Ethics - Classical Economic Liberalism

Ethics and Classical Economic Liberalism

Consider a popular view of economic liberalism. This view is that economic liberalism regards the 'free market' not simply as a mechanism by which individuals obtain the 'best value' in stating their preferences but that, in following their own materialist ends - maximizing their profits and maximizing their satisfaction from use of their resources - the market performs some 'higher' function. The famous doctrine of the Invisible Hand by which the market co-ordinates the 'selfish' decisions of individual buyers and sellers and in doing so benefits all is given as an instance where 'materialistic' ethics are claimed to dominate. The attacks on the 'materialistic' bias in the doctrine are well known. At one extreme, it is claimed that the 'narrow' behavioural assumptions are simply incorrect. At the other extreme, it is held that the market itself, in some inscrutable way, causes the actors in the market to act in a materialistic fashion. The corrupting influence of the market is contrasted with the ennobling influence of a properly-run Socialist Commonwealth, in which human beings come to realize how much they love their fellow men. The extremes both support the conclusion that economic liberalism, by worshipping the market, is at best amoral and, at worst, corrupts human nature. It has no ethical foundations. These criticisms emanate primarily from moral philosophers. Economists, notably Sen (1987, 1994), have concentrated on the 'failure' of the market to lead to a 'just' distribution of income which would be instrumental in fulfilling a moral obligation to help the relatively ill-off (see Section IV below).

Any ethical perspective on liberalism must be based on a set of propositions which fully reflect a liberalist position, but, as the role of the market is a crucial element in the application of liberalist principles to the conduct of the economy, it must be demonstrated that the above criticisms are misconceived. In the first place, the market paradigm which is attacked is one which would be unrecognisable to economists who have closely observed how the market functions. The false paradigm may be caricatured as one in which the market is dominated by producer monopolies who exploit both factors of production, particularly labour, and consumers who are held up to ransom. If this were the sole and accurate representation of the way the market works, liberals, as opponents of concentration of power, would not countenance the market as an economic arrangement. (Actually, when such situations arise, they are frequently the result of deliberate government intervention.) However, a much more accurate picture of the market is as a dynamic process - the Austrian view - in which a myriad of transactions take place between buyers and sellers at a point of time and over time, stimulated by entrepreneurial actions designed to make profits and where product and process innovations continually come on stream because these are necessary for market survival. In the long run, only those survive who satisfy the ever-changing preferences of those who buy products and services. In the second place, the market, as liberals would have it operate, cannot do so without firm ethical foundations. The process of buying and selling, often conducted between persons and organizations who never meet and located at vast distances from one another, must rest on the expectation that, in the main, promises are kept about the specification and the price of the goods and services, and that contractual arrangements can be entered into in which any dispute or disagreement can be satisfactorily resolved, that is to say arbitration or legal decisions will be complied with. The bedrock of a liberalist market system must be trust. Of course, this is not to say that behaving honestly may not be derived from expediency.

Cheating and lying may simply not pay. Moral philosophers could argue, as we have suggested earlier, that a propensity to behave morally can be accorded a 'higher' ethical status when individuals act in accordance with their 'conscience' and not because of the pressures which would be exerted against them if they did not so act. However there is nothing unique or special about the mixture of motives which may impel individuals to behave morally, and which requires us to single out market behaviour as exceptional.