood of humankind is older than the century-old academic discipline of economics. It is much richer, too. We only need a different frame of mind -- and a corresponding reallocation of research resources -- to expand reflection in each instance on the composition and institution of the interacting parts. Fair predictions can be made as to how the interaction of market components will alter the composition of social forces. Having ceased to believe, with Hayek and the rest, that liberty is the primordial feature of markets, we can begin to discover which social forces constitute the special characteristics of a particular market and shape its outcomes. Tools for simple and objective monitoring exist and they often suffice to quickly identify mistaken predictions. A healthy combination of realist assumption and civic commitment will change the way we actually revisit those mistakes, learn from experience, and try again.
The most surprising thing about what I am suggesting is how totally obvious it is. Everyone is familiar in some modest way with the desire to channel human energies with greater precision before actually applying them. This is a simple fact of human nature. It bears only the most distant resemblance with historically totalitarian fantasies of total control. In denial of this obvious fact, some people hide behind the image of the Invisible Hand to assume -- as they have trained us to assume, too -- that "intervention" leads inexorably to "serfdom." In this, they make dictatorship as much a singular, closed, and self-regulating fact as they want to make of the market itself. Neither image is accurate. Although "free markets" have often been said to be associated with democracy, the exaggerated fear of "intervention" presses hard against the reasonable and ordered organization of economic life that democracy requires.
Markets and authority are both strictly human and open-ended processes. They always escape in some ways our ken or control and in other ways come under it. A tragic flaw in our "obsolete market mentality" is how radically we underestimate the ways and extent to which efforts to maximize one value over another can remain consistent with liberty. Consider, for example, something as obvious as this: nothing of interest is at stake for liberty when create workplace regulations on the principle that care for children trumps the "efficiency" of labor markets. There is a lot of leeway here and in almost every other instance, and we need to make this clear.
A new mentality fit to the economic side of life is already widely available. We only need to recognize it. To own it. That requires us to abandon terms that habitually catalyze bad ideas so that we may adopt better ones.
The word intervention is an outstanding example. It is almost universally accepted and unchallenged. Yet, it is astoundingly misleading. An effort to address a problem through markets does not simply intervene in a pre-existing and fixed thing. Each such effort in fact reconfigures an existing composite of practices and energies. That composite, which is specific to this time, this place, these persons, these needs, is always already in flux. Even when action to effect outcomes is oriented by crisis and undertaken late in the game, it is inaccurately labeled as "intervention." What in fact occurs is the emergence of a similar but not identical institution. (Joseph Schumpeter's observations about "creative destruction" apply here in ways he would not have expected.)
For those of us who search for a new democratic political economy, intervention is therefore a self-defeating usage. It is the wrong way to think for or against economic policy. It is not simply misleading. It carries us over and over again onto a terrain where many problems cannot be solved. It lends an air of naturalness and gives assured precedence to the policies of entrenched power. Forward-thinking and civically-engaged people should agree to drop it once and for all. It is time to begin in earnest the search for language that permits a new debate, and leave Madrick and Blinder and the rest to their sterile bickering.
Why not use composition and institution as alternative terms by which to initiate and channel this type of public discussion? Markets are composed from and joined to existing rules, practices, behavior, and association. They are embedded within the relatively durable patterns of the rest of emerging human life. So, when the question of market functions and effects arises, instead of framing the discussion as a matter of retroactive intervention let us turn ourselves and the debate towards proactive issues of how the market will be composed and how those complex processes will be instituted in a world that already exists and is on-going.
The terms composition and institution are straight-forward, illuminating, and accurate. They can help us maintain serious critical engagement with economic policy in modern market society. They press towards the development of new hypotheses. The reductionism inherent in the image of intervention appears by contrast pointless and frustrating. The inherent complexity of markets comes to the foreground and we are compelled to grapple with it. Recognition follows that the market is not a strictly economic object. We begin to see it and study it as the convergence of many social forces in an instituted process. Our inquiry and understanding and judgment grow richer. With knowledge of what converges to constitute a market we can alter it. What is understood as a set of rules and practices rather than as a law of nature can be experimentally reconfigured in different ways until we arrive at whatever we agree, for the time being, seems fair. For, without some alternative to "mainstream economics" -- without this very different kind of debate -- even the question of fairness is made to seem ridiculous.
So, can we take heed? In the real world, the market is inextricable from other human practices. The markets that entangle you, the market society that surrounds you, do not form an autonomous and simply fateful sphere. You are already in the middle of this way of life. Its energies are your energies. The prolific human scene is constantly inflected in unexpected ways, its parts blending with new purposes and dissolving in the next defeat. In the sea of society in which you must swim markets are momentary and local events and processes. You cannot but be buffeted -- lifted up or brought down. The Invisible Hand will not catch you. A long-overdue step beyond it is necessary if we are hoping to chart a new and democratic course.