Straw Mammon: An essay on 'Mammon’s Kingdom' by David Marquand

This book[1] has some interesting conclusions. Like all work in political economy, they are debatable. What is unique about this book is the way in which the author has such intellectual confidence in the conclusions because of the reasoning and evidence he believes justifies them. However, nearly all the evidence and argumentation that is provided to justify the author’s position is highly contestable.

A key aspect of the book is the way in which it misrepresents the entire debate in academic economics. In making the fair point, with which I agree, that economics has become over-formal and over-mathematical, the author somehow conflates entirely opposed methodological approaches and misrepresents much of the school he is criticising in order to try to establish the idea that there is a free-market intellectual zeitgeist and that more left-leaning and socially-centered approaches have been ignored.

Marquand’s argument is complex and further aspects of it will be outlined below. An important theme is the idea that, from around 1870 to 1980, those working for the government would work in the general public interest, that there was a large and vibrant civil society that operated on the principle of reciprocity. Since 1980, however, both the state and the private sector have become completely dominated by market principles. This is a consequence of individualistic and market-based ideals taking over society. The argument is presented in a particularly tendentious way, with often misleading representations of both the ideas of opponents and historical trends. Various aspects of these problems within the book are covered in the sections below.

Economic methodology

When describing the intellectual battles, Marquand argues that the free-market hegemony that has taken over economics and politics ignores, for example, the social costs of economic actions, that it treats firms as if they are just collections of contracts ignoring their human and institutional aspect, and so on. He particularly blames the Chicago School for this. However, Hayek is regarded as the person whose ideas are mainly responsible for Britain’s decline and is simply lumped in with the Chicago School. This is a travesty from beginning to end. Some examples below illustrate why. This discussion of the development of economics as an academic discipline is an important aspect of the book, so the points below should not be regarded as nitpicking.

Nobel Prize winner Ronald Coase was a Chicago Economist for 50 years. He won his Nobel Prize for two areas of work, as mentioned in the citation, amongst others. The first was his work on how to deal with the social costs of economic activity and the second was his work demonstrating that firms would not exist at all if they were just collections of contracts.

We are also told that free-market economists believe that there is perfect information in markets and that this is entirely unrealistic as a model of economic behaviour. The author gives the impression that left-leaning economists have somehow uncovered this crucial weakness which leads the work of the free-market thinkers he argues have shaped policy over the last 30 years to come crashing down. Yet the belief that there is not perfect information in markets is the key starting point of the analysis of the Austrian school, and Hayek in particular, cited as the main enemy of the author’s ideal social order. Marquand also cites the IEA as a co-conspirator in the move to ‘mammon worship’. Interestingly, this is what it says in the IEA’s first ever book published in 1959: ‘Firstly, some economists have gone wrong because they have subconsciously measured the economic system in practice against the models of “perfect competition” constructed as convenient theoretical devices for teaching purposes.’

David Marquand compares Keynes favourably with the Chicago School and one important example he uses is Keynes’ comparison of uncertainty – which cannot easily be mathematically modelled – with risk which, it is argued, moribund, mathematical, Chicago-types focus on. This is interesting because the idea of radical uncertainty, which Keynes did work on independently in his PhD thesis is actually known as ‘Knightean uncertainty’. It is named after the Chicago economist Frank Knight who defined the idea.

The author argues that Hayek and his followers have no interest in tradition, culture and community. This is ridiculous. Hayek’s last book, The Fatal Conceit (1989), was on the importance of tradition and many of his followers, taking their cue from Elinor Ostrom, who gave the 2012 Hayek Lecture to the IEA just before she died, are working in areas of community solutions to environmental problems. Indeed, Hayek rejects the use of the word ‘economics’ and instead proposes that the word ‘catallaxy’ is used - the reason being that the word ‘economy’ traditionally focuses on the individual and household whereas ‘catallaxy’ is a word that implies the study of the whole social order. Nobody could be more acutely aware of the importance of the extended social order than Hayek.

Perhaps the most absurd argument the author uses is when he argues that the problem is that free-market economists wish to treat economics as if it was a subject like physics. This is a charge that can be justifiably laid at the door of Chicago – and also at Keynesians, of course, but Hayek’s Nobel Prize lecture is entitled The Pretence of Knowledge. And a great theme of The Road to Serfdom is how the treatment of economics as a formal science leads inevitable to disaster. He used the term ‘scientism’ to describe precisely the phenomenon that David Marquand describes.

Lumping together all free-market economists and criticising this as some form of intellectual zeitgeist is like a critical reviewer criticising Marquand for being a Marxist. I will come to one further example of how economics as a discipline is misrepresented later.

It is not just economists who are misrepresented. No book of this sort would be complete without the use of Margaret Thatcher’s ‘No such thing as society’ quotation. Marquand is an academic. I wonder why he did not delve further into what Mrs. Thatcher said in that famous interview. Here is the relevant quotation with more detail: ‘There is no such thing as society. There is [a] living tapestry of men and women and people and the beauty of that tapestry and the quality of our lives will depend upon how much each of us is prepared to take responsibility for ourselves and each of us prepared to turn round and help by our own efforts those who are unfortunate.’ Margaret Thatcher, as is clear from the clarification issued to the Sunday Times the following week, is rejecting the concept of society as an abstract concept and its conflation with the state (the previous part of the quotation reads ‘“I am homeless, the Government must house me!” and so they are casting their problems on society and who is society? There is no such thing! There are individual men and women and there are families and no government can do anything except through people’). She can be accused of being incoherent (she states – largely for rhetorical effect - that there is no such thing as society and then defines it) and one can argue with her understanding of ‘society’. But it cannot be argued by any reasonable or fair minded person that she is rejecting the concept of society as such.

If any book is to be regarded as a strong justification for the case it is making, it has to take on the author’s opponents strongest arguments, not distort them and knock down straw men.

To centralise or decentralise? Take your pick

Moving on to another main theme, Marquand takes issue, rightly in my view, with the trend towards government centralisation since 1980. But it is very difficult for a social democrat to be consistent on this issue; and Marquand isn’t. Centralising power in the education system in Whitehall is a bad thing, he argues. Decentralising power to individual schools and what were previously polytechnics is also, apparently, a bad thing. The decline of civil society institutions between the individual and the state is another bad thing but their recreation through free schools and the new universities is also bad. In fact, if you wish to see the kind of non-utilitarian education that the author admires, he should go to one of the new free schools, the creation of which he disapproves.

Before the creation of the NHS, 60 per cent of all hospitals were embedded in voluntary organisations of one type or another and most of the rest were run by local authorities. The complete centralisation of power in relation to the health service in Whitehall is not only regarded as a good thing by David Marquand, but the high point of all the good things that have happened in the last 140 years. At the same time, the author laments several times the decline of civil society institutions of welfare. Yet these were destroyed by the route of extreme centralisation that Bevan took when he decided how to implement the Beveridge report and create the NHS. The author also admires Germany hugely with its strong civil society institutions. In Germany, 54 per cent of hospitals are owned by private commercial, mutual or voluntary organisations. In my view that is admirable, but David Marquand laments the loss of the very things the policies that he supports destroyed.

The issue of centralisation at the domestic level is not the only area where confusion reigns. On a single page, those who wish to leave the EU are wrongly described as ‘insular’ whilst the takeover of once-British firms by foreign companies is lamented by the author.

Rent seeking, inequality and the breakdown of civil society

If there is an over-arching theme of the book it relates together rent seeking, inequality and the size of the financial sector. Rent seeking is where organised and powerful interests try to extract resources through the state: bankers asking for bailouts, for example. The author argues that inequality, the size of the financial sector, rent seeking, the promotion of markets and what he calls the marketisation of the state are all intrinsically interlinked.

Let’s start with inequality. We are told that inequality leads to all sorts of social ills, to rent seeking and a breakdown of trust. But, these are the facts:

- Using the measure that the author himself quotes, inequality in the UK has been falling for 25 years, whilst it is rising in other countries which he admires. It is true that the position of the top 0.1 per cent is a different matter.

- The author argues that, as equality increases, trust in society increases. But there is no evidence for this. The relationships Marquand quotes are reliant on a very few outlying countries in the data: if you remove them, the relationship actually reverses. Furthermore, other measures of social cohesion such as charitable giving and voluntary activity decrease as societies become more equal. This is true even if you exclude the US and church-related voluntary activity.

The author also makes a big issue out of what most readers might regard as little things. The big private spaces that form shopping malls he argues are built solely for the A, B, C1 social classes. I don’t frequent such malls, but this struck me as implausible so I checked out the figures (which are freely available). The assertion is simply not true. In the South of England, ABC1 shoppers are slightly over-represented in malls compared with the UK population (as would be expected) but in the north they are under-represented (as would be expected). Indeed, the shopper in a private mall seems remarkably average.

The author looks at the decline in importance of professional qualifying bodies. Nearly all of these bodies were established in the liberal period of the late 19th century – most, in fact, before 1870 though they received their Royal Charter later. I have studied in detail the history of my own professional body, the Institute of Actuaries. It is very clear from contemporary accounts that it thrived compared with overseas counterparts because of the liberal market environment the author is strongly criticising.

Almost every fact or event of which I was aware and I took the trouble to check could be interpreted by a reasonable person in a very different way from the way the author interprets it.

When we come on to the size of the financial sector, which is very important for Marquand’s argument, the largest financial sectors in the world as a proportion of national income are to be found in Australia, Ireland, the UK, the US, Switzerland, Korea and the Netherlands. This is the premier league. The US is fourth or fifth, not at the extreme as Marquand likes to suggest. Contrary to the assertions of the author, the size of the financial sector is not a driver of inequality. These countries are a mix of high, low and medium inequality countries.

Furthermore, Marquand’s description of the so-called deregulation of Britain’s financial sector in 1986 is most strange. What actually happened in 1986 was a transfer of authority from the institutions of the market itself to bodies responsible to the government. There was a huge re-regulation of the market under the Financial Services Act. By the end of 1986 there were 2.3 kilograms of regulation; today, there are millions of paragraphs. If the number of financial regulators keeps growing at the rate we have seen since 1986 and the number of people working in the financial sector also keeps growing at the rate we have seen since 1986, within 60 years there will be more financial regulators than people working within the financial sector (and this excludes compliance officers and people working on regulatory issues within the sector itself). The opening up of the market to foreign banks, which Marquand sees as the cause of many evils, took place as a result of Roy Hattersley – one of his ideological allies - changing the law, whilst Marquand was still in parliament, to require restrictive practices in service industries to be registered.

When it comes to rent seeking Marquand uses the work of left-leaning economist Joseph Stiglitz on this subject. Again he is trying to emphasise the difference between apparently relevant left-leaning economists and market-obsessed free-market academics. In fact, rent seeking was developed as an idea back in the mid-1960s by economists in Virginia. The author does mention members of the Virginia School, but only to dismiss them as free-market fellow travellers in a sentence much earlier in the book. Also Stigler was not mentioned by Marquand. From where was Stigler? He was from Chicago. For what did he win his Nobel Prize? For, amongst other things, the development of the theory of rent seeking. As his citation says: ‘His studies of the forces which give rise to regulatory legislation have opened up a completely new area of economic research.’ Indeed, one of the most well known new books on rent seeking is by Luigi Zingales, also from Chicago. That book is mainly about the way in which vested interests in the banking sector use the government to enrich themselves – exactly what Marquand is talking about. Once again, the whole academic intellectual debate has to be distorted or reported partially to fit the pre-conceived ideas of the author.

David Marquand argues that inequality and the size of the financial sector in the US takes that country to the extreme of inequality and the extreme of rent seeking. He contrasts the US unfavourably with Social or Christian Democrat non-rent-seeking economies in continental Europe. This is a complete travesty. Zingales – an Italian native – wrote his book because he was worried about the US going the way of Christian Democrat Italy with its small financial sector, which really is at the extreme of rent seeking. In addition to Italy, countries such as France, Germany, Ireland and Belgium have all had party leaders, presidents and/or prime ministers prosecuted or given special immunity for enriching themselves through private interests[2]. EU top officials have been similarly culpable.

In indices of government transparency, unequal Anglo-Saxon countries and equal Scandinavian countries do well and other continental European countries tend to do badly. It is not the size of the financial sector or inequality that explains rent seeking, it is something else. What that something else is can be debated, but it is definitely something else. The author presents no empirical data or analysis in favour of one of his main arguments – for there is none to present.

A more credible explanation for the trends identified by Marquand

There is at least one other interpretation of the events discussed in the author’s book. If you go back before World War I, the state really did very little. There is a famous quotation from AJP Taylor pointing out that, apart from being required to send your children to school until they were 13, the requirement for jury service if you were a householder and visits to the post office, most people would never encounter the state unless they committed a crime. This is not the beginning of David Marquand’s social democratic idyll as he likes to pretend. From 1870 to 1910, the state spent barely 10 per cent of national income and half of that was on debt interest. Today it spends around 50 per cent of national income – hardly market fundamentalism. Before 1945 we could even build houses where we wanted – land-use planning is now a ‘public space’, but it wasn’t then. Civil society, community and professional associations flourished in that era. But this is a liberal era: with a small ‘l’.

From 1910 to 1977 the social democratic economy was created. The civil institutions such as Friendly Societies of which the majority of workers were members in 1900 and which Marquand admires throughout much of his book were rendered redundant by the growth of the state. The role of professions was muted by state regulation of financial and related services from 1986. Friendly societies did not disappear because of Thatcher; they disappeared because of how Bevan implemented Beveridge.

The philosopher H. B. Acton argued in the 1960s that, if the state took over everything that involved cultural richness, discernment, the cultivation of the virtues, sensitive services to do with provision of care, education, health services etc. then the market would end up looking like a vulgar place in which nothing happened other than consumer goods being exchanged. Insofar as David Marquand sees vulgarity in the free economy today, it is the inevitable consequence of the type of state that his forebears created and which left the free economy with few functions other than the trading of conspicuous consumer goods.

But these tendencies also led to what Marquand calls the ‘market state’. Firstly, just to note that this is a complete misuse of terms. Broadly – though not entirely – Marquand means a utilitarian, materialistic state. A market is an institutional framework in which goods and services are freely exchanged. The values of its participants may or may not be materialistic depending on their moral outlook. Either or both of markets and states can be materialistic, utilitarian or aspire to higher values but markets cannot be states and states cannot be markets.

Once the state reaches a certain size and influence – as it has in post war Britain - what it does with its resources will become important. This is precisely what rent seeking is all about. In a relatively small state we can all agree on both the ends and means of the servants of the state and it is possible to have the disinterested political class that Marquand would like to see and which used to exist. They are implementing what everybody is broadly agreed upon. In the social democratic state the government’s decisions really do matter. Different people will want different things. Bankers will fight for bailouts; big business will fight for protectionist legislation; secularists will fight for school curricula which marginalise religion and the role of parents; religions will fight for the opposite; and so on.

It is inevitable that, if the state is responsible for the regulation of our lives and the provision of goods, services and transfer payments, it will change the character of the state. At heart the problem is this: the very institutional structures that are necessary to maintain the society that David Marquand would like to see are consumed by that society. As Fredric Bastiat said in 1850, ‘Socialism, like the ancient ideas from which it springs, confuses the distinction between government and society.’ In Marquand’s delineation of rights and duties, he forgets entirely that the state exists to serve the family and society and not the other way round. It is extraordinary that Marquand uses Catholic social teaching to support his case and yet he entirely ignores this central message of the teaching.[3]

Yesterday good, today bad

Marquand also paints a very black and white picture of society. More precisely, he paints a picture that was white in the 1970s and today is black. I lived through the 1970s in my childhood. My mother’s cousin was a shop steward on Hull docks. I know what life was like when you could only become a docker if your father was a docker. In 1968 we had ‘in place of strife’. In 1974 we had ‘who governs Britain’. And in 1979 we had ‘the winter of discontent’. Life really was not that good. In 2013, we have 17 million people who do voluntary work. It is not credible to argue that there was no mammon worship in the 1970s and we all worship mammon now. I am afraid that life is an awful lot more complicated than this book makes it out to be.

Indeed, let us look at education, another key issue that Marquand weaves into his argument. In 1978, the children of Islington Green school received 22 O-level passes and two A-level passes between them. Only 10 per cent of Islington home owners sent their children to local schools by the mid-1980s. This is the era when schools served their communities according to Marquand. No they didn’t. The schools served the elites – rent seekers – and the community voted with its feet. Today, the programmes that have given schools more independence and parents more autonomy that Marquand criticises so strongly have made schools serve their communities once more. Despite many, many remaining difficulties, the schools of Islington now serve their children and parents better than they ever did in the 1970s. And they do so because serving the community of parents is their function and they are now free to perform that function.

Mammon worship

Finally, I would like to say that I do share the author’s concern with the problem of what he describes as ‘mammon worship’ – I would go further and define it more generally as seeking satisfaction through the superficial. But this is a problem that, throughout history, has affected many societies, equal, unequal, those with large financial sectors or small financial sectors and that is still the case today. I disagree with the author’s interpretation of the political and economic history of the last 150 years and with the links he draws between his evidence and conclusions. I strongly believe that the problems he identifies are as a result of a moral crisis brought about by the rejection of religion and its values. Marquand, an atheist, seems to want the values of religion but without religion itself. In my view, this – together with the growth of the social democratic state - is precisely the root of the problems about which Marquand is concerned about. However, that requires another essay.

Click here to download the pdf version of this article.


[1] David Marquand, Mammon’s Kingdom: An Essay on Britain, Now, Allen Lane, 2014.

[2] This essay was written before Nicholas Sarkozy was arrested.

[3] I don’t deal here with David Marquand’s interpretation of Catholic social teaching documents. He claims Catholic social teaching for his case whilst disagreeing strongly with the notion of private property as a value that should be strongly held and widely applied. How he squares this with Rerum novarum (which he claims supports his arguments) I don’t know: as that document says: ‘We have seen that this great labor question cannot be solved save by assuming as a principle that private ownership must be held sacred and inviolable.’

 

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