George Soros: Beware Market Fundamentalism

Marc Breslow

This article is from the January/February 1999 issue of Dollars and Sense: The Magazine of Economic Justice available at

This article is from the January/February 1999 issue of Dollars & Sense magazine.

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George Soros, a billionaire currency speculator, has recently become a prominent critic of capitalism. In his new book, The Crisis of Global Capitalism, Soros harshly criticizes true believers in the wonders of unregulated free markets, an ideology he calls "market fundamentalism." During a recent speech at Harvard University, Soros attacked market ideology on several grounds, ranging from amorality to its role in fostering financial instability. On ethics, he said:

"Market values express what one participant is willing to pay another in a free exchange. They do not reflect social values, nor do they express many of the intrinsic values that people hold dear..." Soros disputes the fundamental claim of American textbook economics, that the "invisible hand" of selfish individual behavior will be good for everyone:

"Market fundamentalists... [claim] that the common interest is best served by everybody looking out for his own interests. This claim is false... There are many political and social objectives which are not properly served by the market mechanism... These include the preservation of competition and of stability in financial markets, not to mention issues like the environment and social justice."

Soros further argues that free-market ideology threatens political democracy:

"By promoting market values into a governing principle, market fundamentalism has undermined our society. Representative democracy presupposes moral values, such as honesty and integrity, particularly in our representatives. When success takes precedence over integrity, and politics is dominated by money, the political process deteriorates."

Another prime tenet of textbook economics is that free markets tend toward stable "equilibria." Soros, with vast experience in financial markets, believes that they are inherently unstable (with the recent capital flight from east Asia a case in point):

"The concept of equilibrium is very misleading when it is applied to financial markets and macroeconomic problems. Economic equilibrium is a useful concept when markets deal with known quantities. But financial markets don't deal with known quantities... As a consequence, the future cannot be known, and the bias expressed in the market participants' decisions becomes an important factor in determining the course of events... There are times when the participants' bias is self-correcting... but at other times the bias is self-reinforcing until it becomes unsustainable, and on these occasions markets exhibit a boom-bust pattern."

Perhaps the defenders of the free market would benefit from listening to one of its most successful practitioners.