The Online Library of Liberty

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• Introduction
• Part 1: Rights, Property, and Markets
• Property Or “property Rights”? *
• “design Faults” In Locke’s Theory of Property Taint Ownership With Guilt *
• Is Ownership a Myth? *
• How to Get a Free Lunch? Just Apply For It *
• The Problem of Contract Enforcement *
• The Public Goods Dilemma *
• Trying the Free Market *
• The Statist Legacy *
• Part 2: The Common Sense of Non-economics
• The Yakoubovich Syndrome, Or Lies, Damn Lies, and Economic Policy *
• Winning Policy Battles But Losing the War Against Economic Realities *
• Paying Ourselves More of Their Money *
• The Doctrine of “unequal Exchange” the Last Refuge of Modern Socialism? *
• Corporate Managers Are They Going to Kill Capitalism? *
• When the Economy Needs Morals *
• The Political Economy of Force-feeding *
• Hostile to Whom? *
• Mannesmann’s Courtesy Could Prove Rare *
• Part 3: French and Russian Tragicomedies
• Can Putin Build a Real Economy From Oil and Rigor? *
• Russia and the New Europe Growing Apart *
• Russia Hopping Along On Clay Feet *
• The French Tragicomedy *
• How the French “social Model” Could Self-destruct *
• A Little Bit of History Repeating *
• There Is No French Exception *
• The Hobbling of Private France *
• Part 4: The Capitalism They Hate
• The Capitalism They Hate *
• Striving to Get Richer and Poorer *
• “bread and Circuses” In the Modern Welfare State *
• Who Minds the Gap? *
• Float Or Sink? the Millstone of the “social Market” In Germany *
• How Germany and France, the Sick Men of Europe, Torture Themselves *
• Shall We Borrow From the Children? *
• Low Pay *
• Freedom to Strike Or Right to Strike? *
• Part 5: Creating Unemployment
• Stamp Your Feet and Demand a Fair Deal *
• Paternalism and Employment *
• The Things Labor Unions Are Up to *
• The Instability of the Welfare State *
• Some Bad News Could Be Good News *
• Built-in Unemployment Social Protection Costs More Than It Is Worth *
• Let ’s Throw This Model Away *
• How to Stifle Employment By “social Protection” *
• Workable Alternatives *
• A Tale of Two Models *
• A Vicious Circle of Social Kindness *
• Part 6: The Future of Europe
• The Economic Consequences of a United States of Europe *
• A Giant Free-trade Area Or a Political Counterweight to America? *
• European Crosscurrents and the Federalist Drift *
• How Confederacy Could Turn Into a Federal Superstate *
• Majority Rule By Any Other Name *
• What Now For “europe”? Why the People Failed Their Masters *
• Free-riding On the Euro *
• Some Democratic Economics *
• The Soviet Legacy *
• A War of Attrition Between Economic Reality and Political Dreams *
• A Brightening of the Economic Skies Over Brussels? *
• Turkey Knocking On Europe’s Door *
• Turkey and the Eu Club *
• Europe More Secular and More Islamist *
• A Bill of Rights Europe Did Not Need *
• Europe’s Social-democratic “government” *
• Power Corrupts, So Let ’s Make It Less Absolute *
• Part 7: Economics, True and False
• On the Economics of Protecting Employment *
• The Costly Mistake of Ignoring Opportunity Costs *
• “globalization” and Its Critics Mutual Gain Vs. Cloud-cuckoo Land *
• Are High Oil Prices a Form of Exploitation? *
• Immigration What Is the Liberal Stand? *
• More Nonsense On Stilts Mr. Bentham Is At It Again *
• Risk, Value, and Externality *

TRYING THE FREE MARKET*

Introducing her recent book1 devoted mostly to contesting certain ethical defenses of the free market, the young Cambridge philosopher Serena Olsaretti (a little resignedly, it would seem) remarks that the market in its diverse variants is now accepted across the whole political spectrum. For the foreseeable future, the question “should we have a market?” will not seriously arise. Is not this all the more reason to question the morality of what she calls the “unbridled” form of the market?

1.

PRESUMED GUILTY

Anyone challenged to justify his conduct has very nearly lost the battle if he starts to demonstrate his rectitude. “When did you stop beating your wife?” is the schoolbook example of the question best met with silence by both the innocent and the guilty.

The arguments about the justice of the free market, like other adversarial arguments, have a definite logical order. Initially, the free market enjoys the benefit of the doubt. It is presumed innocent of violating justice. The burden of proof that it does violate it lies with the accuser. Until at least some solid evidence is brought, the defense has no case to answer. “Evidence” in a trial of morality cannot, however, very well come in the form of ascertainable fact. If it comes at all, it does so in the form of support built on a strong moral theory.

Related to the presumption of innocence, though resting on somewhat different grounds, is the presumption for the status quo. It is up to those who think it should be changed to marshal sufficient reasons why the change would be a change for the better. The market, in a debate about the just or the good society, figures as the status quo or at least closer to it than the proposed reform. It is for the reformers to press home the charge that it ought to be changed.

Neither the case that the free market is unjust (though perhaps still worth preserving—a claim that is independent of whether it is just), nor the case that it should be transformed or abolished altogether, has ever been successfully established. The last significant attempt to establish the charge of injustice, that of Rawls, was at best inconclusive and has since subsided. The second, drawing mostly on socialist inspiration, did get actual occasions to change or abolish the market, and these occasions have, if anything, vindicated the status quo. So far there is still no case of either kind to answer.

The apparent failure by foes, but even more so by friends, of the free market to grasp the role of the burden of proof, and what it takes to shift it from the challenger to the defender, is one of the puzzles in recent intellectual history. There is a widely shared commonsense perception that the free market generates inequalities of income and wealth. Since the market is not an agent and does not generate anything, it would be more illuminating to say that the world being what it is, and people’s luck, resources, talents and characters being distributed the way they are, the effects of exchanges among people will be reflected in their wealth and incomes being unequal. It is the facts of life that cause the inequality, not the market. Either way, however, the very word “inequality” suffices to set off a knee-jerk reaction in the defenders, making them feel that a substantial case against the market has therewith been made. It is now presumed guilty and defenses need to be deployed.

The reaction, however, is gratuitous. Creating inequality is not a charge that needs any answer unless inequality is a wrong of some kind—such as injustice. If the market or, more narrowly, its morality is really to need defending, it must at the very least be made plausible that inequality is unjust.

Instead of waiting for this to be shown, the defenders of the free market have rushed to argue that, regardless of inequalities, it was indeed just. Like most social theorists who would rather write about what other social theorists have said of a thing than about the thing itself, Olsaretti seems more concerned with the coherence of these defenses than with the thing they defend. She divides them into desert-based and rights-based ones. Much of her critique is worth serious consideration, despite her firm habit of making her points by what George Stigler called the surest method of academic persuasion, namely relentless repetition. Her positive contribution, as distinct from her analysis of the mistakes of others, is slim and brief by comparison.

Of the two main lines of defense, she seems more combative when tackling the rights-based one. In fact, there is not a great deal to discuss in the desert-based one because (though Olsaretti does not make this point) the relevant arguments are so thoroughly subjective that at the end of a short chain of just a few links, the reasoning rapidly reaches the dead end where it is “my say-so against your say-so” and debate is a waste of time. Olsaretti confines the desert argument to personal labor and effort, leaving the reward accruing to capital out of consideration. Even so, she reaches the obvious conclusion that rewards cannot all be imputed to compensation for pains or contribution to product, for “brute” luck enters into rewards and must be “neutralized.” Someone (“we”) must tell what adjustments will achieve neutrality, i.e., purge the system of rewards of the influence of luck. However, the sole means of separately identifying the parts due to pure compensation, to contribution, and to brute luck is subjective judgment, leaving us with your say-so against my say-so. If it were the case that luck makes market outcomes unjust—a proposition that would be important if it were compelling, rather than an unsupported assertion that can be countered by other similarly unsupported assertions—then we might still be unable to say by what adjustments we could make them just. In other words, even if the desert theory of market justice appealed to one moral intuition (among others), it would still be little more than a useless form of words.

The “rights-based” defense of the free market has a startling element in its very foundation which most academic opinion, including Olsaretti’s sharply critical one, seems never to question, let alone reproach. In its starkest form, it appears in the famous first sentence of the preface of Robert Nozick’s much-quoted vindication2 of libertarian ideals: “Individuals have rights, and [etc.].” Alternatives might have read “Individuals ought to have rights, and . . .” or perhaps “If individuals had rights, and . . .” and would have been unobjectionable, though they might not have conveyed the same message. As it is, this starting point devalues much that follows it and makes Nozick’s defense of the free market wide open to a flank attack. The fault is important because Nozick is probably the most influential libertarian defender of feasible freedom, and Olsaretti takes his book as the representative text her critique targets above all others.

We do not in fact know that “individuals have rights” and nothing entitles us to pretend that we do. Characteristically, authors now frequently refer to rights “we have assigned,” from which one could infer that rights are created by somebody somewhere and are then conferred upon individuals (while the correlative obligations are imposed in some unspecified distribution). Nozick tells us that the rights he asserts individuals to have are boundaries that segregate their person, property, and contracts. Once again, we wonder how he knows. However, if these particular rights have somehow been “assigned” to them, what is to stop an anti-Nozick, moved by moral concern for the well-being of individuals and for what is due to them in respect of their dignity and autonomy, from assigning additional rights to them—rights that are rights-of-way, easements cutting through the Nozickian boundaries? Is this not the rights-based model of “social market economy” or some other hybrid?

Nonlibertarian believers in rightsism, notably Rawls and Scanlon, are less bold than Nozick and seek to find consent-based explanations of why they believe that individuals have certain rights rather than simply alleging that they do. Either way, however, the introduction of putative rights, not arising from contracts individuals conclude with one another, offers great facility for sculpting the just, i.e., rights-respecting, order in the desired form.

Defending the “unbridled” market by asserting Nozickian rights repeats the same strategic mistake as defending it as if it were presumed guilty. This defense relies on the outlandish Lockean fantasy of self-ownership to derive the proposition that people are entitled to the wages of their labor and the product of their endeavors. Though it is perhaps a side issue, it is worth pointing out that self-ownership is a category mistake: ownership is a relation between owner and thing owned such that the owner is free to dispose of what he owns. It is nonsense to talk of a relation between you and yourself. Nor can you dispose of your own self, exchanging it for another’s as you could exchange a thing you owned for another thing. In any event, reliance on this misfit idea is not necessary. The whole “entitlements” theory of justice is going about it the wrong way round. The point to prove is not that each individual is entitled to the fruits of his efforts (or to what he has exchanged them for), but that somebody else is entitled to take such fruits away from him. This and the implicit presumption of good title unless it is proved to be vitiated, is the proper logical order for conducting a trial of the market.

2.

UNACCEPTABLE

When they defend the free market that is presumed to bring about unjust outcomes, libertarians contend that transfers of rightfully acquired “holdings” preserve rights provided they are not coercive. In seeking to refute this defense, Serena Olsaretti is largely unconcerned with the justice of first acquisitions (often taken to be the more controversial half of the defense) and constructs a case for the prosecution in which the trickle of coercion as the sole source of rights-violation is swallowed up by the broad river of “forcings.” Voluntariness, rather than freedom, is the criterion of legitimate transactions, and forcings exclude voluntariness. Voluntariness presupposes the acceptability of option(s), though the author’s exact position on this is so involved as to defy a simple summary (including her own that she provides in her Conclusions). We shall look at it presently.

In dealing with coercion and forcing, she is not interested in the different nature of these acts. (In fact, forcing in her scheme takes place without anyone having to do any forcing, while for coercion someone must coerce.) What matters is the effect on the victim: “What makes choices carried out under coercion non-voluntary is exactly what also makes other types of limited choices non-voluntary. The alternative faced by the man who hands over the money when threatened with a gun is to be killed; the alternative of a worker who sells his labor power at whatever price is to remain unemployed and suffer severe hardship. The relevant condition (in both cases) is the absence of an acceptable alternative” (p. 151, my italics). Note that the choice is “limited” not only in these types of cases, but in literally every choice, but let that pass.

At this stage the argument runs into a conundrum. “Unacceptable” defines an option that cannot be accepted. A person in any given position has accepted the option of taking that position. It was an acceptable option. It appears that it could have been taken voluntarily, even though there were no acceptable alternative to it.

The author explicitly states that “although no choice among several alternatives is involved, the individual nonetheless does the thing he does voluntarily” (p. 140). If the option actually taken was indeed the sole one on offer, all other acceptable options must have been accepted by the other participants in the market, and none is left. Supply equals demand and the market is cleared. It has stood its moral trial if all these acceptable options, despite each being de facto the only one available to the person who took it, were taken voluntarily. Where everyone finds his own position at least acceptable and where there are no available options left is a situation where there are no unacceptable ones either, i.e., where the free market is just in the way the author conceives justice.

She very decidedly contradicts her own idea of voluntariness without alternatives, however, by laying down in several places that voluntariness hinges on the availability of acceptable alternatives; in her Conclusion she goes a little further and stipulates that everyone must “face a sufficient range of options” (p. 164, my italics) for their choices to be voluntary. This seems to be her last word.

Can one infer anything further about the “sufficient range”? It turns out that an offer may be too good to refuse and thus is tantamount to “forcing” (p. 147); it does not fit into the range that guarantees voluntariness of choice. Offers that are not good enough may pass for unacceptable. What can one say, though, about options that are all acceptable but not equally good? It could reasonably be argued that choosing any but the best is counterpreferential and could only be motivated by a fit of mental disorder. The best must be chosen despite the availability of acceptable but inferior others. Is the best then chosen really voluntarily? The case differs only in degree from the offer that one cannot refuse.

If a given gap between the best option and the next-worse one is too large for the choice of the best to qualify as voluntary rather than a “forcing,” should one try little by little to narrow the gap—and if so, how narrow must it get for truly voluntary choice between the topmost pair of options? Rigorous reasoning would seem to allow only one conclusion: the gap must be infinitesimal, with preference being replaced by indifference. The free market would satisfy the requirements of justice if everyone faced at least a pair of equally good options and there was not a better one topping them. It would take only a couple of further refinements for the free and just market to resemble an egalitarian Nirvana.

This, to be fair, is not what Olsaretti is driving at and she would hardly concede that this is the way her own argument is drifting. She is, however, content to stop at the condition where acceptable options for everybody are guaranteed by some nonmarket redistributive mechanism. She is well aware of the twistability of the word “acceptable.” Average opinion may consider a certain minimum income just acceptable in a rich Western country and a tiny fraction of it acceptable in a poor sub-Saharan one. A person may honestly judge an option open to him as unacceptable because he did not like it or found it too steep a step down from his actual position. Fear, pride, and mistaken expectations of the future might weigh as much in judgments of acceptability as material welfare. Above all, acceptability, like such other sensations as liking, satisfaction, or deprivation, cannot properly be represented in absolute, yes-or-no terms, but only in relative ones. Acceptability is, for all we know, a continuous variable. Graphically, it is a scale along which options are ranged between the very sweet ones at the top and the very bitter ones at the bottom. Beneath the bottom, there is nothing but unfeasibility that is simply outside the choice set. Nothing is really unacceptable if it can be chosen.

Perhaps made uncomfortable by some subconscious awareness of this logic, the author can do little more than protest her good intention to steer clear of the more obvious of the threats that using this concept poses to her thesis. She wants to “avoid complete subjectivity” (p. 153, my italics) and believes that she attains objectivity by declaring an option acceptable if it suffices to satisfy “basic” human needs.

However, we are no nearer to objectivity if we qualify the quintessentially subjective term “need” by adding that it must be “basic.” She seems a little uncertain herself about the adequacy of the idea of basic needs, and with a curtsey to A. K. Sen, tentatively attaches to it the designer labels of “functioning” and “capability,” making her groping for an objective threshold of acceptability a good deal more uncertain and her predicament a good deal worse.

She would be better off by postulating an arbitrarily fixed minimum income for all and a corresponding “bridling” of market outcomes on the well-trodden and equally arbitrary ground that things would be more equal and therefore nicer that way. Such a less ambitious project would have spared her a number of difficulties. One she grapples with is the distinction between freedom and voluntariness and whether the first is a necessary condition of the second. Another has to do with the responsibility for “forcings” where nobody is doing any forcing. We must, it seems, accept that injustice can arise spontaneously (but there is no hint whether justice, too, can do so). There is a lack of awareness that in looking for justice, we want the facts of the case to be ascertainable. Olsaretti, one is forced reluctantly to find, seems to feel that where the facts are not really ascertainable, judgments will do as well.

Her honest and conscientious try at finding an original reason for morally condemning the free market, developed from a critique of its libertarian defense, was, it seems to me, self-defeating. She sought to derive a criterion for the market’s justice from voluntariness, and for voluntariness from acceptability. But she had to fit the continuum “acceptable” to the binary “just-unjust” and that was bound to upset her design. She needed the binary pair “acceptable-unacceptable” to get a proper fit with “just-unjust,” but that pair was just not there.

[* ]First published as part 1, “Presumed Guilty,” and part 2, “Unacceptable,” of “Trying the Free Market,” by Liberty Fund, Inc., at www.econlib.org on April 4, 2005, and May 2, 2005. Reprinted by permission.

[1. ]Serena Olsaretti, Liberty, Desert and the Market (Cambridge, UK: Cambridge University Press, 2004). Originally an Oxford doctoral dissertation prepared under the aegis of G. A. Cohen.

[2. ]Robert Nozick, Anarchy, State, and Utopia (New York: Basic Books, 1974).