Stiglitz on “Market Forces”

The central thesis of this chapter and the preceding one is also that inequality is not just the result of the forces of nature, of abstract market forces. We might like the speed of light to be faster, but there is nothing we can do about it.

— Joseph E. Stiglitz, The Price of Inequality (New York: Norton, 2012), p. 82.

I’m a little wary of describing the nature of physical forces — since physics isn’t my area of expertise —, so I’ll try to stay away from cross-discipline comparisons. Nevertheless, I detect a subtle proof of a misunderstanding of the nature of market forces and how they’ve developed. If I understand Stiglitz correctly, what he’s claiming is that while “market forces” cause inequality, we can’t change these forces (he advocates, instead, government to, essentially, create forces that operate in the opposite direction). The implication is that market forces, like physical forces such as the speed of light, transcend society and find their origins in independent circumstances.

This isn’t how Austrians — and, I thought, most others — think of markets. The market process (which we can think of as an aggregate of individual market forces) is itself in a process of development; that is, the market and how it operates changes over time. The easiest illustrative contrast is between a primitive division of labor and an advanced division of labor. Many “market forces” which operate in the latter don’t exist in the former. There are timeless physical realities that society deals with (the broad umbrella of uncertainty, for example), but the market process takes its shapes around these. The market process, spontaneously designed by society, grows to better cope with independent obstacles.

We can do something about market forces. This doesn’t mean that any one person is capable of knowing what change to make and how to best make it — or even that a collaborating group of people know what and how —, but that as individuals in society change their behaviors the market process changes in tune. In fact, that markets do change, and enjoy certain traits that make them superior to alternative forms of resource allocation, is an important quality that many free market economists tout when promoting deregulation.

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