[P2P-F] self-regulating markets

Mon Jun 20 09:18:28 CEST 2011

a recent book on the myth of free self-regulating markets, from the
University of Chicago of all places:

basic thesis: self-regulation is always done for the benefit of the few ...

but the larger question is: have their ever been, apart from illegal
markets, self-regulated markets? nearly all market activities are incredibly
embedded in institutional regulations, norms, etc ..

if indeed self-regulated markets are few and far between, then the question
is more: what kind of regulations, and who produces and controls the
regulations and the regulators,

seems pretty clear that since the 80's, under the ethos of self-regulation,
there has been a very strong tendency towards regulatory capture ..

Michel

** Book: The Illusion of Free Markets. Punishment and the Myth of Natural
Order. By Bernard E. Harcourt. Publisher: Harvard University Press, 2011*

Description

Allan Engler:

"In The Illusion of Free Markets: Punishment and the Myth of Natural Order,
Harcourt holds that markets will be regulated by governments or by the rich
on behalf of themselves. Few markets are actually unregulated. He goes on to
make the case that markets directed by dominant players in their private
interest result not in greater freedom but in heavier repression.

Harcourt begins by examining the Chicago Board of Trade and the New York
Stock Exchange. These exchanges are widely viewed as epitomes of the free
market, but they are actually self-regulated private monopolies protected by
legislation. Their rules are made by member firms and policed by internal
committees that determine the methods and time of trading as well as who may
participate. As should be expected, the rules favor those who make them.

...

It is no revelation to point out that when a few are allowed to make the
rules, they will direct markets in their own interests. Nonetheless, in
mainstream opinion it is now taken for granted that markets regulated by
dominant players are preferable to government regulation. This was not
always so.

Before the rise of industrial capitalism, industries were self-regulated—by
Guilds that were usually dominated by wealthy merchants. Seeing this,
political thinkers from the Scholastics to the Enlightenment generally held
that governments had a responsibility to intervene to curb speculation,
price gouging, and hoarding, to keep the prices of necessities low, to
police the quality of goods and services, and to maintain public hygiene.

Mainstream economists now teach that support for free markets can be traced
back to Adam Smith in the late eighteenth century and Jeremy Bentham in the
early nineteenth. Harcourt notes that Smith and Bentham did view
self-interest in the market as generally beneficial, but he points out both
also wrote of circumstances in which government intervention was clearly
required to curb the self-interested power of great merchants and masters.

Harcourt also questions the prevailing view that the late nineteenth century
was a time of laissez faire policies. While industrial production did expand
dramatically, governments played critical roles in the accumulation of
capitalist wealth. To expand their countries’ shares of global trade,
governments organized and financed shipyards and railway construction. They
spent lavishly on navies and armies and colonial wars. Each empire
restricted access to captive markets through imperial preferences and tariff
walls." (
http://dissidentvoice.org/2011/06/the-illusion-of-free-markets-punishment-and-the-myth-of-natural-order/)

 History of self-regulation by the rich

Allan Engler:

"the claim that control of markets should be left to the rich has an
historical precedent. Harcourt draws our attention to France before the 1789
revolution and the Physiocrats—so called because they advocated rule by
natural laws. Most economic histories now dismiss Physiocrats for having
insisted that land alone is the source of exchange value. In France in their
time, that was not so controversial: land still was the main source of great
wealth. In their time, what distinguished the Physiocrats was the claim that
private property and unregulated markets were in accord with laws of nature
and that the role of government was to vigorously repress criminal acts
against this natural order.

Physiocrats held that absolute monarchy, by placing government in the hands
of the largest landowners, was the natural form of government. Leading
Physiocrats—Francois Quesnay, Samuel Du Pont de Nemours, and Le Mercier de
la Riviere—were prominent in the Court of Louis XV. For them it was natural
to oppose government restriction on profit-making. They likewise viewed it
as natural to advocate repressive policing and onerous penalties for
thieves, the idle, the disorderly and anyone else who could interfere with
their natural order. Le Mercier, as governor of Martinique—then one of the
wealthiest French slave colonies—gained notoriety for his heavy-handed
policing which even plantation owners came to believe was provoking disorder
among the slave population.

Although slavery, landed aristocracies, and absolute monarchies have largely
passed into history, the ideology of natural order, freedom for the rich and
powerful, and repression for the dispossessed and disaffected still
resonates with the very rich and their supporters. That is at the root of
the current neo-conservative reaction.

Beginning in the 1940s, University of Chicago economists Milton Friedman and
Friedrich Hayek, began campaigning to replace liberal-social democratic
welfare state policies with old ruling class verities. By the 1970s, they
had a powerful constituency: the super-rich. Long hostile to Keynesian
policies, and frustrated that domestic profit-making opportunities were
decreasing, the wealthy heirs of great family fortunes were smitten by
arguments that economic rewards and decisions are best left to the very
rich. By the early 1980s, the policies promoted by Chicago School economists
and generously financed by corporations and the foundations of wealthy
families were adopted by the newly elected conservative governments of
Margaret Thatcher in the U.K., Ronald Reagan in the U.S., and Brian Mulroney
in Canada.

By the late 1980s a Washington Consensus called for the deregulation of
markets, cuts to the taxes paid by corporations and the wealthy,
privatization of public utilities and cuts to social services. Although some
of the advocates of unregulated markets call themselves libertarians, the
widening disparities that followed anti-Keynesian policies were accompanied
by more repressive state power.

Freeing the rich to do as they choose in the markets they dominate,
obviously allows them to appropriate more of total income. Among the masses,
some may benefit from a trickle down. Of those who are left with less income
and employment, some will find comfort in knowing that at least a few have
gained more wealth than they can imagine. Others will go on strike, organize
boycotts, or participate in unauthorized protests. A few will engage in
petty criminality. In countries that have been impoverished, some may lash
out with any weapons available. In response or in anticipation, the
privileged will demand more aggressive policing, more onerous criminal
sanctions and more punitive military actions abroad.

Neo-conservatives view repressive violence as a required response to
domestic and international criminality. Harcourt makes the case that crime
rates are actually related to entitlements, employment opportunities, and
income disparities." (
http://dissidentvoice.org/2011/06/the-illusion-of-free-markets-punishment-and-the-myth-of-natural-order/)

Example of self-regulation

Allan Engler:

"Harcourt begins by examining the Chicago Board of Trade and the New York
Stock Exchange. These exchanges are widely viewed as epitomes of the free
market, but they are actually self-regulated private monopolies protected by
legislation. Their rules are made by member firms and policed by internal
committees that determine the methods and time of trading as well as who may
participate. As should be expected, the rules favor those who make them.

The Chicago Board of Trade forbids outsiders from engaging in after-hours
trading. However, the insiders who control the Board, when they agree among
themselves, can modify the rules, giving themselves opportunities for
exceptionally profitable trades. The Chicago Board of Trade and the New York
Stock Exchange allow brokerage firms to restrict retail buyers (outsiders)
from reselling for periods of thirty to ninety days. “But the same brokerage
firms may allow large institutions to dump their stock in the after-market
at any time.” In New York, “members of the stock exchange may get together
and fix the commission rates on stock transactions of less than $500,000,”
but they can “freely negotiate commissions for larger stock
transactions”—which they dominate.

In Chicago, when parties are in dispute, the Board’s Office of Investigation
and Audits may investigate. Where its decisions are challenged, the
Commodity Futures Trading Commission may get involved. If disputes are
unresolved, the U.S. Attorney’s office can initiate civil or criminal
actions. The point is that these “free markets” are minutely regulated,
first by the dominant insiders and then by civil and criminal law." (
http://dissidentvoice.org/2011/06/the-illusion-of-free-markets-punishment-and-the-myth-of-natural-order/)

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