Freedom and Economic Order
Freedom and American Society
Volume II
Freedom and Economic Order
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Linda C. Raeder
Sanctuary Cove Publishing
Palm Beach and Richmond
Copyright © 2017 by
Linda C. Raeder
Sanctuary Cove Publishing, N. Palm Beach FL 33410
Printed and bound in the United States of America
All rights reserved.
Library of Congress Cataloguing-in-Publication Data
Raeder, Linda C.
Freedom and Economic Order / Linda C. Raeder.
Includes bibliographical references.
ISBN 13-978-1544890906
Typeface: Garamond Pro
In loving memory of my father,
Howard M. Maxwell
Contents
Acknowledgements xi
6. Economics: The Knowledge Problem 1
The Economic Problem 3
Capitalism: The Price System 9
Kinds of Knowledge in Society 10
Essential Conditions of a Market Economy 16
Subjective Value 22
Kinds of Order in Society:
Spontaneous Order and Organization 24
7. Capitalism: The Market Process 34
The Ordering Principle of the Market 35
Capital 37
The Language of Price 39
Price Formation 42
Further Price Considerations 45
The Market Process in Action 50
Surplus and Shortage 56
The Invisible Hand 60
The Determination of Income 65
The Broken Window Fallacy 73
8. Socialism: The Planned Economy 81
Central Planning 84
Planning Without Prices 90
The Pretense of Knowledge 97
The Mixed Economy 100
Socialism and Democracy 104
Fascism 107
Crony Capitalism 108
9. The Marxist Critique of capitalism 115
The Marxist Critique 119
Dialectical Materialism and Alienation of Labor 124
Marx’s Labor Theory of Value 128
The Function of the Capitalist 131
Selfishness, Greed, Materialism 139
10. Justice vs. Social Justice 147
Justice and Capitalism 148
Justice and Equality 150
The Demand for Desert-Based Justice 154
The Morality of Private Property 161
Justice and Socialism:
Social or Distributive Justice 165
Consciousness as “Epiphenomenon” 170
The Redistribution of Wealth 175
The Funding of Government 179
The Ethics of Redistribution 185
Altruism 188
The Demand for Social Justice 191
Social Justice in Practice 193
Social Justice and Freedom 196
Social Justice versus Justice 200
Bibliography 214
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Acknowledgements
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I am indebted above all to the many students at Palm Beach Atlantic University who participated in my courses in political philosophy and political economy over the past sixteen years. This work would not appear in its present form without the knowledge and understanding I have gained through my experience teaching undergraduates at PBA, and especially those enrolled in my “Freedom and American Society” and “Roots of American Order” courses. I would like to thank all those students who shared their perspectives and insights over the years and provided indispensable feedback to the ideas presented in this work.
I am further indebted to the PBA administration, particularly President Bill Fleming and Dr. Ken Mahanes, both of whom have provided unwavering support and encouragement for my scholarship and teaching. My colleagues in the Politics Department, Dr. Francisco Plaza and Dr. James Todd, have also earned my deepest gratitude, not only for their graciousness and collegiality but also the maturity and penetrating insight that mark their scholarship and teaching.
Thank you as always to my mother, Evelyn Pokorny Maxwell, for her steadfast love, support, and strength, and my dear animal companions, Max, Sophie, Callie, and the Muscovies, who make day-to-day existence a continual joy.
Six
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Economics: The Knowledge Problem
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Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends.
—F.A. Hayek
Freedom—the ability to act in a voluntary manner, free from subjection to arbitrary coercion by other persons—is a generalized quality of human action. Individuals want to be free in a myriad of daily situations, whether relating to home, work, school, church, business, or pleasure. Human action is always purposive and oriented toward fulfillment of value, and people want to be free to fulfill their own purposes and values. The central tenet of traditional American political philosophy is that individuals have a right to such freedom. They are morally entitled to pursue their own goals and values and should not be forced to fulfill those imposed by others. Such a conviction—freedom is morally and intrinsically right and arbitrary coercion morally and intrinsically wrong—saturated American consciousness from the outset.
Human action has many dimensions and forms of expression. Human goals and values are diverse and fluid, ranging from desire for a new cell phone to desire to feed hungry children. In a free or pluralistic society human beings are regarded as individuals with unique purposes and values; no two individuals are any more identical than two snowflakes. Whatever an individual’s personal values and ends, moreover, the nature of earthly existence requires their fulfillment through a particular kind of means, namely, acquisition and utilization of material goods or services. A person who wants a new phone must obtain a material object called a phone. A person who wants to feed the starving children of Calcutta must obtain a material object called food. A person who wants to propagate religious beliefs through publication must obtain material goods such as paper upon which to write, pen and ink, and so on. A person who wants to engage in cyber-theft must have a computer and other requisite technical equipment.
All human goals and values, however high or low, moral or immoral, however spiritual or materialistic, altruistic or selfish, require for their realization physical or material entities of one kind or another. Human beings live neither on clouds nor within their minds but rather on earth, and within that kind of world the expression of values and fulfillment of goals are inseparable from matter—tangible goods or services. The necessary relation between human ends and material means leads directly to the topic presently under consideration—the relation between traditional American order and the economic arrangements of society. The science of economics is concerned precisely with the problem of how human beings acquire the material means requisite to fulfillment of their values and realization of their purposes. The present inquiry will explore the implications of that science for fulfillment of characteristically American political values—constitutional or limited government in general and freedom and justice in particular.
To introduce the discipline of economics is to enter a realm where angels may fear to tread. The “dismal science,” in the well-known phrase of Thomas Carlyle, typically evokes a wide range of emotional response, from passionate interest through contempt to sheer
and utter boredom. Economics is commonly associated in the popular mind with money, wealth, business, perhaps even greed and selfishness. High-minded idealists may consider economic concerns vulgar and contemptible, beneath their consideration. Economics is also a difficult and complex subject that can appear forbidding if not explained in clear terms that honor common sense. All too often professional and academic economists employ dense technical jargon that renders economic theory all but incomprehensible to those without formal training in the discipline. Understanding the basic laws of economics, however, does not require extensive formal training. The best economic theory is simply the rational and systematic articulation of the manner in which human beings actually behave in pursuing their goals. Every person, with the possible exception of infants and babies, is intimately familiar with the subject matter of economics; every person knows how to behave economically and does so, moreover, on a daily basis. Economic theory simply describes or raises to consciousness practices that are familiar to everyone, and its basic principles can be conveyed to any literate person with a desire to learn.
The Economic Problem
Economic considerations are inescapable for human beings, mandated by the very nature of the world they inhabit. Contrary to popular belief, economics is not essentially concerned with money, business, or profit. Economic concerns relate not to material wealth but rather the fundamental fact of life from which all economic behavior and all economic reasoning flows, namely, the central fact of scarcity. All human beings are confronted by the immovable fact that the material goods and services required to sustain and enhance their existence simply do not exist by nature in quantities sufficient to fulfill all such needs and desires merely for the taking. Houses and electricity and cell phones, milk and shoes and clothing, do not “grow on trees.” The seven billion human beings presently alive on earth cannot simply pluck from the bounty of nature all the orange juice, automobiles, paper, ice cream, and surgical skills they need or would like to possess. Material goods and services are intrinsically scarce, a fact that no human effort or desire, no personal or political will, can eradicate.
The fact of scarcity is the starting point for all discussion of economic arrangements in society. Every human society, however primitive or complex, must deal with the fact of irremediably limited resources. From this central fact follows the second inescapable fact of economic reality, namely, the necessity for choice. Resources are by nature scarce or limited, a fact that immediately confronts human beings with two unavoidable choices, the economic choices relating to so-called production and distribution. The first inevitable choice confronted by every society known to man involves production—what is to be produced, and how. Production decisions involve several related considerations. First, someone must decide which specific goods and services are to be produced with the limited resources of nature; and, second, someone must also decide how they are to be produced, that is, which inputs are to be employed in their production. Once such production decisions have been made, every society confronts the second inevitable choice, relating to the problem of distribution: Who is to receive the goods and services initially chosen for production, that is, how are they to be “distributed” among the populace? Obviously production necessarily precedes distribution; nothing can be distributed unless it has first been produced.
Every society, then, confronts what we shall term the “economic problem”: how to determine the best possible manner in which to employ the irremediably limited resources of this earth. “Best” in this regard means, among other things, the most efficient or least wasteful employment of scarce resources. Resources are limited but human needs and wants are not. For that reason, it is wrong to waste scarce resources which could rather be used to satisfy the ever-pressing needs of the human community. The best use of limited resources thus involves two related criteria. First, production must proceed in the least costly manner; and second, it must be directed toward fulfillment of actual human needs and wants. To employ scarce resources in the production of unneeded or unwanted items is to waste precious resources that could have been used to fulfill real wants and needs. Such is wrong from any point of view, rational or moral.
We previously noted that the discipline of economics is not fundamentally concerned with money or material wealth but rather the problem of scarcity. Similarly, the economic problem is not fundamentally a physical or material problem but rather a problem of (immaterial) knowledge. Mere physical, material, or quantifiable data, however comprehensive or intricate, are insufficient to determine the best use of resources as described. Rational economic decisions can only be made by persons possessing accurate knowledge of what to produce and how to produce it, as well as accurate knowledge of the persons who should receive the produced goods. More particularly, economic decision-makers must know which specific resources are available for production, the most efficient means of using them, and also which specific goods and services are actually needed or wanted by their fellow men. If some person or persons should actually possess all such knowledge, the economic problem confronting humankind would be solved once and for all. We could simply assign such persons the task of rationally allocating the scarce resources of this earth toward their best possible uses.
Such, however, is not, and never can be, within the realm of possibility. Every human being, no matter how stellar the genius, is confronted with an “irremediable ignorance” that arises from inherent limits of the human mind.[1] The knowledge requisite to sound economic choices in the face of scarcity is neither a gift of nature nor available as a whole to any individual mind or group of minds. No human being does or can know the precise status of resource availability throughout a society, let alone the world. No one does or can know the least wasteful methods of production of the innumerable goods and services produced in any society beyond the most primitive. Nor does or can anyone know the precise needs and wants of the millions upon millions of individuals who constitute American society, let alone the billions of individuals who inhabit the contemporary world, or which of them should receive the fruits of production. Despite such constitutional ignorance on the part of all human beings without exception, decisions of production and distribution must nevertheless be made if the human race is not to perish. The solution to the economic problem—achieving the best use of scarce resources—thus involves finding a means of acquiring the knowledge requisite to rational economic decision-making in the face of the intrinsic and unalterable ignorance of every human being. Economic theory deals precisely with the solution to the economic problem so conceived.
To recapitulate the argument to this point: human beings are confronted by the fundamental fact of scarcity. As a result, they are forced to make certain choices. First, they must decide what is to be produced among the myriad of possibilities, and, second, which factors of production or inputs are to be utilized in the production of the chosen goods. Finally, a decision must be reached regarding the distribution of the produced goods; there must exist some way of deciding “who is to receive what.” All such decisions require appropriate knowledge in three specific areas: first, the actual resources available for production; second, the most efficient method of producing the goods chosen for production; and, third, the goods and services actually needed or desired by other human beings. The economic problem, at bottom, is clearly a problem of knowledge. Its solution involves acquiring the means whereby the knowledge requisite to rational economic choice in the face of both scarcity and the inherent limits of the human mind can be obtained.
In the modern era, there are essentially two proposed solutions to the economic problem so conceived, which may loosely be classified as “capitalism” and “socialism.” We shall not discuss earlier forms of economic organization, such as feudalism, which are not of direct relevance to the present study, the relation of traditional American social and political order to economic order. In recent centuries, the great contest has been between free-market capitalism and the planned ec
onomy of socialism, and the analysis will be confined to these two forms of economic arrangement. It should also be noted that the terms capitalism and socialism refer to the economic organization of a society, not its political form. While capitalism is generally and historically associated with liberal democracy and limited government, capitalism is also compatible with various forms of nondemocratic limited government, for instance, constitutional monarchy. While socialism and other kinds of planned economy are historically associated with illiberal government, whether fascist, communist, or some variant thereof, it too refers to the economic organization of a society and not its political form. Various attempts have been made to combine socialist economic planning with limited or democratic government, and we will examine the viability of such approaches over the long run.
The primary distinction between the two rival schools of economic thought, as we shall see, concerns the locus of economic decision-making, that is, who is to be charged with making the decisions forced upon human beings by the fact of scarcity. Capitalism and socialism assign to different actors the responsibility for deciding what is to be produced, and how, and determining who is to receive the fruits of production. Capitalism assigns such responsibility to individual members of society at large; socialism, by contrast, assigns it to a select group of politically determined officials, experts or “planners.” We have characterized the economic problem as essentially a problem of knowledge. The high level of material prosperity characteristic of modern capitalist economic arrangements will be seen to arise from capitalism’s significant success in solving the knowledge problem in the face of scarcity and irremediable human ignorance. The uniformly less impressive material performance of modern socialized or planned economies, on the other hand, will be seen to result from the inherent inability of such economic organization to solve the same problem. Who is to decide? That is the question, and its answer will prove decisive.