This first article will outline the moral case for the market. In the second I will appraise the 'scorecard' for these arguments in the light of the developments of the last few years. How does the moral case for the market stand up in the light of Moral Hazard?
Too Big to Fail and how it Broke the Libertarian's Case
In short the demise of the capital markets and the collectivist solution that was inevitably enacted has shaken the libertarian's very philosophical foundations. Whereas previously, free market enthusiasts would rely on Adam Smith's 'invisible slap' to, or rather the fear of it, in order to generate a self regulating system that ensured that
- Economic agents were accountable for the risks they took
- Risks were graduated into the system via agents having the fear of failure
- The diversity of agents ensured that when failure occurred the system was maintained
Rather, I want to focus on the re-appraisal of what these events have meant for the moral case for free market economy. This matters to me, because I happen to believe in these arguments!
The Moral Foundations of the Free Market do not Depend Upon Weath Creation Alone
It would be easy to draw the conclusion that because, the free market system has demonstrably been more successful in generating material wealth, that the moral case for the free market lies on this ability. Frankly, I think that this utilitarian argument is a weak one because economic growth, in itself, does not contain an ethical dimension. Moreover, this kind of quantitative assessment has never (and can never) get to what the numbers actually mean to an individual's assessment of his life or his ultimate reality.
We can no more accurately find a 'measure' for the sum of each individuals utility in this way, than we can accurately simulate market pricing by via a command economy. Relying solely in GDP growth is not the answer. Indeed, post war Russia was a rapidly developing economy with high GDP growth. It just developed lots of things that nobody actually wanted!
The Moral Case for the Free Market
In John Gray's "The Moral Foundations of Market Institutions" a number of arguments are propagated for the primacy of the market model. Although, for Gray a libertarian position is not adequate.
"a crucial feature of the logic of the ethical defense of the market becomes apparent. This is that the argument which justifies free markets as enabling devices for autonomous choices also, and inexorably, justifies the institution of an enablng welfare state"He goes on to outline the reasoning and principles behind his model of the social market.
In 'God and the Marketplace', Michael Novak writes a chapter in which he comments on Gray's work and also elucidates a number of moral arguments for the market. Ignoring Novak's critique of Gray, I will outline these arguments and then put them in the context of the current financial crisis.
The Argument from Material Improvement
It could be argued that capitalism is promulgated by the self interest of the individual in making his material condition better. When coached in terms of 'covetousness' this 'moral plus', not only becomes an infringement of Christian Theocracy, but also is seen as a zero sum game. In other words, he who has had his good or material coveted, is set to have it taken from him.
However, material improvement need not be seen as a zero sum game! Indeed, in the act of creation or improvement that an individual sets out to achieve, can be built the edifice of improvements to society that benefit all. These material benefits can clearly be seen. The poorest person eligible to receive medical treatment via public provision today, will receive better treatment than Queen Victoria or George Washington ever would have. Moreover, the act of creation in itself is a positive for the individual involved.
The Epistemic Argument
This argument is forcibly articulated in Gray's work cited earlier. In his book, he summarizes the insights garnered by the Austrian School and their observations over the logical impossibility of being able to rationally replicate the information (pricing etc) produced by market systems. For Ludwig Von Mises, socialist economies are impossible because of the lack of market pricing. Friedrich Hayek argues that the market contains knowledge that is dispersed through the economy and which cannot be known by central planners. However, the market is a device for transmitting this information.
Michael Polanyi argues against central planning in economy as well as scientific planning. He thinks that science (as well as in economy) there is tacit knowledge which cannot be put together by centralised planning. The market is seen as being as the mechanism whereby this information is transcribed and articulated.
Free Markets Create Autonomy
Free Markets are seen as granting greater autonomy to an individual, in order that he can make a wider range of autonomous choices in his life. This is a contentious issue as much debate will centre on the possibility of needs to being satiated. If like Gray, you think they can, then the process can then begin whereby one would set out a pathway to achieving this. However, if you think they can not be, than you might be attracted to adopting the classical liberal position of favouring the aim of negative liberty. Isiaah Berlin is excellent further reading on the subject. However, for the purposes of this enquiry let us assume there is an intrinsic value in the greater creation of autonomy.
The Argument from Increasing Intellectual Quotient
Increasingly, goods are being produced that have a greater portion of their value in intellectual property. This results in a greater amount of human input and less on the material. As the market economy shifts us towards these types of goods the opportunity for human enrichment.
The Argument from Personal Creation
This argument was touched on earlier, but it deserves its own definition. It is, the argument that capitalism encourages personal subjectivity and creation. The individual grows spiritually as he engages in creative acts which force him to make existentialist decisions over his future. Furthermore, economies are growing increasingly reliant on intellectual capital -as expressed in the paragraph above- and this will allow greater spiritual interaction between individuals.
Globalisation is Creating Shared Interests
Given an expanding global market it is likely that interests will become increasingly enmeshed which should produce greater understanding of cultures. Markets can be seen as instruments of integration and discourse within communities and in doing so create a shared community of interests.
Free Markets Create Greater Opportunity for the Poor
It is argued that free markets create greater opportunity for the poor. Social mobility is greater in free market economies and the opportunity for skill and chance to play their role are greater. Moreover, poorer people tend to receive more opportunity given that there is more emphasis upon personal intelligence and creation in these types of economies, than there is in a centralised command economy.
Having articulated the moral case for the market, it is now time to turn to consider how they have fared over the last few years. I believe that the collectivisation of capital markets following the credit crunch is a significant event that raises significant challenges to our understanding of the society we live in.
The second article can be found here
Berlin, Isiaah "Liberty" Oxford University Press, 2002
Gray, John "The Moral Foundations of Market Institutions" Institute of Economic Affairs Health and Welfare Unit, 1992
Davies, John (Editor) Michael Novak and others "God and the Marketplace" Institute of Economic Affairs Health and Welfare Unit, 1993