Moral Markets
July 29, 2010
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Posted by Michael S. Langston
Over @ Concuring Opinions, Nate Oman has an interesting post about the defenses of a free market (whole thing here):
Broadly speaking, I think that there are three families of arguments that can be made in defense of markets. Most commonly within the legal academy markets are defended on the basis of efficiency….
The second defense of markets is libertarian. This looks a lot of like the efficiency argument but is actually quite different, notwithstanding the fact that libertarians frequently confuse the two. In the libertarian argument what matters is not welfare but freedom. Freedom is taken as a good in and of itself, even if choices might result in reductions of welfare for the chooser….
The third argument is a defense of markets as markets.
Both the efficiency and the libertarian defenses of markets are reductionist in the sense that they see the good of markets in a unitary way. Markets are good because — properly constructed — they move resources around to maximize welfare….
Markets are good because they provide cooperation in the face of disagreement over the definition of the good and “social stability.”…
It’s a very decent article, though as a non-card carrying libertarian, I need to disagree with some of his minor points. Namely, that libertarians are by group interested in freedom alone. In fact, libertarians, just like other demographic groups get to the same answers through different paths and all three paths are prevalent in the current party.
For some libertarians, it is an…. intellectual/efficiency argument alone. They believe markets aren’t necessarily moral or perfect at rationing, but they firmly believe that a free market leads to the best possible solution for the most people.
For me, I take the freedom approach. To maximize individual welfare means one must maximize individual choices. This might seem as too moralistic or philosophical for some as to be practical or useful, but it seems logical that reducing one mans’ freedom is antithetical to maximizing welfare.
& to be thoroughish, lots of libertarians are just tired of all the other parties and joined that cool one with that goofy, “Who is Ron Paul” stuff. In reality, like most organizations, libertarians are not absolutists either way using a combination of thoughts to form their basis for their beliefs, but I digress.
The author continues about the third way:
On this view, traders are not cowardly, greedy, souless parasites (see, e.g., Shylock) constantly tempting the virtuous away from the path of justice with filthy lucre. Rather, commerce encourages courage, honesty, and fidelity. It encourages cooperation rather than predation. It allows people with widely disparate views of the ultimate ends and purposes of life to peacefully cooperate with one another. Commerce rewards the frugal and the farsighted, while punishing the wastrel and the spendthrift…..
But he tells us….
The third, pluralist view of the good of markets gets scant attention…
While this maybe a true statement, but the reality is that all three defenses coexist to form both a cohesive political and philosophical framework (though I do have issues with libertarians on foreign policy).
If we can start with the idea that maximizing welfare includes maximizing freedom, efficiency, freedom, & moral markets work together.
When starting with the paramount of freedom in economics, one also gets into the land of (un)intended consequences and perverted incentives. Hayek talked about this a great deal – the fact that due to the shear size and complexity of the market, any attempted centralized interference will change incentives and unlikely for the better. Unlikely, because the “status quo” we all question exists through millions and millions of individual transactions.
For lack of a better term, a collective wisdom emerges, order out of chaos. An answer, that we might not like, but something for which a centralized system is (highly) unlikely to do better than free individuals. The result is the most efficient use of resources we can hope to achieve while maintaining the most individual freedoms we can.
What about the morals? Well….it’s not as if we don’t have recent examples to help us out. Leaving out the current mess of a tax code, take the recent financial crisis.
Predatory lenders? Sure. Fraudulent and speculative borrowers? Sure. The reason why it worked so well? Government incentives pushed quasi-government agencies to purchase loans without much oversight.
Why no oversight? No skin in the game. They couldn’t fail. The market believed it & they believed it. & in the end, the government proved them right. Do the wrong thing, over and over and over and over again until it finally collapses and someone else ends up paying the bill….
So while the author is probably correct that we don’t use a moral market argument much, especially in an atmosphere of language such as “fat-cats”, he’s incorrect that this moral option is a “third” argument. It is indeed part and parcel of the framework that markets are more efficient, better at maximizing freedom, and yes, even better at incenting moral behavior as well.
More on market morals here
Categories: Business, Critical Thinking, Economics, Free Market Principles, Political Philosophy
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Tags: Economics, Financial Crisis, Free Market Principles, Freedom, hayek, unintended consequences
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FWIW, I was using the term “libertarian” as a label for a particular kind of argument. It was not my intention to describe the beliefs of political libertarians, the libertarian poliical party, or the like. If you want, you can simply slap another label on the second argument and call it an autonomy argument or something like that.
I agree that lots of people employ versions of all three arguments. I certainly do. It is by no means clear, however, that this is always intellectually coherent and certainly “all of the above” provides no clue as to how to resolve conflicts when different arguments cut in different directions on particular issues.
Thanks for the comment & my apologies for framing it in a way you didn’t intend. Like your use of libertarian, I was using your three defense post as more of a springboard to a larger cohesive argument.
As for proof – certainly the above examples only go to show what going to the opposite end of the free market spectrum can do (trying to centralize housing market for instance) – it doesn’t help draw any specific lines as to where say contract arbitration is necessary, but are specific laws governing language of certain contracts necessary?
& if so, what language. I’m no lawyer, but I love those arguments as well
Either way – in a society…. or at least living under the last couple of governments, I see only legislation that reduces freedom while simultaneously failing to meet any of its marketed objectives (patriot act, bailouts, health care, financial reform, campaign finance reform….).
In this case – I think the details become the million trees that we all stand in awe of while the forest is burning around us.
I’m not saying I have all the answers, but the problems seem obvious and I think their continued march forward is more about fundamental critical thinking than the specific details. I could be wrong.
Side note: On details, reasonable people will always disagree – details hinge on value statements. Not that values differ greatly between people, but how they are ranked will be different. As we both know, we can also end up with the same answer through different reasons.
Theoretically, with an informed populace, free press, etc – this is what legislation is for. To use public debate, research, information, press, etc, etc, etc to end up with details that most can agree.
BTW – love the conversation