XXVII. The Government and the Market (continued)

0:004. Righteousness as the ultimate standard of the individual's actions According to a widespread opinion, it is possible, even in the absence of government interference with business, to divert the operation of the market economy from those lines along which it would develop if left to exclusive control by the profit motive. Advocates of a social reform to be accomplished by compliance with the principles of Christianity, or with the demands of true morality, maintain that conscience should also guide well-intentioned people in their dealings on the market. If all people were prepared not only to concern themselves selfishly about profit, but no less about their religious and moral obligations, no government compulsion and coercion would be required in order to put things right.

0:59What is needed is not a reform of government and the laws of the country, but the moral purification of man, A return to the Lord's commandments and to the precepts of the moral code, a turning away from the vices of greed and selfishness. Then it will be easy to reconcile private ownership of the means of production with justice, righteousness and fairness. The disastrous effects of capitalism will be eliminated without prejudice to the individual's freedom and initiative. People will dethrone the Moloch capitalism without enthroning the Moloch state. The arbitrary value judgments which are at the bottom of these opinions need not concern us here.

1:47What these critics blame capitalism for is irrelevant. Their errors and fallacies are beside the point. What does matter is the idea of erecting a social system on the two-fold basis of private Property and of Moral Principles Restricting the Utilization of Private Property. The system recommended, say its advocates, will be neither socialism nor capitalism nor interventionism. Not socialism because it will preserve private ownership of the means of production. Not capitalism because conscience will be supreme and not the urge for profit. and Interventionism because there will be no need for government interference with the market.

2:36In the market economy, the individual is free to act within the orbit of private property and the market. His choices are final. For his fellow men, his actions are data which they must take into account in their own acting. The coordination of the autonomous actions of all individuals is accomplished by the and the Operation of the Market. Society does not tell a man what to do and what not to do. There is no need to enforce cooperation by special orders or prohibitions. Non-cooperation penalizes itself. Adjustment to the requirements of society's productive effort and the pursuit of the individual's own concerns are not in conflict.

3:24Consequently, no agency is required to settle such conflicts. The system can work and accomplish its tasks without the interference of an authority issuing special orders and prohibitions and punishing those who do not comply. Beyond the sphere of private property and the market lies the sphere of compulsion and coercion. Here are the dams which organized society has built for the protection of private property and the market against violence, malice and fraud. This is the realm of constraint, as distinguished from the realm of freedom. Here are rules discriminating between what is legal and what is illegal, what is permitted and what is prohibited, and here is a grim machine of arms, prisons and gallows and the men operating it, ready to crush those who dare to disobey.

4:26Now the reformers with whose plans we are concerned suggest that along with the norms designed for the protection and preservation of private property, further ethical rules should be ordained. They want to realize in production and consumption things other than those realized under the social order in which the individuals are not checked by any obligation other than that of not infringing upon the persons of their fellow men and upon the right of private property. They want to ban those motives that direct the individual's action in the market economy. They call them selfishness, acquisitiveness, profit seeking, and to replace them with other impulses.

5:14They call them conscientiousness, righteousness, altruism, fear of God, charity. They are convinced that such a moral reform would in itself be sufficient to safeguard a mode of operation of the economic system. are more satisfactory from their point of view than that of unhampered capitalism, without any of those special governmental measures which interventionism and socialism require. The supporters of these doctrines fail to recognize the role which those springs of action they condemn as vicious play in the operation of the market economy. The only reason why the market economy can operate without government orders telling everybody precisely what he should do and how he should do it, is that it does not ask anybody to deviate from those lines of conduct which best serve his own interests.

6:14What integrates the individual's actions into the whole of the social system of production is the pursuit of his own purposes. In indulging in his acquisitiveness, each actor contributes his share to the best possible arrangement of production activities. Thus, within the sphere of private property and the laws protecting it against encroachments on the part of violent or fraudulent action, there is no antagonism between the interests of the individual and those of society. The market economy becomes a chaotic muddle if this predominance of private property, which the reformers disparage as selfishness, is eliminated.

7:01In urging people to listen to the voice of their conscience and to substitute considerations of public welfare for those of private profit, one does not create a working and satisfactory social order. It is not enough to tell a man not to buy on the cheapest market and not to sell on the dearest market. It is not enough to tell him not to strive after profit and not to avoid losses. One must establish unambiguous rules for the guidance of conduct in each concrete situation. As the reformer, the entrepreneur is rugged and selfish when, taking advantage of his own superiority, he underbids the prices asked by a less efficient competitor, and thus forces the man to go out of business.

7:56But how should the altruistic entrepreneur proceed? Should he, under no circumstances, sell at a price lower than any competitor? Or are there certain conditions which justify underbidding the competitor's prices? Says the reformer on the other hand, the entrepreneur is rugged and selfish when taking advantage of the structure of the market. He asks a price so high that poor people are excluded from purchasing the merchandise. But what should the good entrepreneur do? Should he give away the merchandise free of charge? If he charges any price, however low, there will always be people who cannot buy at all, or not so much as they would buy if the price were still lower.

8:45What group of those eager to buy is the entrepreneur free to exclude from getting the merchandise? There is no need to deal at this point of our investigation with the consequences resulting from any deviation from the height of prices as determined on an unhampered market. If the seller avoids underbidding his less efficient competitor, a part at least of his supply remains unsold. If the seller offers the merchandise at a price lower than that determined on an unhampered market, the supply available is insufficient to enable all those ready to expend this lower for Market Prices to get what they are asking for. We will analyze later these as well as other consequences of any deviation from the market prices. What we must recognize even at this point is that one cannot content oneself simply by telling the entrepreneur that he should not let himself be guided by the state of the market. It is imperative to tell him How far he must go in asking and paying prices.

10:00If it is no longer profit-seeking that directs the entrepreneur's actions and determines what they produce and in what quantities, if the entrepreneurs are no longer bound by the instrumentality of the profit motive to serve the consumers to the best of their abilities, it is necessary to give them definite instructions. One cannot avoid guiding their conduct by specified orders and prohibitions, precisely such decrees as are the mark of government interference with business. Any attempt to render such interference superfluous by attributing primacy to the voice of conscience, to charity and brotherly love, is vain.

10:46The advocates of a Christian social reform pretend that their ideal of greed and profit-seeking, tamed and restrained by conscientiousness and compliance with the moral law, worked rather well in the past. All the evils of our day are caused by defection from the precepts of the Church. If people had not defied the commandments and had not coveted unjust profit, mankind would still enjoy the bliss experienced in the Middle Ages, when at least the elite lived up to the principles of the Gospels. What is needed is to bring back those good old days, and then to see that no new apostasy deprives men of their beneficent effects.

11:34There is no need to enter into an analysis of the social and economic conditions of the of the 13th Century, which these reformers praise as the greatest of all periods of history. We are concerned merely with the notion of just prices and wage rates, which was essential in the social teachings of the doctors of the Church, and which the reformers want to raise to the position of the ultimate standard of economic conduct. It is obvious that with theorists this notion of just prices and wage rates always refers and always referred to a definite social order which they considered the best possible order. They recommend the adoption of their ideal scheme and its preservation forever.

12:25No further changes are to be tolerated. Any alteration of the best possible state of social affairs can only mean deterioration. The worldview of these philosophers does not take into account man's ceaseless striving for improvement of the material conditions of well-being. Historical change and a rise in the general standard of living are notions foreign to them. They call just that mode of conduct that is compatible with the undisturbed preservation of their utopia, and everything else, unjust. However, the notion of just prices and wage rates as present to the mind of people other than philosophers is very different.

13:14When the non-philosopher calls a price just, what he means is that the preservation of

13:50The price of wheat, however high, appears unjust. To the wage earner, no wage rates, however high, appear unfair. But the farmer is quick to denounce every drop in the price of wheat as a violation of divine and human laws, and the wage earners rise in rebellion when their wages drop. Yet the market society has no means of adjusting production to changing conditions The absurdity of all endeavors to stabilize prices consists precisely in the fact that Stabilization would prevent any further improvement and result in rigidity and stagnation.

14:51The flexibility of commodity prices and wage rates is the vehicle of adjustment, improvement and progress. Those who condemn changes in prices and wage rates as unjust, and who ask for the preservation of what they call just are in fact combating endeavors to make economic conditions more satisfactory. It is not unjust that there has long prevailed a tendency towards such a determination of the prices of agricultural products that the greater part of the population abandoned farming and moved toward the processing industries. But for this tendency, 90% or more of the population would still be occupied in agriculture, and the processing industries would have been stunted in their growth.

15:44All strata of the population, including the farmers, would be worse off. If Thomas Aquinas' doctrine of the just price had been put into practice, the 13th century's economic conditions would still prevail. The human figures would be much smaller than they are today, and the standard of living much lower. Both varieties of the just price doctrine, the philosophical and the popular, agree in their condemnation of the prices and wage rates as determined on the unhampered market. But this negativism does not in itself provide any answer to the question of what height the Just Prices and Wage Rates Should Attain If righteousness is to be elevated to the position of the ultimate standard of economic action, one must unambiguously tell every actor what he should do, what prices he should ask, and what prices he should pay in each concrete case.

16:50And one must force, by recourse to an apparatus of violent compulsion and coercion, all those is venturing disobedience to comply with these orders. One must establish a supreme authority issuing norms and regulating conduct in every respect, altering these norms if need be, interpreting them authentically and enforcing them. Thus, the substitution of social justice and righteousness for selfish profit-seeking requires As for its realization, precisely those policies of government interference with business which the advocates of the moral purification of mankind want to make superfluous.

17:36No deviation from the unhampered market economy is thinkable without authoritarian regimentation. Whether the authority in which these powers are vested is called lay government or theocratical The reformers, in exhorting people to turn away from selfishness, address themselves to capitalists and entrepreneurs, and sometimes, although only timidly, to wage earners as well. However, the market economy is a system of consumer supremacy. The sermonizers should appeal to consumers, not to producers. They should persuade the consumers to renounce preferring better and cheaper merchandise to poorer and dearer merchandise, lest they hurt the less efficient producer.

18:30They should persuade them to restrict their own purchases in order to provide poorer people with the opportunity to buy more. If one wants the consumers to act in this way, one must tell them plainly what to buy, in what quantity, from whom, and at what prices, and one must provide for enforcing such orders by coercion and compulsion. But then, one has adopted exactly that system of authoritarian control which moral reform wants to make unnecessary. Whatever freedom individuals can enjoy within the framework of social cooperation is conditional all upon the concord of private gain and public wheel.

19:19Within the orbit in which the individual, in pursuing his own well-being, advances also, or at least does not impair, the well-being of his fellow men, people going their own ways jeopardize neither the preservation of society nor the concerns of other people. A realm of freedom and individual initiative emerges, a realm in which man is allowed to choose and to act of his own accord. This sphere of economic freedom is the basis of all the other freedoms compatible with cooperation under the division of labor. It is the market economy, or capitalism, with its political corollary, the Marxians would have to say with its superstructure, representative government.

20:11Those who contend that there is a conflict between the acquisitiveness of various individuals or between the acquisitiveness of individuals on the one hand and the common wheel on the other cannot avoid advocating the suppression of the individual's right to choose and to act. They must substitute the supremacy of a central board of production management for the discretion of the citizens. In their scheme of the good society, there is no room left for private initiative. The authority issues orders, and everybody is forced to obey. 5. The Meaning of Laissez-Faire In 18th century France, the saying laissez-faire laissez-passer was the formula into which some of the champions of the cause of liberty compressed their program.

21:08Their aim was the establishment of the unhampered market society. In order to attain this end, they advocated the abolition of all laws preventing more industrious In our age of passionate longing for government omnipotence, the formula laissez-faire is in disrepute. Automatic opinion now considers it a manifestation both of moral depravity and of the utmost ignorance. As the interventionist sees things, the alternative is automatic forces, or conscious planning.

22:01It is obvious, he implies, that to rely upon automatic processes is sheer stupidity. No reasonable man can seriously recommend doing nothing and letting things go as they Laissez-faire is said to mean, let the evils last, do not try to improve the lot of mankind by reasonable action. This is utterly fallacious talk. The argument advanced for planning is entirely derived from an impermissible interpretation of a metaphor.

22:49It has no foundation other than the connotations implied in the term automatic, which it is customary to apply in a metaphorical sense for the description of the market process. Automatic, says the concise Oxford Dictionary, means unconscious, unintelligent, merely mechanical. Automatic, says Webster's Collegiate Dictionary, means not subject to the control of the will, performed without active thought and without conscious intention or direction. What a triumph for the champion of planning to play this trump card! The truth is that the alternative is not between a dead mechanism or a rigid automatism on one hand and conscious planning on the other hand.

23:42The alternative is not plan or no plan. The question is, who's planning? Should each member of society plan for himself, or should a benevolent government alone plan for them all? The issue is not automatism versus conscious action. It is autonomous action of each individual versus the exclusive action of the government. It is freedom versus government omnipotence. Laissez-faire does not mean let soulless mechanical forces operate. It means let each individual choose how he wants to cooperate in the social division of Labor, Let the Consumers Determine What the Entrepreneurs Should Produce.

24:35Planning means let the government alone choose and enforce its rulings by the apparatus of coercion and compulsion. Under laissez-faire, says the planner, it is not those goods which people really need that are produced, but those goods from the sale of which the highest returns are expected. It is the objective of planning to direct production toward the satisfaction of the true needs. But who is to decide what the true needs are? Thus, for instance, Professor Harold Lasky, the former chairman of the British Labour Party, would determine, as the objective of the planned direction of investment, that the use of the investor's savings will be in housing rather than in cinemas.

25:26It is beside the point whether or not one agrees with the professor's view that better houses are more important than moving pictures. It is a fact that the consumers, in spending part of their money for admission to the movies, have made another choice. If the masses of Great Britain, the same people whose votes swept the Labour Party into power, were to stop patronizing the moving pictures, and to spend more for comfortable homes and and Apartments, profit-seeking business would be forced to invest more in building homes and apartment houses, and less in the production of expensive pictures. It is Mr. Lasky's desire to defy the wishes of the consumers, and to substitute his own will for that of the consumers.

26:17He wants to do away with the democracy of the market, and to establish the absolute rule of a production czar. He may believe that he is right from a higher point of view, and that as a superman he is called upon to impose his own valuations on the masses of inferior men, but then he should be frank enough to say so plainly. All this passionate praise of the super-eminence of government action is but a poor disguise for the individual interventionist's self-deification. The great God state is a great God only because it is expected to do exclusively what the individual advocate of interventionism wants to see achieved.

27:06Only that plan is genuine which the individual planner fully approves. All other plans are simply counterfeit. In saying plan, what the author of a book on the benefits of planning has in mind is, and, of course, his own plan alone. He does not take into account the possibility that the plan which the government puts into practice may differ from his own plan. The various planners agree only with regard to their rejection of laissez-faire, that is, the individual's discretion to choose and to act. They entirely disagree with regard to the choice of the and the unique plan to be adopted.

27:53To every exposure of the manifest and incontestable defects of interventionist policies, the champions of interventionism react in the same way. These faults, they say, were the results of spurious interventionism. What we are advocating is good interventionism, not bad interventionism. And of course, good interventionism is the professor's own brand. Laissez-faire means, let the common man choose and act. Do not force him to yield to a dictator. 6. Direct Government Interference with Consumption In investigating the economic problems of interventionism, we do not have to deal with with those actions of the government whose aim it is to influence immediately the consumer's choice of consumer's goods.

28:52Every act of government interference with business must indirectly affect consumption. As the government's interference alters the market data, it must also alter the valuations and the conduct of the consumers. But if the aim of the government is merely to force the consumers directly to consume goods other than what they would have consumed in the absence of the government's decree, no special problems emerge to be scrutinized by economics. It is beyond doubt that a strong and ruthless police apparatus has the power to enforce such decrees. When dealing with the choices of the consumers, we do not ask what motives induced a man to buy A and not to buy B. We merely investigate what effects on the determination of market prices, and thereby on production, were brought about by the concrete conduct of the consumers.

29:55These effects do not depend on the considerations which led individuals to buy A and not to to Buy B. They depend only on the real acts of buying and abstention from buying. It is immaterial for the determination of the prices of gas masks, whether people buy them of their own accord, or because the government forces everybody to have a gas mask. What alone counts is the size of the demand. Governments which are eager to keep up the outward appearance of Freedom, even when curtailing freedom, disguise their direct interference with consumption under the cloak of interference with business. The aim of American prohibition was to prevent the individual residents of the country from drinking alcoholic beverages.

30:48But the law hypocritically did not make drinking as such illegal, and did not penalize it. It merely prohibited the manufacture, the sale and the transportation of intoxicating liquors, the business transactions which precede the act of drinking. The idea was that people indulge in the vice of drinking only because unscrupulous businessmen prevail upon them. It was, however, manifest that the objective of prohibition was to encroach upon the individual's has freedom to spend their dollars and to enjoy their lives according to their own fashion. The restrictions imposed upon business were only subservient to this ultimate end.

31:36The problems involved in direct government interference with consumption are not catalactic problems. They go far beyond the scope of catalactics and concern the fundamental issues of human Human Life and Social Organization. If it is true that government derives its authority from God and is entrusted by Providence to act as the guardian of the ignorant and stupid populace, then it is certainly its task to regiment every aspect of the subject's conduct. The God-sent ruler knows better what is good for his wards than they do themselves. It is his duty to guard them against the harm they would inflict upon themselves if left alone.

32:22Self-styled realistic people fail to recognize the immense importance of the principles implied. They contend that they do not want to deal with the matter from what, they say, is a philosophic and academic point of view. Their approach is, they argue, exclusively guided by practical considerations. It is a fact, they say, that some people harm themselves and their innocent families by consuming narcotic drugs. Only doctrinaires could be so dogmatic as to object to the government's regulation of the drug traffic. Its beneficent effects cannot be contested. However, the case is not so simple as that. Opium and morphine are certainly dangerous habit-forming drugs.

33:11But once the principle is admitted that it is the duty of government to protect the individual against his own foolishness, no serious objections can be advanced against further encroachments. A good case could be made out in favor of the prohibition of alcohol and nicotine. And why limit the government's benevolent providence to the protection of the individual's body only? Is not the harm a man can inflict on his mind and soul even more disastrous than any bodily evils? Why not prevent him from reading bad books and seeing bad plays, from looking at bad paintings and statues, and from hearing bad music? The mischief done by bad ideologies surely is much more pernicious both for the individual and for the whole society than that done by narcotic drugs.

34:06These fears are not merely imaginary specters terrifying secluded doctrinaires. It is a fact that no paternal government, whether ancient or modern, ever shrank from regimenting its subjects' minds, beliefs and opinions. If one abolishes man's freedom to determine his own consumption, one takes all freedoms away. The naive advocates of government interference with consumption delude themselves when they neglect what they disdainfully call the philosophical aspect of the problem. They unwittingly support the case of censorship, inquisition, religious intolerance and the persecution of dissenters.

34:52In dealing with the catallactics of interventionism, we do not discuss these political consequences We are exclusively concerned with those acts of interference which aim at forcing the entrepreneurs and capitalists to employ the factors of production in a way different from what they would have done if they merely obeyed the dictates of the market. In doing this, we do not raise the question of whether such interference is good or bad from any preconceived point of view. We merely ask whether or not it can attain those ends which those advocating and resorting to it are trying to attain.