Peter Espeut | The problem with faith-based economics

The recent debate on bank fees exposes the shaky foundation on which so-called free-market economics is based. Economist Dr Damien King (who defines 'bank fees' and 'interest rates' as prices for the services which banks offer) wrote on the social media site Twitter, "My first-year economics students already know that attempts to legislate prices nearly always leave customers worse off. And the bank fees bill was such an attempt." Free market fundamentalists like Dr King believe that the setting of prices must always be left to this theoretical construct, this article of faith called "the free market".

Quite early on, every student of economics is exposed to the observation that when a commodity is scarce, its price goes up, and when it is abundant, its price goes down. As a description of greedy, opportunistic human behaviour, the observation is accurate.

What market economics does is to define this kind of behaviour as the norm, and elevates description to prescription, everyone must behave this way, or be called irrational.

Deep down, rational human society does not approve of such behaviour. Taking each to its logical extreme, when shopkeepers elevate prices after a hurricane, such behaviour is called price-gouging; and selling surplus commodities unwanted in one market (like chicken legs) into another market at below its production cost is called dumping. Both price-gouging and dumping are frowned upon, and in some jurisdictions may even be illegal, but milder versions of the same phenomenon are called the "normal" workings of the "free market".

But it must be obvious to the observer that this fake 'law' always works to the benefit of the shopkeeper, not the consumer; it is nothing more than a profit-maximisation strategy. It should come as no surprise that, over time, the operation of this so-called free market makes shopkeepers richer and consumers poorer.

How then should prices be set, you may ask? Cost of production plus a reasonable margin I answer. The producer/merchant makes his profit, and the consumer pays the lowest price: win-win!

Free-market fundamentalists believe that allowing the market to set prices, and to be the basis on which the economy operates, will result in justice and prosperity for all.

No free market

The truth is that there is no such thing as a 'free market'! It does not exist! It is interesting and truly ironic that many who deny the existence of heaven and hell, strongly defend the existence of the free market.

Should greed be allowed free rein, big business will swallow up the natural environment, and we will end up with deforestation, overfishing, the extinction of wildlife, air and water pollution, mounting solid waste, and human-induced climate change (Oops! Too late!). That is why business activity must be constrained by environmental regulations.

Should greed be allowed free rein, real wages will be depressed, poverty and hunger will increase, and the gap between the rich and the poor will widen (Oops! Too late! Jamaica has the 11th largest gap between the rich and the poor in the world!). That is why business activity, including financial markets and banks, must be regulated to protect the poor and to produce a more just society.

A market economy enjoys real legitimacy if and only if it is set in the context of a vibrant moral culture that forms its people in the virtues of fairness, justice, and respect for the integrity of the other. To praise the free market as a sole guide to economic organisation is in practice to endorse a utopian dream.

In case you might think that I have made up all this out of my head, all of the above is the orthodox (yet widely ignored) social doctrine of the Roman Catholic Church,which has equally criticised (and condemned) both atheistic communism and free-market capitalism. Those who have bought into the law of supply and demand as gospel need to re-examine the validity of the philosophical foundations of the religion they so aggressively promote.

- Peter Espeut is a Roman Catholic theologian and development scientist. Email feedback to columns@gleanerjm.com.