Market fundamentalism (also known as free market fundamentalism) is a pejorative term applied to a strong belief in the ability of laissez-faire or free market economy views or policies to solve economic and social problems.
Critics of free market economy have used the term to denote what they perceive as a misguided belief, or deliberate deception, that free markets provide the greatest possible equity and prosperity, and that any interference with the market process decreases social well being. Users of the term include adherents of interventionist, mixed economy and protectionist positions, as well as billionaires such as George Soros, and economists such as Nobel Laureates Joseph Stiglitz and Paul Krugman. Critics cite as fundamentalist the unshakable belief, despite contrary evidence, that unfettered markets maximize individual freedom, that they are the best means to economic growth and that society should adhere to their ideas of progress. Ideas ascribed to fundamentalists include the belief that markets tend towards a natural equilibrium, and that the best interests in a given society are achieved by allowing its participants to pursue their own financial self-interest with little or no restraint or regulatory oversight. Critics claim that in modern society with world-wide conglomerates, or even merely large companies, the individual has no protection against fraud nor harm caused by products that maximize income by imposing externalities on the individual consumer as well as society.
According to economist John Quiggin, the standard features of "economic fundamentalist rhetoric" are "dogmatic" assertions and the claim that anyone who holds contrary views is not a real economist. John Ralston Saul claims this is simply a form of bullying. This approach follows from evidence that neoclassical economics provides a scientific explanation of economic phenomena, an explanation that economists state represents the status of scientific truth (if, and only if, all of the assumptions involved in deriving the economic analysis are simultaneously satisfied). However, Kozul-Wright states in his book The Resistible Rise of Market Fundamentalism that "ineluctability of market forces" neo-liberals and conservative politicians tend to stress, and their confidence on a chosen policy, rest on a "mixture of implicit and hidden assumptions, myths about the history of their own countries' economic development, and special interests camouflaged in their rhetoric of general good".
History of the concept
While the term "market fundamentalism" emerged relatively recently (until 1950 the Oxford English Dictionary lacked an entry for "fundamentalism"; the derivative fundamentalist was added only on its second 1989 edition, with the meaning: "an economic or political doctrinaire" ), the concept of economic liberalism is not; the ideas were reborn in the 18th century, with the works of Adam Smith and Jean-Baptiste Say. It was only in the 20th century that the relative sophistication found in Smith’s work would be reformulated by economists such as Friedrich Hayek, Joseph Schumpeter, and Milton Friedman (of the Chicago School of economics of the 1960s and 1970s), resulting in a recipe for a free-market economy:
- deregulate business and trade
- restrict state intervention
- let the energies of entrepreneurship and free-flowing capital generate wealth for all of those who participate in the economy
After the influence of Friedman and the Chicago boys (University of Chicago-educated Chilean economists) on the Miracle of Chile under the Augusto Pinochet regime in the 1970s, Prime Minister Margaret Thatcher of the UK (Thatcherism) and President Ronald Reagan in the U.S. (Reaganomics) adapted similar models in the early 1980s.
In the late 1980s the Bretton Woods Washington-based financial institutions, (International Monetary Fund and the World Bank) and the U.S. Treasury Department embraced the Washington Consensus, a standard set of policy prescriptions for crisis-wracked nations. These prescriptions include measures such as eliminating state subsidies, redirecting social spending into infrastructural development, and reducing taxes, or as Stiglitz summarized, promoted the proselytism of a universal set of economic policy recommendations: "stabilise, liberalise and privatise".
History of the term
The expression "market fundamentalism" was popularized by business magnate and philanthropist George Soros in his book The Crisis of Global Capitalism (1998), in which he writes "This idea was called laissez faire in the nineteenth century... I have found a better name for it: market fundamentalism.". P. Sainath believes Jeremy Seabrook, a journalist and campaigner, first used the term. The term was used by John Langmore and John Quiggin in their 1994 book Work for All. A full description of the origins of the free market economics dating as far back to the conception of natural laws as mathematical, eternal and absolute—a reflection of some perfect mathematical form—derived from ancient Greek philosophers Pythagoras (569–500 BC) and Plato, and reinvigorated by the Enlightenment is well beyond the scope of this article, but can be read on Chapter 4, A Brief Account of the Historical Origins of Economic Fundamentalism, in Dr. Lee Boldman's book (2007).
The expression is now used by various authors writing on economic topics to signify an allegedly unjustified belief in the ability of markets to solve all problems in a society. The term has been used, pejoratively, to criticize some groups which are mainly viewed as advocating strongly against "any" state regulation and defend a "totally" free market. It is also used to disparage the arguments of the proponents of "the virtues of radical free-market economics" or, in Soros' own words, against the "ideology" which "has put financial capital into the driver's seat."
Joseph E. Stiglitz used the term in his autobiographical essay in acceptance of Nobel Memorial Prize in Economic Sciences to criticize some International Monetary Fund policies: "More broadly, the IMF was advocating a set of policies which is generally referred to alternatively as the Washington consensus, the neo-liberal doctrines, or market fundamentalism, based on an incorrect understanding of economic theory and (what I viewed) as an inadequate interpretation of the historical data." 
The theories that I (and others) helped develop explained why unfettered markets often not only do not lead to social justice, but do not even produce efficient outcomes. Interestingly, there has been no intellectual challenge to the refutation of Adam Smith’s invisible hand: individuals and firms, in the pursuit of their self-interest, are not necessarily, or in general, led as if by an invisible hand, to economic efficiency.
Fundamentalism and the financial markets
In late 20th century United States, every time that credit expansion coincided with economic difficulties, the government intervened, injecting liquidity and stimulating the economy. This system of 'asymmetric incentives' (also known as "moral hazard"), encouraged ever greater credit expansion, as its risks to financial institutions were mitigated by the state intervention. Financial regulations were progressively decreased in the United States from 1980 (when Ronald Reagan became President) until the financial crisis of 2007–2008.
[P]eople came to believe in what former US president Ronald Reagan called the magic of the marketplace and I call market fundamentalism. Fundamentalists believe that markets tend towards equilibrium and the common interest is best served by allowing participants to pursue their self-interest. It is an obvious misconception, because it was the intervention of the authorities that prevented financial markets from breaking down, not the markets themselves. Nevertheless, market fundamentalism emerged as the dominant ideology in the 1980s, when financial markets started to become globalised and the US started to run a current account deficit.
The worldwide financial crisis of 2007-2010 is described by Joseph E. Stiglitz as the end of market fundamentalism:
In this sense, the fall of Wall Street is for market fundamentalism what the fall of the Berlin Wall was for communism—it tells the world that this way of economic organization turns out not to be sustainable. In the end, everyone says, that model doesn't work. Actually the model only failed the citizens, while working perfectly in ensuring profits for the Wall Street financial groups that run the USA, so privatising gain and socialising the risk when the markets fail to work as hoped. This moment is a marker that the claims of financial market liberalization were bogus.
Critics of George Soros argue that monetary inflationary policies encourage investment in fragile financial markets that will periodically crash.
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