Defending the Market

There are those who dispute this. However, even these critics usually do not deny the presence of greater economic opportunity in the West. Rather, they frown on the value of this opportunity. Critics from Left and Right have alleged the corrupting influence of a political system that does not hinder the pursuit of commercial prosperity.

These critics tend to see the free market as catering to base human inclinations—self-interest, greed, lust, and so on. When one is not much hindered, let alone prevented, from pursuing wealth, one will, the critics say, focus all one’s attentions on this pursuit. Thus, we are told, free market systems give us the commercialization of everything from religion to art. Doctors do not worry so much about medicine as about prospering economically. Lawyers, evangelists, educators, scientists, artists, politicians—members of all vocations and professions with talent and skill concentrate predominantly on the bottom line.

Now there is something to this charge, if we look only at the evidence before us in most Western societies. But it is unfair to judge the matter from a narrow empirical framework. For example, it needs to be stressed that economic liberty is a recent phenomenon, following centuries of repression and oppression during which prosperity was out of the question for most people in the world, it is therefore not surprising that for a few centuries people would focus their attention on attaining reasonable material prosperity, besides a number of other goals that are important to them.

In any case, my concern here is not so much with defending the free market system but with discussing one of the prominent ways in which it is defended against a persistent indictment. Professor Paul Samuelson, a critic, of the free market system, has made the following serious charge against the free market: “The Invisible Hand will only maximize total social utility provided the state intervenes so as to make the initial distribution of dollar votes ethically proper.” (Collected Scientific Papers [Cambridge, Mass.: MIT Press, 1966], p. 1410 [emphasis in original])

In other words, the justice of such a system is predicated on the presence of a strong government that first distributes wealth equitably. If we start out with some people having much more than others, with no moral justification, then the results of market processes will be contaminated with this initial defect of unjust distribution. From this indictment follow almost all the other indictments leveled at the free market—the rich get richer while the poor get poorer, the important professions lack support while trivial pursuits are well rewarded, and so on.

The Economist’s View

Defenders of the market offer different replies but one of them is very prominent, coming from the best placed group of such defenders: economists. Professor Murray N. Rothbard summarized this defense most aptly when he wrote, “There is no distributional process apart from the production and exchange processes of the market; hence the very concept of ‘distribution’ becomes meaningless on the free market. Since ‘distribution’ is simply the result of the free exchange process, and since this process benefits all participants on the market and increases social utility, it follows directly that the ‘distributional’ results of the free market also increase social utility.” (“Toward a Reconstruction of Utility and Welfare Economics,” in Mary Sennholz, ed., On Freedom and Free Enterprise [New York: D. Van Nostrand, 1956], p. 251)

The crux of this defense is that apart from what people actually choose to do in a free market, there is no other measure of what is good for them. Putting it more generally, this is the subjective value theory defense: How can we dispute the free judgments of market agents as to what are the best decisions for them to make apart from the decisions they actually do make as they carry out their commercial transactions? And if there is no way to criticize those decisions, how could anyone propose that the overall results of market transactions are defective and require state intervention? There is, in short, no justification for state intervention because there is no standard of value other than what people in fact individually and freely invoke—and thus the result of such judgments that characterize collective or “social utility”—in free market systems.

But there is a serious implausibility about this defense. People may often be subjectivists in their general outlook, but in particular matters they are not. They may say that everything is relative as far as value-judgments are concerned—like beauty, goodness is merely in the eyes of the beholder. But when they see someone indulging in reckless purchases such as accumulating eight Rolls Royces, as did the late Liberace, or obtaining cocaine or pornographic books, they are perfectly willing to say that, contrary to the economist’s theory, these people do not really benefit themselves in trade but are guilty of fadism, fetishism, excesses, immoderation, and so on.

These people will conclude, if they are without a contrary theory that accepts the legitimacy of ethical criticism of market behavior, that any society that makes it possible for people to be so indulgent must be ethically flawed. People quite reasonably dispute that “[the exchange] process benefits all participants on the market and increases social utility,” at least as they observe the market in their particular situations.

They then go on to share the view of social critic John Kenneth Galbraith that the market produces many failures of distribution—people often fail to benefit themselves and their society when ‘they produce and sell in the free market. Would it not be better that the money spent on pornography or heroin or even Michael Jackson gloves go to medical research, the arts, or economic education? Perhaps they won’t know how to give a thorough philosophical defense of this conviction, but they will nevertheless hold it.

And they are right to do so. Free men and women can indeed make very bad, even evil judgments—there is no guarantee that when people enjoy freedom from the dictation of others, they will always choose to do the right thing. Anyone who proposes this view, as some economists do, will fly in the face of un-shakable convictions and common sense. The very idea of freedom implies that one can do both good and evil while carrying on as a market agent. The details could only be known from close up, but they are no mystery—self-indulgent people are a dime a dozen. Misallocation of resources, therefore, is easy to conceive in free markets.

But does this not concede the case to those who wish to intervene in the market?

Not by a long shot. First of all, just as market agents can make bad judgments, so can those who would intervene with the behavior of market agents. And there are fewer pressures on these latter than on the former, since they enjoy “sovereign immunity” (e.g., government regulators cannot be sued when a mishap occurs in an industry they regulate, as is clear from recent accidents in airline transportation, chemical manufacturing, and so on).

But even more important, it is meaningless to talk of good human conduct without freedom. Persons who are fully or even only partially enslaved—dictated and forced to behave by others—simply cannot be given credit for good or evil conduct. They are in effect reduced to the status of robots.

Thus an unfree system is to the extent of its lack of freedom a dehumanized system. What needs to be accepted is that the utopian dream of making people perfect through limiting or regulating voluntary, self- regarding conduct is a dangerous dream, not some beautiful ideal as many suppose.

So the market must be seen as the best that we can do. Whatever failures it is exposed to can only be resisted by education, exhortation, example, but not by coercion. It will not do to deny that it is open to failure, as economists sometimes do, or to try to eliminate the failures by state intervention. And this should not be surprising—the quintessential human characteristic, after all, is our capacity for good or evil. Why should we expect any different from such a perfectly human enterprise as the pursuit of economic welfare? []

Ideas On Liberty

Only in Individuals

Society lives and acts only in individuals; it is nothing more than a ,certain attitude on their part. Everyone carries a part of society on his shoulders; no one is relieved of his share of responsibility by others. And no one can find a safe way out for himself if society is sweeping towards destruction. Therefore everyone, in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interests of everyone hang on the result. Whether he chooses or not, every man is drawn into the great historical struggle, the decisive battle into which our epoch has plunged us . . . .

Whether society shall continue to evolve or whether it shall decay lies—in the sense in which causal determination of all events permits us to speak of freewill—in the hand of man. Whether Society is good or bad may be a matter of individual judgment; but whoever prefers life to death, happiness to suffering, wen-being to misery, must accept society. And whoever desires that society should exist and develop must also accept, without limitation or reserve, private ownership in the means of production.