Abstract
In this chapter I challenge the implicit (and sometimes explicit) claim of Adam Smith that the free market is a natural system which would emerge on its own if governments did not interfere. I argue instead that the free market is a tenuous human institution which needs support and protection. I build my claim upon Adam Smith’s open avowal that property rights are necessary for the free market and upon the neo-liberal demand that governments must intervene in order to maintain the competitive nature of the free market so as to guarantee its efficiency. Hegel incorporates both claims that property rights and economic efficiency are necessary. For Hegel both are necessary for achieving freedom. I then point out that defending the above two claims with the philosophical argument that they contribute to freedom implies that both property rights and economic efficiency must not be allowed to undermine freedom. This provides the philosophical foundation for minimal welfare measures: society must make it possible for all to acquire the property necessary for exercising freedom or to enjoy the fruits of socially enforced efficiency. Hegel thereby teaches us that a philosophical reflection upon the writings of Adam Smith and the doctrines of neo-liberalism provide an argument in favor of some form of welfare state. Borrowing from Hegel, I then point out that any welfare state contradicts a basic principle of the free market: no one gets something for nothing. For this reason, I believe that alleviating poverty in a free market system is always going to be a tenuous affair.
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References
For a critical study about Hegel’s alleged inconsistency in his use of the concepts of possession and property see Cristi 1978.
In their analysis of the Asian economic miracle, Campos and Root stress these two points. The successful Asian societies created “a secure political foundation for economic rights,” and there was a “commitment to shared growth” (Campos and Root 1996, 175 and 177).
For a comprehensive survey of the debate on the concept of merit good, see Head 1974. See also chapter 5 in this book in which I clarify, defend, and expand the concept of merit good.
I purposefully restrict myself to the study of the neo-liberal movement because I want to emphasize that economic thought itself made a shift in the way it viewed the ontology of history of thought from Plato to Hayek and Baudrillard see Murray (1997): “General Introduction: On Studying Commercial Life.”
For an enumeration of the members of the different neo-liberal movements, see Nawroth 1961, 5–6.
In another passage Smith makes the restriction of the government role less absolute. He writes: “In general, if any branch of trade, or any division of labour, be advantageous to the public, the freer and more general the competition, it will always be the more so” (Smith, 313) (Italics are mine, WVE). In that same page he provides an interesting exception: “If bankers are restrained from issuing any circulating bank notes or notes payable to the bearer, for less than a certain sum; and if they are subjected to the obligation of an immediate and unconditional payment of such bank notes as soon as presented, their trade may, with safety to the public, be rendered in all other respects perfectly free” (Ibid.).
Farm subsidies are currently still an important problem preventing not only a more efficient global economy but also hurting disproportionately the poorer developing countries. Consider the statement by the President of the World Bank, Paul Wolfowitz: “Let me take a moment to explain how trade barriers are hurting the poor. Trade barriers deprive poor countries of markets to sell their goods. Under current conditions, developing countries are not getting the most out of world trade. Their exports face the most severe restrictions all around the globe. Protection in rich countries is highest in the products that developing countries produce, particularly agriculture and labor-intensive manufactured products and services. Of all of these, agricultural protection is particularly harmful to the world’s poor. Three-quarters of the world’s poor, remember, live in rural areas; so reducing barriers to agricultural trade in most countries can directly reduce poverty. The sheer size of these barriers is staggering. Rich countries today each year spend approximately US$280 billion-let me repeat that, US$280 billion each year-to support their agricultural producers. That comes out to more than US$5 billion each week. Out of that, the EU accounts for roughly half, US$133 billion; but the United States and Japan spend enormous amounts, as well-roughly the same (US$47 billion for the United States and US$49 billion for Japan). These amounts are particularly disturbing when you compare them with the levels of development assistance. In the national context, if you think about it, it means the United States is spending 2.5 times as much, US$2.50, on its agricultural producers for every US$1 that it spends on development assistance. Japan is spending US$5 on agricultural subsidies for every US$1 it spends on development. This support to agricultural producers is paid by taxpayers, and it is paid by consumers in higher prices. Poor consumers are disproportionately affected by these higher prices. So developed countries, their taxpayers, their consumers, also stand to gain from agricultural liberalization. Reform is fundamentally a matter of long-term self-interest” (Wolfowitz 2005). For research back-up of Wolfowitz’s claims see: Anderson & Martin, 2005; Mensbrugghe).
Also, “When there is no free market, there is no pricing mechanism; without a pricing mechanism, there is no economic calculation” (111); “for in practice the propertyless manager can only be held morally responsible for losses incurred. And so ethical losses are juxtaposed with opportunities for material gain. The property owner on the other hand himself bears responsibility, as he himself must primarily feel the loss arising from unwisely conducted business” (122) (Additionally: Hayek 1944, 124–25).
The idea that the free market has sublimating potential antedates the neo-liberal movement. That sublimating potential received an appealing formulation in the French expression: “le doux commerce.” For a study of the discovery of this kind of potential of the free market, see Hirschman 1977, e.g., 71, 58–63.
This argument is often connected with the argument for stable money, because money is the technical instrument of free choice within the economic domain (Friedman 1962, 27, ch. III; Hayek 1944, 89 ff.; Mises 1975, 98–104).
For a discussion of Hegel’s relationship with the British, in particular the Scottish, economists, see Chamley 1963; Denis 1984; Waszek 1988. Particularly influential on Hegel was James Steuart.
Chaos can have at least three different meanings which it is useful to distinguish. It can mean that a system shows such great disturbance that the underlaying principles of the system are best given up. This was Hegel’s opinion about the political philosophy of Rousseau, which inspired the French revolution, which in turn led to the terror of Robespierre. Chaos can also mean that a system shows serious disturbances but that the principles underlying the system are still considered valid and thus only in need of correction. Hegel wrote before 1831 and thus before the great crises of the capitalist system, such as the super-inflation of the Weimar Republic, and the 1929 crash of the New York Stock Exchange. One can thus not consult Hegel about their meaning. It is my opinion that it would be in line with Hegel’s thought to argue that these crises were not able to undo the truth of Adam Smith’s insights in the free market economy. They can be addressed, as Adam Smith addressed some credit problems in his own time, by proper government regulations (Smith, 313). Finally, chaos can also refer to a mathematical concept used to study the disturbances in the financial markets in the capitalist system (Deboeck., 263–314).
This was even recognized by such a sharp critic of the free market system as Karl Marx (Marx 1948, 12). The classic argument has been given in A. Smith’s example of pin-making, resulting in his claims that: “The greatest improvement in the productive power of labour... seem [s] to have been the effects of the division of labour”(Smith, 3 ff.).
For an excellent summary of Samuelson’s views on this problem and a discussion of the whole issue of public goods see Head 1974, 68 ff. The significance of the concept of public good is further defended and elaborated in chapter 6 of this book. I there analyze in detail both the Samuelson and the Olson approach.
Keynes argues that the free market can have several points of equilibrium, only one of which includes full employment. Thus, unemployment is a distinct possibility within the free market (Keynes 1965, 26).
Sen makes a similar argument when he says that property rights cease in the face of mass starvation (Sen 1985, 5–6). The general argument that property rights cease in the face of something foundational to property (in Hegel’s view: freedom) has affinities with the “functionings and capabilities” approach developed later by Sen and further elaborated by Nussbaum. According to this view, a just society must provide all individuals with the means to reach and develop certain important functions and capabilities. Financing this goal can only occur by some form of taxation which means taking away from some what otherwise would have been their property. A summary of the “functionings and capabilities” approach can be found in the review, by a moral philosopher, of Nussbaum’s book Women and Human Development (Hausman 2001).
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(2008). The Economic Order: A Human, Not a Natural Institution. In: Ethical Dimensions of the Economy. Studies in Economics Ethics and Philosophy. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-77111-1_5
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