limits to market economy

8/10/2019 Limits to Market Economy

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LIMITS OF

MARKET ECONOMY

AZHAR HUSSAIN (ID: 14113)


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Market Economy

Market economy is an economy in which all

economic affairs are organized within a society so

that an un-regulated market is the means for

conducting nearly all material transactions withinthe economy.

In such economies, decisions about production of

goods, valuation, trade, distribution, etc. are allsettled by individuals or small groups acting with

maximum possible freedom, and a minimal set of

legal or social constraints.


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Understanding Functions and

Effects of Market Economy

1. Market economies exist within market society.

Market society includes supporting institutions,

social structures, political structures,

ideologies, and ways of organizing knowledge.2. Social structures in market economy conflict

with traditional values. And thus, the transition

to market economy collapses traditional values

and norms.

3. Global dominance of market economies is

always praised but the damage inflicted by

market economies to the world is always


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The Emergence of the Market

Economy

A confluence of historical forces led to the

emergence of a market economy in seventeenth

century England.

The most important of these are:Rise of secular thought due to weakening of the

hold of religion

The rise in the power of the landed aristocracy inEngland


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1. Rise of Secular Thought

Social disturbance due to religious conflicts in Europe;led even religious leaders to uplift secular thoughts to

organize society to attain harmony.

Release of the constraints of religion resulted in

principles and norms that were totally against traditional

values.

The replacement of the Biblical idea The love of money

is the root of all evilby The lack of money is the root of

all evil."

Market societies honor the wealthy, consider poverty as

a vice, promotes luxurious lifestyles, and consider greed

and selfishness as natural and socially useful. Whereas, the traditional norms were just the opposite.


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2. Rise of Landed Aristocracy

Cromwellsvictory shifted the balance of power

permanently in favor of the landed aristocracy.

Enclosures were introduced. Enclosure

prevented poor from getting access to openlands.

These enclosures resulted in social catastrophe.

The lords did upset social order by literally

robbing the poor of their share.


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Consequences of Social

Disruption

These events in England had far reaching

consequences, both temporally and spatially.

Some of them are:

Property RightsChanging Conception of Poverty


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a. Property Rights

Instead of viewing land as a sacred trust, a giftof God to all humans, the idea of ownershipand private property as a natural right was

introduced.

Concept of Pareto Efficiency- which states thatno one can be made better off without making

at least one individual worse off. In a societywhere a few have all the resources, and themasses have nothing, modern economictheory prohibits us from recommending a

redistribution in favour of the poor.


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b. Changing Conception of

Poverty Poverty was taken as an honorable condition in traditional

societies. These societies took collective responsibility to feed

poor.

An essential element of a market society is the idea of blaming

the poor for their poverty, which was first introduced byMalthus.

According to him, it was over-breeding that led to poverty, while

poverty led to vice and misery. He also added birth control as a

tool to combat poverty. He said that helping poor would harm

the society in long run and over breeding will create even more

poor.

Reagan and Thatcher reduced taxes on the rich, arguing that

this would increase growth because the rich would invest and

increase productivity. The poor would only consume the taxcuts reducin savin s investments and rowth this would


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Essential Requirements of a Market

Economy

The many institutions and ideologies required

for self-regulating markets to function are:

Labor Markets

The Market for Land

Money and Financial Markets


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The Market for Land

Traditional societies value a harmoniousrelationship between man and nature. But amarket economy must separate the man fromthe land, and turn both into commodities freelyavailable for sale and purchase.

Strengthening of property rights and largescale enclosures created the possibility of

agricultural capitalism, and the production oflarge amounts of surplus food as well asindustrial raw materials like cotton.


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This coincided with the industrial needs for rawmaterials as well as the need for food for largenumbers of laborers not engaged in agriculture.

The remoteness of the owner from the land allowed

him to view it as merely an input to a productionprocess, a means for producing wealth. In a traditionalsociety, a laborer invests his life energies and efforts,and enjoys the reward of bringing valuable productsout of dead land.

But, in a market society, economic necessity compelsthe laborer to sell his time for money. He is alienatedfrom the land and the produce, both of which belongto his employer.

The Market for Land


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Market Ideologies and

Consequences

Market economies encourage the pursuit of wealth to

the point of being absolutely irrational,according to Max

Weber.

Excess wealth is spent on luxuries and further

multiplication of wealth but not for social welfare.

Because in this economy it is believed that social

welfare undercuts the labor market, strengthens the

laborers against the capitalists, and results in reduced

profits for investment and growth. The relentless demand for profits, the production of

surplus goods, the legitimization of the pursuit of wealth,

and greed and selfishness, has led many disasters and

crises both local and global.


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The Market for Human Beings: The

Collapse of Values

Erosion of sense of community and trust after 2nd World

War.

A wife can't trust her husband. Neither a child can trust

his parents nor parents can trust their child.

''We now have one of the highest divorce rates in the

Western world and the fabric of family life has been

stripped away in the past thirty years'' stated in a report

on Fractured Families put out by the Social Justice

Foundation(2006) in the UK. According to the Center for Disease Control, USA also

has the highest teen pregnancy rate in the world.


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The Market for Human Beings: The

Collapse of Values

Promotion of the Invisible Hand idea that

individuals pursuing selfish goals will produce

socially beneficial results has led widespread

corruption.All of these developments can be directly

traced to promotion of the core idea at the

heart of market societies: all is fair in the

pursuit of wealth.


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The Market for Land:

Environmental Disaster

Market Economy considers land, its products,

and people living on it merely as inputs in

process of production of wealth.

This has caused large scale damage toenvironment, depletion of forests and other

natural resources, and created a looming

catastrophe due to global warming.


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Islamic Economy

Islamic economics refers to the economic

system that conforms to Islamic scripture and

traditions.

The central features of an Islamic economyare summarized as the following:

Behavioral norms and moral foundations derived

from the Quran and Sunnah

Zakat tax as the basis of Islamic fiscal policy

prohibition of interest


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Fundamental Features of Islamic

Economics System

All the wealth belongs to Allah (SWT):

"And give them of the wealth of Allah which He

has given you."[An-Nur: 33]

The community is the trustee of the wealth:

"Believe in Allah and His Messenger, and spend

whereof He has made you heirs."[Al-Hadid: 7]


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Hoarding of wealth is prohibited:

"And those who hoard up gold and silver and spend not in

the way of Allah; announce to them a painful

chastisement." [At-Tauba: 34]

Circulation of wealth is a duty:

"Whatsoever Allah may restore unto His Messenger - isdue unto Allah and unto His Messenger - the orphans

and the needy. So, that it may not be confined to the rich

amongst you."

Fundamental Features of Islamic

Economics System

limits to market economy

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