Dysfunctions of the Price Mechanism

I wrote a post a few days ago about the supposed advantages of prices/markets in economic organisation. I figure I might as well write a related post now about their key disadvantages.

This post won’t be primarily a critique of capitalism, because many of the problems of capitalism flow not from its market-driven nature but from its nature as a class society controlled by an exploitative elite.

Rather, my main goal is to explain why I adopt the label ‘communist’ rather than the broader ‘socialist’. Socialist means merely the rejection of classes, the subordination of the economy to collective democratic control.

But the question of how that control is exercised, of whether private control of some goods remains, of whether market-like structures remain, or remain for some goods or classes of goods but not for others (most obviously, for products but not for means of production) – that is left open.

‘Market socialism’ is thus a meaningful term, and one adopted by many. ‘Communism’, conversely, implies a more thorough-going rejection of property and of markets – that if they do appear, it is in a very very minor, fragmented, momentary way, not as a prominent factor of society. It is connected also with ideas of a change in culture, and the greater prominence of non-mercantile motives and relationships.

So the first and broadest point against markets is their inflexibility (which will no doubt sound strange at first). This is because markets work from a certain distribution of ownership, and they rely on ‘selfish’ motivations which in turn require that this distribution by relatively stable. If your motive for making a certain decision is to get yourself more wealth, then you need a degree of confidence that whatever wealth you obtain will continue to exist in two months.

Of course there’s always some value in stability, in not changing things so rapidly as to make planning for the future impossible. But changes will be much more disruptive if you look at things as an individual than if you look at them from a social perspective.

For example, if a decision is made to shift a certain factory from the control of one group of workers to another, if those workers are focused on themselves only, this will be a radical and serious change (whether positive or negative). If they can say to themselves, though, ‘well, the work will still get done, the products will still be produced, I’ll still be decently off, no-one is losing more than others are gaining’, then they can get a measure of equanimity.

To use a more concrete example, if I find that I’ve accidentally paid a much higher bus fare than I “should have”, then I can either think “this is terrible”, and feel bad about it, or “the resources represented by that money will be used on something perfectly worthwhile”, and feel ok about it.

Obviously nobody can be expected to see things from a group perspective all the time, and in matters that really do concern them individually it would be pernicious to do so. But the more they do, the less stress and resistance there will be to a re-allocation of resources, and thus the more flexibility there is for society. And markets need them to go in the opposite direction.

To put it differently, markets are like a machine. We don’t entirely control what comes out. The more power we give to markets, the more power we as a social group give away, the more we bind ourselves to unpredictable consequences.

What are those consequences? While I’m not an economist, it does appear that the feedback-prone nature of markets makes them liable to extreme fluctuations, which can be disruptive, and to a systematic failure to deal with externalities. But these arguments are quite familiar.

The second big objection is a little different. Just as a machine might produce heat as a by-product whatever we use it to make, so markets produce inequality as a by-product. Whatever they are markets in, this is their natural and indefinite tendency. This is because they embody a positive feedback relationship.

‘Money’ (or whatever) is what you’re seeking: money also is what allows you to seek it. This is most obvious with capital, which lets you get profits, rents, interest simply by owning. But it’s also true in that a worker can use money to make themselves healthier, smarter, more at ease, better-connected, etc. To live a wealthy life is a great advantage in seeking out and gaining more wealth. Hence the rich get richer and the poor get poorer, where this isn’t held back by some outside constraint.

This inequality then affects the efficiency of the market, because it means tht the price mechanism, which is supposed to process information about people’s needs and utilities, will value some people’s needs and utilities higher than others (those with more money to spend). The more this inequality grows, the more it skews market results away from the optimum.

The third, and related, point is that markets, by throwing each person or group back on themselves, will tend in various ways to reinforce natural inequalities. If someone is born with, or acquires, a condition that makes it a painful struggle just to get through the day, then a system where you receive in proportion to the productive work you do won’t give you very much.

Some people might think that’s fair. But it seems very unfair to me. And this sort of brings us to the last point: the kind of mentality that could label this ‘fair’ is not the sort of mentality that we ideally want to live in. The ideal mentality would respond to seeing how someone else struggles, not by justifying it but by helping. The ideal ethos, to my mind, would be “from each according to ability, to each according to need”.

This isn’t really an issue of fairness, to my mind. It’s an issue of humanisation vs. dehumanisation. In a market you encounter other people impersonally, as numbers and objects, what can they sell and what will they buy. Even if this ‘alienation’ can be evenly distributed, so that no-one is made into more of object than anyone else, it still seems like less than what we could aim for.

Equally, in a sense, it’s an issue of self-esteem. To live in a society where whatever worries you will worry others, where if you need help you can expect to get it, where as far as possible the institutions of your life send you the message ‘you are valuable for yourself and we care about you’, seems to me the best environment for mental health, the best environment for self-acceptance, for the acceptance of others, for non-violence and relationships that heal more than they hurt.

Of course full ‘humanisation’ of every other person, full ‘community’, is impossible given how human beings are. And some measure of impersonality, some measure of thinghood, is often quite desirable – that’s why it’s nice to be alone sometimes.

But that valuable solitude, that de-personalisation when required, is a natural outgrowth of humaniation: if you care about someone else as a person, this gives you a motive to ‘give them space’ and ‘respect their boundaries’.

The converse is not true. If you are led, by your surroundings and the institutions that condition you, to see in others only threats or opportunities, things whose significance comes from their relationship to you, this does not itself naturally pass into its opposite, it is barren.

I fear this may have become rather too lyrical and misty-eyed. But to recap: giving prominence to markets means giving up collective control over outcomes, in particular over the inequality which markets entrench and then ever-afterwards gradually increase. Moreover, it puts our collective fate into the hands of a machine, one which will encourage us to feel like machines.

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