The Market

Ethics, Knowledge and Politics

John O'Neill

• Publisher: Routledge
• Year: 1998
• eBook ISBN: 9781134735037
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Following the failure of 'really existing socialism' in Eastern Europe and Asia, the market is now generally perceived, by Left and Right, to be supreme in any rational economic system. The current debate now focuses on the proper boundaries of markets rather than the system itself. This book examines the problems of defining these boundaries for t

1
IN PARTIAL PRAISE OF ADVERSARIES

1.1 The spirit of Hayek

The art of argument begins with the choice of opponents and whether it goes well or ill depends on the quality of those one has chosen to oppose. This book is a response to a number of major arguments for market economies. Those of a number of distinguished figures past and present will be discussed. Adam Smith, J.S. Mill, Jevons, Marshall, Menger and Mises all make appearances. But if one spectre haunts this book perhaps more than any other it is that of Hayek. While this book will criticise both Austrian and neo-classical defences of the market economy, it is the former, and in particular Hayek’s version of it, that in the end I believe forms the more powerful foundation for a normative case for the market economy. Since it is Hayek’s position that provides a powerful case for the market, it also forms a major but not the only object of criticism. Much of this book is a conversation with Hayek.

However, the spirit of Hayek also pervades the book in a quite different way. There is a sense in which the book is also written in the spirit of Hayek. In particular, for all my differences with Hayek, I accept an assumption of his earlier writings that there is a clear distinction between political defeat and defeat in an argument. Victory and defeat in a political battle is a question of power. Victory and defeat in political argument is a question of truth and validity. Hayek clearly recognises the difference between the two. To write a book like The Road to Serfdom in the conditions he did, just after the war when the case for a centralised planned economy was, in Europe at least, almost universally accepted, required the recognition of that distinction. What is distressing about so much of recent work that purports to be socialist is just how much it is founded on the denial that there is a distinction to be made. The ancient sophist position that the pragmatic criterion of effectiveness in persuasion is the only norm that governs argument is held widely either as an explicit position,¹ or as a practical attitude to political argument. Thus one finds many analyses of why the New Right was politically effective, but, with a few notable exceptions,² few about the strength of the arguments it offers in its favour. One finds many suggestions about how one might state the case for ‘the Left’ in a way that wins power, but few on what arguments might be offered for socialism that give good reasons for doing so. Indeed to engage in such arguments is often seen as a little vulgar in the polite society of post-modern discourse. Politics is reduced to a matter of mere taste.

At the same time there has been a tendency amongst political radicals to relinquish the economic argument to liberal defenders of the market. As far as the traditional arguments between socialist criticism of the market and its liberal defenders go, many on the socialist side of the argument have given up. If there are criticisms of market economies around they are largely to be found in the realm of political ecology in discussions of the ecological limits of commercial society. Elsewhere there is a new consensus on the economic virtues of market economies. Now there is a good reason for this. It is clearly the case that the economies of Eastern Europe and Asia that went under the title of ‘really existing socialism’ were failures, not just in gross accumulation of goods, but on more or less all other indicators of a good economic order: the well-being of citizens, ecological sustainability, political and social freedoms, democratic accountability, and the distribution of wealth and power. In no instance did they offer a particularly happy alternative to liberal market orders. Their record has encouraged the verdict in that previous critics of the possibility of rational non-market economic order were right.

The response of the left has been twofold. The first has been simply to accept that, in the modern world, any rational economic order has to have the market as its central economic mechanism. The main task is then taken to be to show that socialism is compatible with the market: the market socialist project is the main intellectual child of this thought,³ although there are others, including the criticisms of ‘market essentialism’ I discuss later in this chapter. The second move, often combined with the first, has been to shift the radical political argument away from the economy altogether, towards either a political debate about citizenship or a cultural argument about identity, recognition and voice. While these issues are of importance, to treat them in isolation from the economy is for reasons I outline later implausible.

These moves appear to leave the critic of the market with a dilemma, for the alternative position of defending a centrally planned economy governed by some powerful state bureaucracy is quite rightly seen a non-starter. However, the alternatives never were only market and state. One of the great myopias of twentieth-century political economy has been the tendency to assume just four institutions in economic life: the state, the market, the household and the firm, with the firm being seen as a kind of miniature planned economy within the market. That was never the choice. There has always been an associational component to the economic order that this picture ignores. In market societies there exists a variety of economic and non-economic associations that are directly or indirectly central to economic life. Consider for example the increasingly threatened non-commercial scientific community: it exists as a non-market community whose members relate to each other in non-contractual ways; the incursion by both market and state is quite properly seen as a threat to its integrity; its products are central tothe economic life of the modern world. Neither is it the case that non-market associations were always seen as peripheral to the arguments of political economy. It is forgotten that the early defenders of commercial society like Smith were as much concerned with criticising the associational blocks to mobile labour represented by guilds as they were to the activities of the state. The history of socialist thought includes a long associational and anti-statist tradition prior to the political victory of the Bolshevism in the east and varieties of Fabianism in the west. This blindness to non-market associations and relations has also had an other dimension: the failure to address issues of market colonisation, of the invasion of market norms into non-market spheres, which until recently was lost to standard political debate.

This book is written from within the tradition of associational socialism. Its main aim is to maintain criticism of the market, criticism that is in danger of disappearing as political radicals turn either to rhetoric and culture, or to the embracement of the market. However, clearly it will not be possible here to review all the arguments for and against markets and I have not attempted to do so. My selection of arguments here has followed two principles. First, I have attempted to limit myself to those that are primarily about the market as such, and not the specifically capitalist form it might take. Hence, with some reluctance I have left aside material to do with class conflict and proletarian unfreedom. Second, I have tried to limit myself to what I believe to be the strongest grounds for defending markets. There are a variety of arguments against market economies, for example those that concern the distributional consequences of market choices or the ecological limits of markets, which I leave aside here. I do so not because I think they are unimportant. The opposite is the case: I think them the most pressing failures of market economies. I do so rather because I do not think this is where the strength of the case for market economies lies. I want to argue that even where the case for the market economy appears strongest, it is less convincing than might initially be thought. What these arguments are will be clear from the topics of the different chapters. Chapters 2 to 8 look at arguments for markets from liberal neutrality, from welfare, from autonomy and freedom and from recognition. Chapters 9 to 12 examine the arguments at the heart of the socialist calculation debate, with the ‘calculational’ and ‘epistemic’ virtues of the market. Chapter 13 looks at arguments from within the public choice tradition which give the most sophisticated version of the claim that the market runs with and not against the self-interested side of the human character. In each case I will attempt to show that the argument is weaker than is normally assumed. At the same time running through the argument will be a defence of the centrality of non-market associations to a good social and economic order.

The terms ‘market’, ‘markets’, ‘commercial society’ and ‘market economies’ will be used more or less interchangeably in the book. There are problems in doing so. There can be localised ‘markets’ in societies that are not ‘market economies’ in the sense I define it below. The term ‘market’ can be used at different levels of abstraction: when I tell my children I am writing a book about the market they assume that I am talking about a local market of the kind that pigs go to, not a set of institutional arrangements for the transfer of property rights. The term ‘market’ and ‘market economy’ can be used to describe a variety of different types of institutions at a variety of different levels of abstraction.⁴ Some delineation of our topic is required. The central concern of this book is the defensibility of market economies. To give an initial definition, by a market economy I mean those social and institutional arrangements through which goods are regularly produced for, distributed by and subject to contractual forms of exchange in which money and property rights over goods are transferred between agents. A few comments on the definition.

First, the term ‘institutional arrangements’ here can be understood in a narrow or a wide sense. In the narrow sense they refer specifically to those institutional arrangements for the transfer of property rights over commodities. In a wider sense they can refer to all those institutional arrangements required for exchange to be possible, from the institutions that allow the actual transport and distributions of goods, the social institutions that make possible the conditions of social trust that are required for contractual arrangements to work, the legal arrangements required to define property rights and their legitimate transfer and so on.⁵ As long as one is aware that market exchanges in the narrow sense are dependent upon background institutions, nothing much hinges upon the use of a narrower or wider reading. For the most part in this book I will refer to the institutional preconditions of markets, hence analytically at least separating these from markets understood in the narrower sense. I return to some of the implications of this point in the next section.

Second, markets are institutions for ‘contractual forms of exchange’: market economies are constituted by a particular form of exchange rather than the exchange of goods per se. Thus it is possible, for example, to have economic arrangements founded upon the exchange of gifts. While these tend to be discussed in terms of distant economies, such as the Kula exchanges of the Trobriand Islands, some parts of not only our personal lives, but also our public transactions are still founded upon gift relationships.⁶ There is also a long tradition, from Aristotle onwards, that takes the best form of economic arrangement to be one founded upon something like public gift relationships through which private ownership is combined with common use.⁷ Gift and contractual exchange have different social meanings: gift is constitutive of a particular social relationships—failure in reciprocity where it is due is indicative that the relationship is not in order. Failure of contract has a different social meaning in virtue of having an instrumental and impersonal significance. Hence, the different kinds of exchanges have different ethical implications: thus, for example, the gift to bodily parts or the use of the womb does not raise the same objections as the sale of bodily parts or the commercial rent of wombs in surrogacy contracts.

Third, markets involve the exchange of money and property rights over goods. I will assume that we are talking about market economies in which money is a universal medium of exchange and not simple commodity production. More important, what is transferred in market exchange is property rights over goods not goods per se: the point is significant in that it allows, contrary to some fairly common bad arguments, that the goods that can be exchanged need not be material entities, but can also include for example skills, information, knowledge, and capacities to work. Anything over which a set of property rights can be defined is potentially an item for exchange in markets. It follows that labour power can be a commodity.⁸ However, labour power need not be a commodity in a market. The defining feature of specifically capitalist markets is that labour power is a commodity that is bought and sold. It is possible to have non-capitalist markets, for example, markets of small producers all of whom own their own labour power and exchange the fruits of their labour power: market socialism in its basic sense envisages a version of such an economy, in which all enterprises take the form of cooperatives.

A central difference between market economies and non-market economies is the ways in which decisions are made and enacted. In market economies, agents by necessity respond to the relative prices of goods, and their choices are constrained and regulated by the movements in the exchange values of different goods. The exchange value of objects becomes a common unit through which decisions are made. The shifts in exchange values are the unintended consequence of the collective outcomes of individual actions of agents. Hence, they are independent of any social or ethical ends that might be held either individually or in common. Market economies are in this special sense disembedded economies:⁹ decisions are not constrained directly by social custom and ethical goals, but rather respond to a system that proceeds independently of these. The economies are amoral. In contrast, in non-market economies, economic decisions are constrained directly by social custom and needs, and operate directly in terms of the nature of the goods involved.

The observation that there is such a difference between market and non-market economies is one that goes back to Aristotle.¹⁰ This very general difference is also the source of an ancient set of objections to market economies that also go back at least as far as Aristotle: precisely because in market economies, economic decisions are not constrained directly by ethical considerations the economies are ethically indefensible. Much of the argument in defence of market economies can be stated as a response to that general worry. One liberal justification of market economies is one that simply reverses the Aristotelian objection. It is precisely a virtue of market economies that decisions and outcomes are not determined by any ethical goal. It is not the job of public economic and political institutions to promote the ‘good’ under some particular conception of it. The perfectionist account of public institutions should be rejected. We live in pluralistic societies and in such societies the best institutional arrangement are those which are neutral between different conceptions of the good. The market offers an institutional arrangement that realises this liberal principle of neutrality.¹¹ I discuss this appeal to neutrality in chapter 2.

An alternative response might be to say that it is just a truth that the best human life is to be found in societies that are economically organised in ways that do not make the good life the end of decision making. Hence, just as there is a paradox of hedonism—that if you want a life of pleasure do not make pleasure your end—or a paradox of self-fulfilment—that if you want self-fulfilment do not think about your self—it may be simply a paradox that the good life develops in societies that do not make it the aim of economic and political life. That there is a paradox here is noted by some of the market’s critics. Marx notes:

Wealth appears as an end in itself only among the few commercial peoples…who live in the pores of the ancient world…[T]he old view, in which the human being appears as the aim of production…seems to be very lofty when contrasted to the modern world, where production appears as the aim of mankind and wealth as the aim of production. In fact, however, what is wealth other than the universality of human needs, capacities, pleasures and productive capacities etc., created through universal exchange.¹²

While clearly not Marx’s position, it is open to the defender of the market to show that markets best realise the human good as an unintended consequence of the pursuit of other ends. This strategy is at the centre of many of ‘the invisible hand’ defences of market economies. One central argument for the market economy is that it is the best institutional arrangement to deliver human welfare. The argument can take different forms depending upon the account of welfare offered. The different welfarist arguments for markets are discussed in chapters 3 and 4. Another central liberal argument for the market is that it is through markets that individual autonomy is best realised. This appeal to autonomy, if the concept of autonomy is understood in a thin sense, can be understood as a version of the neutrality argument. However, if autonomy is understood more substantially as a desirable state of character, as I shall argue it should be, then the argument is perfectionist in form. The complex of arguments that centre around the concept of autonomy are discussed in chapters 5 to 8.

Another response to the Aristotelian objection that is consistent with these welfarist and libertarian arguments is that the market facilitat...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Acknowledgements
• 1. In Partial Praise of Adversaries
• 2. Politics, Economy, Neutrality
• 3. Economic Theory and Human Well-Being
• 4. The Market and Human Well-Being
• 5. Autonomy, Freedom and Market
• 6. Autonomy, Identity and Market
• 7. Autonomy, Authority and Market
• 8. The Politics of Recognition
• 9. Commensurability and the Socialist Calculation Debates
• 10. Epistemological Arguments for the Market
• 11. Property In Science and the Market
• 12. Public Choice Theory: Self-Interest and Universal Economics
• Postscript: Markets, Associations and Socialism
• Notes
• References