Spirits of markets as determinants of economic freedom

Pál Czeglédi

Authors

Pál Czeglédi University of Debrecen

Keywords:

economic freedom, culture, institutions

Abstract

This paper attempts to contribute to the understanding of the ways people’s beliefs about the market economy shapes economic freedom. The paper integrates the notion of culture as ‘spirits of markets’ into the cross-country quantitative literature on culture and institutions by modelling it as a multi-dimensional system of beliefs about the market economy. It proposes that it is the consistency of beliefs, not the beliefs themselves, that may be ‘embedded’ in culture, and therefore the consistency of beliefs may be considered as a determinant of economic freedom. With more consistently distributed beliefs a consistent increase in economic freedom will create more ‘ideological losers” in the electorate, which creates a political entrepreneurial possibility to compensate them. As such compensation usually takes the form of a reduction in economic freedom, the implication is that those areas of economic freedom that are affected by this compensation will reflect less freedom in otherwise free countries. These proposition is supported by some statistical analyses with the areas of economic freedom as dependent variables and the measures of (in)consistency of market beliefs form the World Values Survey (European Values Study) as dependent ones.

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