Musings on a social- and ecological-market economics

My two recent posts on property rights and libertarianism don’t really adequately represent the way I think about economics these days. For the sake of argument, I accepted certain principles held by libertarians, but I don’t think those principles are sufficient. Libertarian principles have a simplifying austerity that can be appealing–I found them appealing for some time–but I’ve become convinced over time that they oversimplify things quite a bit.

The view I’ve gravitated toward instead is what is sometimes called a “social market” perspective. By this I mean that “the market” taken by itself is an abstraction without any privileged status. This is because economic production and exchange are always already embedded in and structured by their social, cultural, and political context. Property rights, rules of contract, etc. are not timeless, abstract principles, but artifacts of a particular society and its history. The social-market perspective doesn’t reject private property or freedom of exchange, but it situates it within the broader social nexus. The market is a part of society, not the whole of it, and a proper goal of economic policy is to restrain the market and balance the goods it delivers with other goods.

For instance, this position would favor a robust social safety net and other welfare-state mechanisms that enable people’s participation in the market (e.g., state supported education and health care) as well as public goods and services like roads, parks, libraries, museums, etc. that are available to all on a non-paying basis. It would also set limits to economic activity in the interest of environmental protection, quality of life, and community self-determination.

As political philosopher John Gray describes the idea,

the market is not a natural social phenomenon, but instead a creature of law and government. A second idea is that the market is not free-standing or self-justifying but part of a larger nexus of institutions, sharing with them a justification in terms of the contribution it makes to human well-being. A third idea is that the market lacks ethical and political legitimacy unless it is supplemented or complemented by other institutions that temper its excesses and correct its failures. … The theory of the social market economy, at its core, is that market institutions are always embedded in other social and political institutions, which both shape them and legitimate them. (Gray, Beyond the New Right, p. 116)

A social-market perspective has a lot of overlap with social democracy or democratic socialism, but the route by which I’ve come to it has been primarily through ecological thinkers like E.F. Schumacher, Herman Daly, and John Cobb, who emphasize that the market exists within the context of society, which in turn exists within the context of the economy of the entire earth. As Daly writes, “the economy [is] an open subsystem of a larger, but finite, non-growing, and closed ecosystem on which it is fully dependent for sources of low-entropy raw materials and for sinks to absorb high-entropy waste materials” (Herman E. Daly, Beyond Growth, pp. 218-9). Consequently, they reject unlimited growth for its own sake and promote a “steady-state” economy with strong limits on inequality.

This is consistent with a Christian perspective, which sees people as persons-in-relation, as part of a community in the widest sense that includes not only other people, but nonhuman animals and the non-sentient creation, with God as the ultimate context. We can only make fully informed judgments about our economic life when we situate the human community in this wider sphere. Daly again: “The vision of economy as subsystem is not the same as the fundamental religious insight that the world is God’s Creation, and that we and all our little creations are part of and limited by that larger creation, but it is certainly more in harmony with that insight than the vision of man’s economy as the total system with nature a subsector whose services can be substituted by other sectors” (Beyond Growth, p. 219).

Market institutions can, therefore, rightly be curtailed based on ethical judgments arising from this broader perspective. The proper goal of economic policy is healthy communities in the widest sense, not “growth” in the abstract. This may require value judgments about good human lives that are anathema to certain doctrinaire forms of liberalism, but liberal worries can be partly met by observing that the best way to collectively make such judgments is through establishing a more thoroughly democratic and participatory polity.

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