By John Meadowcroft
The Ethics of the Market makes a distinctive contribution to the literature on the morality of the market by synthesizing the work of a number of liberal scholars into a systematic defence of the free market on ethical grounds. This defence addresses questions of social justice, the moral prerequisites of a market economy, the nature of the needs that the market satisfies and the appropriate boundaries that should be placed around the operation of the market.
About John Meadowcroft
John Meadowcroft is a Deputy Editorial Director at the Institute of Economic Affairs, London and Lecturer in Parliament and Politics on the Hansard Scholar Programme at the London School of Economics and Political Science, UK.
James Stacey Taylor on HEC Forum wrote:
"Perhaps more of a primer than a work of original research, Meadowcroft’s book, however, offers an immense service by wrestling with the most popular arguments in political philosophy and debunking them, following the footsteps of an impressive number of mentors — from John Locke to Friedrich von Hayek, from Adam Smith to Robert Nozick."
"Meadowcroft recognizes that before the ethical case for the market can be accepted, he must address the arguments that are frequently marshaled against markets. [...] Meadowcroft, then, has set himself a Herculean task. And, like Hercules, Meadowcroft succeeds admirably."
Table of Contents + Start of Chapters
After the collapse of Communism in Eastern Europe and the former Soviet Union and the ‘rolling back of the state’ in liberal democracies across the world in the final two decades of the twentieth century it is now widely held that the central intellectual debate in political economy has shifted from the question of whether capitalism or socialism is the most efficacious economic system to the question of how the state should manage and regulate a market economy. According to Keat (1993, p. 6), ‘Now that the political and theoretical contest between market and state seems largely settled to the former’s advantage’, the intellectual focus has shifted to ‘some important issues about the nature and place of economic markets’, and, in particular, ‘the boundaries [that] should be drawn around the domain of activities to be governed by the market’.
This chapter will show that a compelling ethical case can be made for the market that takes into account questions of self-ownership, economic efficiency and the altruistic desire to help other people. While the classical Marxist and socialist critics of capitalism believed that capitalism was both inefficient and immoral in comparison to the socialist alternative, today it is more frequently alleged that although capitalism may be more efficient than any alternative economic system, it is nevertheless a form of economic organization that encourages and rewards selfishness, dishonesty and other forms of immoral behaviour (for example, Plant 1999; Wilson 1995).
The epistemological function of market prices is central to the ethical case for the market made in this book: it is claimed that within an advanced economy, price signals facilitate economic coordination more successfully and communicate the needs of people more accurately than any other mechanism.
While it may be accepted that a market economy generates a level of prosperity that no other economic system can match, as noted in the previous chapter ethical objections may be raised as to how that wealth is distributed. It is undoubtedly the case that the unprecedented material wealth that a market economy produces is distributed unequally. The market will produce multi-millionaires such as Microsoft founder Bill Gates and Rolling Stones frontman Mick Jagger who are able to enjoy a lifestyle that the great majority of their contemporaries will never attain.
This chapter will examine the second aspect of ‘social justice’ that must be taken into account in an ethical assessment of the market: the claim that many of the supposedly voluntary exchanges that take place in a market economy are in fact founded upon exploitation and coercion.
The efficiency achieved by the market means that it is able to satisfy more needs and preferences than any comparable economic system, but it may not necessarily follow that this will lead to an increase in the sum total of human happiness. Critics of the market have argued that it is an institutional setting that leads people to frame their needs and preferences in terms of self-centred, myopic and hedonistic choices that create a ‘dumbed-down’, ‘lowest common denominator’ culture incongruent with human well-being. For this reason it is argued that the scope of the market should be limited to protect those social and cultural practices that are essential to well-being and that will be under-supplied by the market.
This chapter will consider the argument that the workings of market mechanisms undermine the very social institutions upon which the market itself depends. The successful operation of the market requires trust between market participants, and respect for private property and the rule of law, but it is argued that an externality of the operation of market forces is the erosion of such trust and respect. Hence, the market is alleged to be a ‘self-devouring’ mechanism that is unsustainable unless its scope is limited to ensure it does not devour its own foundations:
This book has set out a positive ethical case for the market economy: only the market provision of goods and services and only a distribution of income and wealth determined by the market are compatible with the principle of individual self-ownership; only where prices are heuristically generated in the marketplace and different courses of action bring differential economic rewards can resources be efficiently allocated within a complex, advanced economy so that long-term prosperity can be assured, and only when individuals respond to the impersonal signals provided by the price mechanism can they meet the needs of people of whom they have no direct personal knowledge. The choices people make in the marketplace are not taken atomistically with a selfish disregard for other people, but are made in the context of the needs and preferences of others; the market provides incentives for virtuous behaviour and mechanisms that supply trust and assurance in commercial transactions that make it a self-regulating and self-replenishing economic system.