Markets and Morality; P. Hill

That is, capitalism doesn't satisfy certain basic standards of justice. This article challenges that position by exam ining several areas where moral issues weigh in on the side of the marketplace. This is not an argument that a society based on free markets is the same as a moral society; people can behave morally or immorally in a free market system just as they can in other systems. However, capitalism does have a number of moral strengths that are lacking in other economic sys tems. Although the "market" is often considered an alternative to central planning or state own ership· of the means of production, it is not a rigid institutional order like socialism or com munism. What we call capitalism or a free market society is a society based upon private property rights. Individuals may own, buy, and sell property (including their own labor) if they do not do so fraudulently, and they are free to do what they want with their property as long as they do not harm others. Individuals may de cide to exchange their property with others, Peter J. Hill is George F. Bennett Professor of Economics at Wheaton College (Illinois) and a Senior Associate of the Political Economy Research Center (PERC) in Bozeman, Montana. This article was originally published as part of the PERC Viewpoints series.

thereby creating a market. This market process is not mandated by anybody and requires only a well-defined and enforced system of private property rights in order to exist. Inherent in capitalism is the ability to: pro vide freedom of choice, encourage cooperation, provide accountability, create wealth for large numbers of people, and limit the exercise of excessive power. Freedom of Choice A market system assumes very little about the ideal way to organize economic life. Other societies may mandate cooperatives, or com munes, or cottage industries, or they may pro hibit them. But a system of private property offers a wide range of possible forms of orga nization. If cooperatives are desirable, they can be used; but other forms for organizing produc tion are also permissible. And, in fact, the in dividual who wishes to ignore the market or construct alternative institutional arrangements is perfectly free to do so.

Throughout history certain groups have cho sen to operate largely outside the market. One such group, the Hutterites, lives in the northern Great Plains of the United States and Canada. The more than 200 Hutterite agricultural colo nies have been remarkably successful in main taining their identity and expanding their popu lation. Yet they are far from capitalistic. All property within the Hutterite colony, except the most basic personal items, is owned in com mon. All income is shared equally within the colony, and no wages are paid for labor. The Hutterites were able to establish their colonies without prior approval from anyone in society. No committee, government agency, or group of well-meaning citizens had to meet and decide if the Hutterite lifestyle should be al lowed. The freedom to choose such alternatives is unique to a free-market society. In contrast, a centrally planned society does not grant freedom to those who want to engage in market transactions. It limits voluntary trade in the interest of some other goal, and undoubt edly would constrain groups like the Hutterites if the people in power disliked the Hutterites' form of organization.

Cooperation vs. Conflict A free-market, private-property system usu ally is labeled competitive. Yet one of the major advantages of the market system is that it en courages cooperation rather then mere compe tition. Competition does exist in a market-based system, but competition is prevalent in any so ciety in which scarcity exists. In the marketplace successful competitors co operate with, or satisfy, others in the society. In order to succeed in a private property system, individuals must offer a "better deal" than their competitors. They cannot coerce people to buy their products or services. They must focus their creative impulses and energy on figuring out ways to satisfy others. The person who does this best is the one who succeeds in the market. Thus, participants in a market economy buyers and sellers~ontinually look for areas of agreement where they can get along, rather than concentrating unproductively on the areas of disagreement.

In contrast, under a collective order, rewards frequently come from being as truculent and uncompromising as possible. With collective decision-making those in stronger political po sitions have little reason to look for areas of agreement; generally, they have a better chance to succeed by discrediting the opposition to jus tify their own position, compromising only when others are strong. A good example of the dissension caused by collective decision-making is the controversy over teaching the origins of mankind. School boards-which must make collective deci sions-generally have to decide to teach either that human beings were created or that they evolved. Such decisions are fraught with con77 flict. People who disagree with the board's de cision march, write letters to the newspaper, lobby, hire lawyers, and, in general, become quite exercised. This is almost inevitable when highly emotional issues are involved since any collective decision, including one made by ma jority vote, is likely to be contrary to the wishes of a minority. Thus, the decision-makers are in a no-win situation. If the board allows creation ism to be taught, evolutionists will be irate. If they decide to teach evolution, creationists will be outraged.

In contrast, consider the decision to be veg etarian or carnivorous. There are individuals who feel every bit as strongly about this issue as those involved in the originsof-mankind de bate. Nevertheless, there is little chance that a decision about diet will generate public contro versy. Diet is not determined by a collective decision-making process, so people can interact rather peacefully about it. The person who be lieves that avoiding meat is healthier or morally correct can pursue such a diet without arguing with the meat eater. Advocates of a meat diet can find producers and grocery stores eager to satisfy their desires. In fact, vegetarians and the meat eaters can shop at the same stores, pushing their carts past each other with no conflict. It is the absence of collective decision-making that permits this peaceful proximity. The social harmony that results from a mar ket order should be of great interest to those concerned with moral issues. People of very different cultures, values, and world views can live together without rancor under a system of private rights and markets. A market order re quires only minimal agreement on personal goals or social end-states.

In contrast, alternative institutional orders are more oriented toward centrally determined goals. The very existence of such orders re quires a more general agreement on what is "good" for society. A centrally planned system not relying on willing exchange of work for pay must direct individuals to labor to achieve cer tain ends, and those ends are not necessarily the same as workers or consumers would choose freely. For instance, in the Soviet Union very little freedom is allowed in occupational choice, and once one has been assigned a job it is very difficult to move to a different one.

78 THE FREEMAN. FEBRUARY 1989 Another reason that a system based on pri vate property rights encourages social harmony is that it holds people accountable for what they do to others. Under a private property regime, a person who injures another or damages' anoth er's property is responsible for the damages, and courts enforce this responsibility. The mere knowledge that damage must be paid for leads people to act carefully and responsibly. When people are accountable for their actions, indi vidual freedom can be allowed. In contrast, a centrally planned system holds individuals far less accountable. Although in theory the government is charged with enforc ing people's rights, rights in such a system are ill-defined and the government can and does respond to the wishes of powerful people with little regard for the rights or wishes of the pow erless. Even in democracies, if government has the power to grant favors, powerful groups try to use the government to take what they want.

What they take may have been worth far more to those from whom it was taken. Zero-Sum vs. Positive-Sum Views of the World Many objections to private property hinge on income distribution. Well-intentioned people often think that it is unfair for some to live in luxury while others have very little. I am sym pathetic to the view that the affluent are morally obligated to share their wealth with those who have less. But that doesn't mean that the state is the appropriate agency for such redistribution. A significant number of people who object to the relative position of the wealthy do so be cause of a basic misapprehension about where wealth comes from. They believe that those who live in luxury do so at the expense of others who live in poverty. In general this is not true. The world is not zero-sum. That is, the wealth of the world is not limited so that it has to be divided up among everybody, with some people getting more and others getting less.

While wealth can be obtained by taking it from others, wealth also can be created by properly motivated human action. When that happens, wealth represents a net addition to the well being of a society. The significant increases in per capita wealth since the Industrial Revolution have come about primarily through the cre ation of wealth, not by taking from others. Under a set of well-defined and enforced property rights, the only transactions people en gage in are "positive-sum" or wealth-creating transactions, those that occur because all parties to the transaction believe they will be better off as a result. In a society where people have se cure rights to their property, they will exchange property only voluntarily, and they will do so only when they see the potential for improving their situation. The people they are dealing with will do the same-engage in transactions only when they expect to be better off as a result.

A zero-sum world, where one accumulates more wealth solely by decreasing the wealth of others, occurs only in the absence of property rights. In such a world people-either by them selves as brigands and thieves or through the use of governmental power~an obtain com mand over resources without obtaining the con sent of the owners of the resources. Some critics argue that many market transac tions are not voluntary, that some people are forced by circumstances to enter into transac tions they don't want. For instance, they argue that an employer is exploiting workers by hiring them at the lowest possible wage. Yet in a so ciety in which people act voluntarily, without coercion, the acceptance of such an offer means that no better wages are available. Indeed, the employer is expanding the opportunities for the unfortunate. A law mandating a $4.00 mini mum wage, for example, actually decreases the opportunities for those whose work is worth only $2.00.

The only way a governmentas opposed to the private sector, which acts through voluntary giving~an help these people is to give them wealth that it takes from someone else. Yet the fact that wealth usually has been created by its owners, not taken from others, weakens the moral case for such redistribution. A person whose creative effort adds to the stock of wealth without decreasing the well-being of others would seem to have a moral ·claim to that new wealth. Moreover, under a private property system that relies on the market process, net additions to wealth roughly reflect how much one has added to the wealth of other people. In a market system, the only way to become wealthy is to please others, and the way to become very wealthy is to please the masses. Henry Ford catered to the masses with his automobile, sat isfying their need for relatively cheap transpor tation, and he became immensely wealthy. In contrast, Henry Royce chose to serve only those with high incomes by producing an expensive automobile, and he did not become nearly as rich. To penalize people who carry out actions like Henry Ford's by forcibly taking large amounts of their income seems perverse.

Unfortunately, the mistaken zero-sum view of the world is quite prevalent. Many partici pants in discussions about Third World poverty believe that if only the wealthy nations weren't so well off, the poor nations would be richer. Although it certainly is possible that some of the wealth of some people has been taken from oth ers, this is not usually the case. And if such takings occur, the solution is to move to a re gime that protects people's rights to their prop erty. Ironically, the view that the world is zero sum often makes conditions worse. Proponents of the zero-sum view usually favor Im;ge-scale political reallocation of rights. Such realloca tion encourages, indeed requires, that every body enter the fray. War is expensive whether it occurs on the battlefield or in the halls of Con gress. When government has the ability to hand out numerous favors, many citizens compete for these favors, while others lobby vigorously to retain their assets. Typically, the net result is less wealth remaining after reallocation than be fore reallocation.

Power The gravest injustices in the history of man kind have occurred when some people have had excessive power over others. This power some times has been economic and at other times po litical, but in either case the ability to control others' choices has caused enormous suffering. What sorts of institutions best fragment power and prevent some people from holding too much sway over the lives of others? This question must be answered in the con text of a realistic understanding of how the world operates. Whatever institutional arrangeMARKETS AND MORALITY 79 ments exist, some people will be more powerful than others. The relevant issue is not what set of rules keeps people from having any control over others, but rather what institutions best limit the accumulation of power. History is replete with examples of the mis use of coercive power in the hands of the state. One should therefore be suspicious of institu tional arrangements that rely upon massive con centrations of power in the hands of the state, even though the explicit goal is to correct for injustices in the private economy. Societies without private property rights concentrate large amounts of power in the hands of a few, and that power traditionally has been badly abused.

A strong case can be made for an institutional order under which the state enforces clearly de fined rules that keep people from imposing costs on others without their consent, but one in which the state is also limited in terms of the costs it can impose on individuals. A society where the government is responsible for defin ing and enforcing property rights, but where its role is also constitutionally limited, represents a viable combination. Such a system fragments power and restrains people from imposing costs on others without their consent. Conclusion A private-property, market system has much to recommend it. A system is more moral if it holds individuals accountable for their actions and encourages them to help others than if it allows them to impose costs on others without their consent. This is not to argue that a market system can serve as a replacement for a society in which people act on the basis of moral conscience.

Individual morality certainly will enhance cap italism, as it would any system. Honesty, com passion, and empathy make our world more liv able whatever the institutional arrangement. Capitalism is not inimical to these qualities. When alternative economic systems are evalu ated within a moral framework, sound reasons emerge for favoring private property rights and markets. Markets and morality can serve as useful complements in maintaining a just so ciety. [] 80 Taxation Versus Efficiency by Richard Jones A dam Smith appreciated specialization. In The Wealth of Nations.he cited the example of pinmakers. By Smith's es timate an eighteenth-century pinmaker could produce, working by himself, fewer than 20 pins a day. However, by dividing the tasks in volved in pinmaking, and with the aid of some specialized tools, 10 pinmakers could tum out 48,000 pins a day-or about 4,800 per worker.