Thoughts on Idolatry of the Market

Last week I wrote a blog critical of the document "Towards Reforming the International Financial and Monetary Systems in the Context of a Global Public Authority" published by the Vatican's Pontifical Counil on Justice and Peace. I was predominantly critical of the document, however I did note they were right to criticize making the market an idol. I have been developing some thoughts about how we should view this particular criticism of our current economic system. To say we should not make an idol of the market is as easy to say as that we should not make an idol of anything. Properly respond to the exhortation against idolizing the market requires serious thought.

In the first place, as Tom Woods has masterfully explained, however we want to characterize the nature of the financial crisis, it should be clear to everyone that it was in no way caused by the free market. It was created by a state-privileged fractional-reserve banking system bankrolled by the Federal Reserve System. Gobs (a techical term) of bad mortgages were issued by financial institutions becasue they had more than ready buyers at Fannie Mae and Freddie Mac. Lenders were encouraged and even mandated to make sub-prime loans by the Community Reinvestment Act and similar programs.

As Tom Woods puts it:

Had we really been engaged in “idolatry of the market,” as the Vatican document suggests, we might have listened to the market. Instead, the central authorities drowned out what the market was trying to tell us.

It’s been idolatry not of the market but of central banks, institutionalized sources of moral hazard and financial instability around the world, that has yielded us the boom-bust cycle. (The aura of infallibility and the cult of personality surrounding Fed chairmen make the language of idolatry more than mere poetic license.)

Additionally, before we condem supporters of the free market too roundly, we should pause to recognize that the free market is a social institution that results from private property. To support and institution because it is mandated by the Christian ethic of property is not idolatry. To claim it is is like comdemning those who believe the church should preach the gospel because that is what Christ calls us to do for making preaching an idol.

The only case in which it makes sense to think someone is making an idol of the market is when we embrace every outcome of voluntary exchange simply because it happens in a market. Some applaud any form of action if it is the result of voluntary exchange. Only then do we make the market an idol. Those who praise the music of Lady Ga-Ga, for example,  merely because she has sold a lot of records in the market are guilty elevating the market above a Godly aesthetic and ethic. The market is not the arbiter of truth and beauty. The minute we conceive of the market as such, we embrace it as an idol.

If market outcomes are truly undesirable, however, the problem is not with the market as a social institution,  but with the people in the market. The market does not impress its values on any one. Rather people, through their actions, impress them values on the market. The market remains the social institution that develops when a society embraces the Christian ethic of private property. How people behave in a free society is another matter.