LIMITS OF

MARKET ECONOMY

AZHAR HUSSAIN (ID: 14113)

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 within
the economy.
In such economies, decisions about production of
goods, valuation, trade, distribution, etc. are all
settled by individuals or small groups acting with
maximum possible freedom, and a minimal set of
legal or social constraints.

Understanding Functions and

Effects of Market Economy
1.

2.

3.

Market economies exist within market society.

Market society includes supporting institutions,
social
structures,
political
structures,
ideologies, and ways of organizing knowledge.
Social structures in market economy conflict
with traditional values. And thus, the transition
to market economy collapses traditional values
and norms.
Global dominance of market economies is
always praised but the damage inflicted by
market economies to the world is always

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 in
England

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 evil by 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. Where
as, the traditional norms were just the opposite.

2. Rise of Landed Aristocracy

Cromwells victory shifted the balance of power

permanently in favor of the landed aristocracy.
Enclosures
were
introduced.
Enclosure
prevented poor from getting access to open
lands.
These enclosures resulted in social catastrophe.
The lords did upset social order by literally
robbing the poor of their share.

Consequences of Social
Disruption

These events in England had far reaching

consequences, both temporally and spatially.
Some of them are:
Property

Rights
Changing Conception of Poverty

a. Property Rights

Instead of viewing land as a sacred trust, a gift

of God to all humans, the idea of ownership
and private property as a natural right was
introduced.

Concept of Pareto Efficiency- which states that

no one can be made better off without making
at least one individual worse off. In a society
where a few have all the resources, and the
masses have nothing, modern economic
theory prohibits us from recommending a
redistribution in favour of the poor.

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 by
Malthus.

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 tax
cuts, reducing savings, investments and growth this would

Essential Requirements of a Market

Economy

The many institutions and ideologies required

for self-regulating markets to function are:
Labor

The

Markets

Market for Land

Money and Financial Markets

Labor Markets

Production in a market economy depends on

the ability to hire labor and a market for labor.
Enclosures gave a head start to industrial
revolution, thus, building a surplus pool of
labors.
Desperate condition of the people after
enclosures; led them to earn livelihood by
selling their labor. And this dire need of people
to earn livelihood gave a boost to industrial
revolution and gave birth to a labor market.

The Market for Land

Traditional societies value a harmonious

relationship between man and nature. But a
market economy must separate the man from
the land, and turn both into commodities freely
available for sale and purchase.
Strengthening of property rights and large
scale enclosures created the possibility of
agricultural capitalism, and the production of
large amounts of surplus food as well as
industrial raw materials like cotton.

The Market for Land

This coincided with the industrial needs for raw

materials as well as the need for food for large
numbers 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 production
process, a means for producing wealth. In a traditional
society, a laborer invests his life energies and efforts,
and enjoys the reward of bringing valuable products
out of dead land.
But, in a market society, economic necessity compels
the laborer to sell his time for money. He is alienated
from the land and the produce, both of which belong
to his employer.

Money and Financial Markets

Strength of a market economy lies in producing far

beyond its minimal requirements. Thus, surplus results
in unstoppable demand. Huge surplus necessitates
trade and use of money for trading purposes.
Token money is used in market economies for trade
purposes. Token money is a government guaranteed
financial instrument. The flaw for market economies in
this regard is, high fluctuation in the quantities of money.
International trade can't be conducted in terms of token
money that further intensify the problems in a market
economy.

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.

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.

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.

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 to
environment, depletion of forests and other
natural resources, and created a looming
catastrophe due to global warming.

Islamic Economy

Islamic economics refers to the economic

system that conforms to Islamic scripture and
traditions.
The central features of an Islamic economy
are 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

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]

Fundamental Features of Islamic

Economics System

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 - is
due unto Allah and unto His Messenger - the orphans
and the needy. So, that it may not be confined to the rich
amongst you."