TCS Daily

The Market's Neglected Virtues

By Ramesh Ponnuru - June 15, 2004 12:00 AM

The liberal economist Rebecca Blank and the conservative journalist William McGurn return to a familiar question in a new volume from the Brookings Institution and the Pew Forum on Religion and Public Life: Is the Market Moral?

The question is slightly misleading shorthand. Both McGurn, an editorialist for the Wall Street Journal, and Blank, the dean of the school of public policy at the University of Michigan, believe that markets, generally, work, and that they have certain moral advantages, such as rewarding effort, increasing choice, and calling forth certain talents. The subject of debate is really under what conditions the market is moral (or can be made more moral).

Both authors write from a Christian point of view. But the book does not primarily concern how Christians should live. Blank writes that "faith reminds us that we should not overvalue the things of this world or turn toward greed, but use our economic capacity in ways that serve God and serve our neighbors as well as ourselves." It is hard to imagine McGurn disagreeing. They do disagree, however, on what the governmental response to the market should be. McGurn, you will not be surprised to hear, favors less government.

I myself tend to resist analysis of "the market" or of "capitalism" as though it were a rationally designed system rather than an order that emerges from certain basic rules such as the private ownership of property. I would not go so far as James Bowman, who quipped that "capitalism" is just the socialist term for "life." But these terms do tend to conflate different questions. Many people think that the statement "Free markets hollow out family life by encouraging selfishness" is plausible. Fewer people would find it plausible to say, "Selfishness would decline, and family life flourish more, if we had more regulation and nationalization." It also subtly biases the discussion of economic justice, as when Blank writes that "economic systems should be set up" to reward "good behavior."

I also prefer the Austrian school of economics -- which includes thinkers such as von Mises, Hayek, and Rothbard -- not least because it does not overemphasize the textbook model of perfect competition, especially by using that model as a stick with which to beat real-world industries. For the Austrians, the essence of economic life is not competition but co-ordination. The metaphor of the invisible hand is a way of explaining how the problem of social co-ordination can be solved without central direction. People with diverse resources and plans can cooperate in ways that leave them all better off. Hence Michael Novak's description of capitalism -- his term, not mine -- as "a creative form of community."

On balance, you will not be surprised to hear either, I find McGurn's views more congenial than Blank's. She worries that firms in a free market can succeed through bad behavior -- she mentions hiring cheaper foreign labor and selling low-quality products to poor families who cannot afford better. But firing people and hiring cheaper replacements is simply not per se immoral, especially when the new hires see their own wages rise. Nor is selling low-quality merchandise immoral, especially when people would otherwise have no access to the goods in question. McGurn is more appreciative of the ways that economic life in a free society calls forth virtues such as honesty and obliges us to consider the needs of others (if only to make a profit by meeting those needs). He even suggests that the fact that societies grow richer to the extent they are arranged so that their members must look out for one another is, in the strict sense of the word, providential.

Government is obligated to act for the common good and to encourage sound morals. Sometimes that calls for action: the prohibition on theft and fraud serve both goals. Many times inaction will best serve those goals. Sometimes whether governmental action is warranted or not -- whether, for example, the federal minimum wage should be raised, left the same, lowered, or abolished -- depends on complicated empirical and political judgments.

I do think, however, that McGurn's invocation of "the culture" as a way of stopping bad behavior is a little too pat. The discussion of the corporate scandals of the last few years is disappointing. It would be great for our corporate class to show a renewed sense of moral responsibility. But exhortations to better behavior will probably achieve less than structural reforms (such as ending the double taxation of dividends).

We also need to face the possibility that some amount of corporate scandal is inevitable even in a healthy culture covered by wise regulations. In the late stages of booms, the market's mechanism for preventing some of this behavior -- sober and conservative creditors and investors -- are bound to get a little careless, get burned, and then become more careful again. It is not clear to me that other corrective mechanisms are an improvement on that one. Certainly the regulations enacted by Congress in the Sarbanes-Oxley law do not appear to be.

One thing that often trips up these discussions is the lurking idea that if markets are judged to be moral, the status quo is as well. But the one does not follow from the other. When foreign governments keep people in poverty by denying them customary property rights, when licensure regulations create barriers to self-advancement for the poor here, when tariffs raise the price of children's clothes and block the legitimate aspirations of people in other countries, when health care policies create gratuitous anxieties and tragedies for people: It cannot be said that we have economic freedom, or justice, or cause for complacency. The two government policies that have done the most to fight poverty in recent years have been, essentially, pro-market policies: welfare reform here, and free trade overseas. What a free-market analysis suggests is that our principle must be to widen the circle of productive exchange.

Ramesh Ponnuru is senior editor at National Review. He recently wrote for TCS about The Kass Council's Ex-Friends.


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