In the wake of the Great Depression, it took more than a decade of experimentation to construct a new architecture.
Among its tenets was the recognition that successful markets depended on tough policing, and the importance of the prosperity of the middle class, which in turn meant workers should reap their fair share of productivity gains. But the amorphous and often contradictory “free markets” ideology has conditioned policymakers and the public to view unregulated commerce as virtuous, when unconstrained markets are, in fact, a brawl.
In 1776, Adam Smith published The Wealth of Nations. In it, he argued that self-interested action sometimes produced, as if by “an invisible hand”, results that were beneficial to broader society. Smith also pointed out that self-interest could just as readily do harm. He fiercely criticized both how employers colluded to keep wages low, as well as the “savage injustice” that European mercantilist interests had “commit(ted) with impunity” in colonies in Asia and the Americas.
Smith’s ideas were cherry-picked and turned into a simplistic ideology that dominates university economics departments and policymaking. This theory proclaims that the “invisible hand” ensures that economic self-interest will always lead to the best outcomes imaginable. It follows that any restrictions on the profit-seeking activities of individuals and corporations are inefficient and nonsensical.
Uncritical allegiance to these precepts over the last 30 years has produced a world in which corporations, especially in finance, are far less restricted in their pursuit of profit. In my book Econned, I describe how this lawless environment allowed the financial services industry to pursue its own unenlightened self-interest.
The industry has become systematically predatory. Its employees did not confine their predation to outsiders; their efforts to loot their own firms nearly destroyed the industry and the entire global economy. Similar destructive behaviour by other players, often viewed through a distorted lens that saw all unconstrained commercial behaviour as virtuous, added more fuel to the conflagration.