The Ethics of the Market
by John Meadowcroft
Palgrave Macmillan • 2006 • 173 pages • $80.00
Reviewed by Richard M. Ebeling
To the extent that countries around the world have turned their backs on socialism and heavy-handed government regulation of the economy, it has been for pragmatic reasons. Governments have reduced regulation, denationalized industries, and opened their economies to degrees of global competition due to the pressures of international market forces and domestic fiscal problems.
Neither those governments nor many of their own citizens have supported market-oriented reforms out of philosophical conviction concerning the value of economic liberty. Most often they have grudgingly accepted these changes as “concessions” to a reality they wish they could deny.
Thus such market-based institutional changes as have been introduced have occurred in a political environment still dominated by thinking that rejects classical liberalism. So it is absolutely essential for friends of freedom to make the positive case for liberty and the free-market economy. This is what makes John Meadowcroft’s The Ethics of the Market a very useful contribution.
His defense of the market and its related social outcomes is based on the philosophical and political-economic writings of Robert Nozick and F. A. Hayek. Meadowcroft’s starting point is the Lockean idea of “self-ownership,” that every individual has a property right to his own person and, by extension, to the objects he makes by mixing his mental and physical labor with previously unclaimed resources.
It follows logically that an owner of such justly acquired goods may peacefully exchange them for other goods he prefers more. The goods he receives in exchange are now rightfully his property. Meadowcroft uses an example from Nozick’s Anarchy, State, and Utopia to argue that any distribution of income and wealth that arises out of voluntary transactions, each of which is individually just, must also be considered just. For example, suppose that a hundred people each start out with an income of $100. And further suppose that 99 of them each voluntarily and happily offers $10 to the hundredth to perform in a sports tournament. After these acts of free exchange this one individual would have $1,090, while the others would each have only $90.
But, Meadowcroft points out, this distribution has “naturally” arisen out of the individual acts of trade between this one person and the others and is one of the unintended but inseparable results of individuals being free to act on their own preferences. In addition, if we keep in mind that individuals will never demonstrate the same willingness to save, work, and invest, then it is inevitable that people’s wealth and income will be unequal. Any interference with these outcomes on a free market must have perverse effects on productive incentives.
The results of free transactions should be considered fair and just—unless the critic presumes to know what others in society should have wanted and what prices should be placed on goods—and then presumes to redistribute income according to his own preferred order of things. But on what objective basis can he claim to preempt the choices and outcomes of the market participants themselves?
Meadowcroft does not bring out as clearly as he might have that what the social critic really desires is to tyrannically impose his own wishes on the other members of society, using the power of the state to achieve his ends. If individuals A and B have more wealth than the critic thinks they should have, then he may want the government to use its coercive authority to take some of their wealth and redistribute it to individuals C, D, and E. Now suppose that A and B, having honestly acquired their wealth, resist this forced taking of their property. Is the critic willing to kill them to carry out his plan? On what moral ground can the critic say that their lives are to be forfeited so some others may have a greater degree of material comfort and convenience? I wish that Meadowcroft had stated the argument in this more direct fashion, since he does ground his own theory of individual rights on self-ownership, which surely precludes the state liquidating human lives in the cause of “redistributive justice.”
The second task that Meadowcroft undertakes is the defense of the market process as a social system for human betterment. Here he takes his lead from Hayek in emphasizing that a complex division of labor has as its complement an inescapable division of knowledge. If we are to take advantage of all the dispersed knowledge and abilities that only reside in the separate individuals of society, then we must use the competitive price system. Because of the natural limits of the human mind, central planning and government regulation can never solve the problem of coordinating the actions of billions of people in the global economy.
Meadowcroft argues that by using the price system in this manner, each of us can succeed in assisting far more people around the world than can ever be effectively reached through government. As Hayek explained many decades ago, it is not necessary for each of us to know the unique circumstances and wants of multitudes of others to successfully orient our own activities toward them. By simply following the pricing signals that encourage the pursuit of profit and the avoidance of loss, we can apply ourselves in ways that serve our fellow men while advancing our own interests. This is a profound insight that has been understood since the time of Adam Smith, but has to be restated over and over again in the face of critics who never seem to grasp the argument.
Meadowcroft also responds to those who say that the market undermines the diversity of human culture and reduces it to the lowest common denominator. Drawing on a number of recent works, including Tyler Cowen’s In Praise of Commercial Culture and Creative Destruction, Meadowcroft shows that the market economy has supplied the means for maintaining and enhancing a wide variety of cultural contributions and has made them available for people in other societies to enjoy as well. To the extent that Western culture (including music, movies, and methods of doing business) has spread to other societies, it has been freely chosen, and should be respected as the result of voluntary exchange, just as aspects of non-Western culture have been absorbed into everyday life in America and Europe.
While his book is not without flaws, John Meadowcroft has effectively summarized and applied many of the best arguments for the free society.
Richard Ebeling (email@example.com) is the president of FEE.
Peddling Panaceas: Popular Economists in the New Deal Era
by Gary Dean Best
Transaction Publishers • 2005 • 273 pages • $49.95
Reviewed by Burton Folsom, Jr.
The Great Depression of the 1930s marked a sharp turn in American economic thought. Orthodox economists, who argued for free markets and limited government, seemed to be discredited—even though most of their solutions remained untried under President Hoover. Instead, Americans were readier than ever to listen to new ideas about how government could be used to restore economic growth. Stuart Chase, in the last line of his 1932 book A New Deal asked: “Why should the Russians have all the fun of remaking a world?”
In Peddling Panaceas Gary Dean Best ably describes the thinking of three popular and influential economists during the 1930s—Chase, Edward Rumely, and David Cushman Coyle. Not one of these three men had advanced degrees and formal training in economics, but each one latched onto and popularized various ideas for government planning in the 1930s.
Rumely was an inflationist; he promoted his views as executive secretary of the Committee for the Nation to Rebuild Prices and Purchasing Power. He and his Committee argued that economic recovery would occur if the United States went off the gold standard and artificially raised the price of gold. If the price of gold went up, Rumely said, the price of commodities would do so as well. That price hike, in Rumely’s calculations, would break the deflationary spiral and lift American farmers and businessmen out of the economic doldrums.
The problem was that Roosevelt took the United States off the gold standard and raised the price of gold, but the prices of commodities did not rise as well. By 1934 Rumely was discredited and the President turned to other advisers.
Chase, trained as an engineer and an accountant, had his own recipe for prosperity: “[P]ut at least five billion dollars in ultimate consumers’ hands during the next few months. Such an amount in such a place has an excellent chance of definitely ending deflation.” But where was the $5 billion to come from? Sharply raise the progressivity of the income tax, Chase said, and ask the recipients of the $5 billion to spend it as quickly as they can.
Chase wrote an average of one book a year from 1929 to 1936, and his ideas—which also included a plea for collectivizing much of American industry—clearly influenced President Roosevelt’s public-works programs, especially the Works Projects Administration (WPA). Roosevelt even named his grand scheme for restoring the nation to economic health “the New Deal,” borrowing the title from Chase’s book.
However, as Chase finally admitted after a massive $4.8 billion WPA spending binge in 1935, “If recovery is to be measured in employment, there is none.”
Finally, Coyle was an engineer turned economist who promoted his theory of “underconsumptionism,” the idea that wages were too low and that consumption needed to be boosted by massive government programs for low-wage earners. Also needed were “free education, free public health services . . . and, above all, a generous old-age pension system.”
Coyle endorsed “soak the rich” tax policies to pay for these programs and also to teach the rich a lesson. “The taxes on mammoth incomes are not so much for revenue as for police purposes,” Coyle said, “to control those floods of money, and to direct them into harmless paths.”
He elaborated: “The higher the income tax, the larger will be the middle class incomes. Business is like a farm where more fertilizer gives more yield. Income taxation fertilizes business.” Led by Thomas Corcoran, Roosevelt’s chief adviser, the New Dealers bought and distributed hundreds of thousands of Coyle’s pamphlets and books in the 1930s. The President even invited Coyle to dine with him and discuss ideas. When Roosevelt raised the income tax on top rates to 79 percent in 1935, that decision in part reflected Coyle’s influence.
Professor Best, a diligent and perceptive historian, has done an excellent job in describing the sincere but deluded thinking of these three self-described economists. In doing so his book highlights this truth: He who wins the battle of ideas wins the battle of policy.
One year after Roosevelt died Henry Hazlitt wrote Economics in One Lesson for a general audience to join this battle of ideas and refute many of the failed policies promoted by Chase and Coyle in particular. The statist ideas of the 1930s led to economic chaos throughout the twentieth century. Gary Dean Best pinpoints the origins of several of the most destructive ideas and helps us to understand why such nonsense could reach all the way to the White House.
Burton Folsom (Burt.Folsom@Hillsdale.edu) is the Charles Kline Professor in History and Management at Hillsdale College. His book The Myth of the Robber Barons is in its fourth edition.
Philosophers of Capitalism: Menger, Mises, Rand, and Beyond
edited by Edward W. Younkins
Lexington Books • 2005 • 374 pages • $28.95
Reviewed by Aeon J. Skoble
Edward Younkins is a man with an idea. His idea is that there is an underlying theme linking Austrian economics, neo-Aristotelian moral theory, and Ayn Rand’s Objectivism. His ultimate goal is an integrated, comprehensive philosophy that coordinates the insights of Menger, Mises, Rothbard, Aristotle, and Rand. It is an ambitious project and a challenging idea, and Younkins does a good job here of demonstrating these thematic connections. Such connections will not be obvious to some. For instance, Austrian economics holds that values are subjective, while Rand would argue that values are objective, but Younkins shows how those are not incompatible claims—partly because they’re not really claims about the same things.
Younkins, a professor in the department of business at Wheeling Jesuit University, notes that both Menger and Rand would agree that “the ultimate standard of value is the life of the valuer.” Furthermore, while Menger’s primary focus is on economic values and Rand’s is on moral values, their “shared biocentric concept of value contends that every value serves biological needs,” and thus value in both senses “has its roots in the conditional nature of life.” So, according to Younkins’s argument, the value-subjectivity of the Austrians is not only not incompatible with a Randian sense of objectivity, but indeed complements it. Younkins has an ambitious (and plausible) schematic that links Aristotelian theories of human flourishing and Objectivist arguments about the nature of reality and “man’s distinctive attributes of reason and free will” with Austrian praxeological conceptions of valuation, decision-making, and cooperation.
It’s no secret that Rand was influenced by Aristotle, and one way Younkins ties Objectivism to Austrianism is to document the Aristotelian influence on Menger. As Younkins puts it, “Menger’s Aristotelian inclinations can be observed in his desire to uncover the essence of economic phenomena. . . . Like Aristotle, Menger thought that the laws governing phenomena of thought processes and the natural and social world were all related as parts of the natural order.” This means that our volitional end-seeking is connected to our natures as human beings—a theme that appears in both Rand and later Austrians, notably Mises and Rothbard.
Younkins explains those areas where Mises and Rothbard differ, but shows that those differences do not supersede the fundamental agreement about a praxeological conception of economic choice. Younkins says that according to Mises, men are “rational beings with free will who have the ability to form their own purposes and aims.” But this is surely something Rand would agree with, and it is indeed rooted in an Aristotelian worldview. This is the binding tie, according to Younkins, that ultimately links Objectivism with Austrianism. (Younkins isn’t claiming, of course, that Austrians are “really” Objectivists or the Objectivists are “really” Austrians. He’s claiming that the two schools of thought can be incorporated into the integrated worldview he is defining and defending here.)
Part of Younkins’s big idea, which will surely seem correct to supporters of a foundation devoted to economic education, is that those of us who support free enterprise and the political systems that facilitate it have an obligation not only to understand but also to be able to articulate the moral foundations of those political and economic systems. Part of Younkins’s rationale for undertaking this project is that the synthesis he has in mind better enables us to do just that.
Younkins is more than just the editor, and the book is more than just an anthology of essays on the philosophy of capitalism. It opens with three essays by Younkins, which lay out the basic arguments of Menger, Mises, and Rand, respectively. The middle section of the book collects 12 previously published essays by philosophers and economists from a variety of scholarly journals. This section features many names familiar to readers of The Freeman: Samuel Bostaph, Gloria Zúñiga, Murray Rothbard, Jeffrey Herbener, Douglas Rasmussen, Chris Sciabarra, Barry Smith, Walter Block, Richard Johnsson, Ricardo Crespo, Larry Sechrest, and Tibor Machan. The book then concludes with a long capstone essay by Younkins in which he makes his case for the integrated Austrian/Objectivist/Aristotelian model, further developing ideas from his earlier book Capitalism and Commerce.
The book is thus not quite a monograph, yet more than an anthology. The combination of Younkins’s own original arguments, which are compelling and sophisticated, with the array of other scholarly perspectives that he presents is a very effective approach. The book will be of great interest for proponents of all three of the schools of thought Younkins ties together, and also for interested critics of them. Perhaps some of their objections will be answered by Younkins’s synthesis.
Aeon Skoble (firstname.lastname@example.org) is associate professor and chair of the philosophy department at Bridgewater State College in Massachusetts.
Winning the Race: Beyond the Crisis in Black America
by John McWhorter
Gotham Books • 2005 • 422 pages • $27.50
Reviewed by George C. Leef
If you ask most academics why black Americans generally continue to trail behind whites and Asians in income, education, and social status, the answer is apt to include phrases like “institutional racism” and “privilege.” In their thought world it is never appropriate to blame the “victim” or even to meekly suggest that the explanation for inequality might not be found in defects in “society.” (Former Harvard president Larry Summers found out how true that is.)
A few individuals, however, dare to challenge the orthodoxy and have argued that the shortage of black progress is mainly due to bad ideas coursing around in the black community. The two best-known advocates of that position are Shelby Steele and the author of this book, John McWhorter. McWhorter, who is a scholar affiliated with the Manhattan Institute and was formerly a professor of linguistics at the University of California, has shattered quite a few intellectual taboos in his rather young career, and Winning the Race leaves them in shards everywhere.
“It’s not that there is ‘something wrong with black people,’ but rather that there is something wrong with what black people learned from a new breed of white people in the 1960s,” McWhorter writes. “It’s something that manifests itself in many ways, generating a range of tendencies and events and customs that can seem unconnected but are rooted in the same source.” That source is what he calls “the meme of therapeutic alienation.”
A meme is “an idea, behavior, style, or usage that spreads from person to person within a culture.” McWhorter’s contention is that the idea that blacks are entitled to a sense of indignation and will be better off for vociferously expressing it has rapidly, thoughtlessly spread throughout the black community. Unfortunately, indignation for its own sake gets in the way of constructive behavior of the kind that recent immigrants (Vietnamese, for instance) have engaged in to begin their economic ascent. “Alienation,” McWhorter writes, “drifted from being a spur to action to being a form of self-medication. Here is where legendary Civil Rights activist Bayard Rustin became dismayed as a new generation of black activists began embracing the ‘heroics’ of idle protest and theatrical rage, uninterested in rolling their sleeves up and working out concrete plans for change.”
Yes, that is the sound of a gauntlet crashing down.
McWhorter amasses a great deal of persuasive evidence for his argument. For example, labor-force participation began to decline among young blacks (men, especially) in the 1960s, when the nation’s economy was racing along. What happened? Alienation happened. The idea that working “for peanuts” was demeaning and acting up was cool took hold among young blacks. To the standard claim that good jobs left inner-city areas making it impossible for blacks to work and stay off welfare, McWhorter cites the contrary example of Indianapolis, where plenty of work remained within short commutes and unemployment among blacks rose anyway. The excuse that white, business-class America denied blacks “access” to jobs leaves McWhorter exasperated:
“[I]f millions of blacks had picked up stakes from the South and moved thousands of miles from their homes in search of work for decades, why did a core of their children suddenly lapse into criminality and generations of living on the dole when work moved a twenty-minute drive away?”
Another facet of the problem is the attitude of many young blacks toward education. Why is there such a large achievement gap between black students and whites and Asians, even when the latter come from the same or lower socio-economic strata than the blacks? McWhorter is persuaded that the root of the problem is attitude. Too many young blacks pursue education in a desultory fashion, expecting high grades just for showing up. “My people suffered in the past, so now I’m entitled” seems to be the chip-on-the-shoulder frame of mind. Furthermore, serious academic work isn’t cool. It’s “acting white.”
Apropos of education, McWhorter attacks one of the most sacred of all cows in the leftist herd—“affirmative action.” Rather than assisting blacks, preferential treatment in college admissions actually harmed them because “the lowered bar only deprives black students and parents of any reason to learn how to hit the highest note.” Thus “affirmative action” seduces its supposed beneficiaries into thinking that mediocrity is fine. In the cocoon of higher education it may be, but not in the tough competition of life.
McWhorter proceeds with a demolition of the “diversity leads to better education” rationale that the Supreme Court mindlessly bought into in its 2003 decision in Grutter v. Bollinger. That demolition itself is worth the price of the book.
Winning the Race is a fantastic piece of sociological analysis that points the way to success for American blacks: Stop wallowing in alienation and government support; instead, take advantage of the great opportunities available in the market.
George Leef (email@example.com) is the book review editor of The Freeman.