Most people like to walk down to the farmer’s market to get some vegetables. Doing one’s groceries at the market feels a bit as if the countryside has come to town, and with it the good old days. The market stands are small, the produce is alluring, the farmers have wrinkles in their face and honest dirt under their fingernails. People love the market. This market. The market however, i.e. the more abstract market, associated with capitalism, doesn’t seem to have a similar warmth to it at all.
To the contrary, the market evokes a vast array of strong negative feelings, from shivering to shuddering, from uneasiness to hatred. A former German president has spoken of the (financial) markets as a “monster”, other politicians and intellectuals seem to have a wild horse on their mind when calling for “bridling the market”. In the same spirit, the philosopher Michael Sandel landed a bestseller with his book “What money can’t buy” (2013), describing it as obscene to have recourse to the market for anything we really cherish, such as politics, culture, friendship and health.
Isn’t it odd that there seem to be so many bad feelings about that conceptual location which we all use every day, that very place where people freely engage in exchange relationships while using and feeding the price mechanism? The same mechanism that the economist and social philosopher Friedrich Hayek quite rightly viewed as “a marvel”. A device we could be tremendously proud of, had we invented it – but we haven’t: It is the result “of human action, but not human design”.
First of all, markets are endlessly useful, and their working leaves one full of admiration. Markets have, and are, an answer to scarcity. Markets are the seedbeds of well-being and wealth, the springboards of innovation and progress. They prevent waste and foster productivity, they collect and disseminate knowledge. As Hayek put it, a market is “a communications system … which turns out to be a more efficient mechanism for digesting dispersed information than any that man has deliberately designed”. Without functioning markets, there wouldn’t be any hope to alleviate poverty and find peace in the world. Markets are ingenious, because people don’t even need to meet each other in person to be able to serve each other’s interest. Markets are natural, they spring up spontaneously because people are different: we all have different needs, possibilities and desires.
Secondly, and perhaps even more importantly, markets are the economic realization of liberty. And just like liberty, beyond their sheer usefulness, markets thus have a dignity of their own. They are a platform for the free expression and circulation of knowledge. In following our “propensity to truck, barter and exchange”, as the great philosopher Adam Smith had it two centuries earlier, we also seek satisfaction to our “desire to persuade” one another, a character trait he describes as a fundamental anthropological constant. In markets, we find the opportunity to persuade others of our own value as well as of what we have to offer. In markets, we can find support for our ventures. Liberty means that we are free to meet and coax and shake hands in the market, at least virtually – and it’s a deal.
Markets serve the individuals who engage in exchange relationships based on their own decisions, instead of catering to abstract collective political ends. An exchange takes place when both parties agree, not when some authority graciously decides to give a privilege to one and to discriminate against another. The rationality of the market is purely economic, not political. The market knows limited means but not coercion. In markets, and through cooperation, we realize that we are social beings.
However, in the eyes of many, some of the advantages of markets have a dark side to it. The market’s neutrality, for example, means that no attention is being paid to the background of those who engage in exchange. What about the poor and the weak? The justice the market produces is procedural, not results-oriented. Their strict economic logic might also cause a problem if it means that companies are free to grow and to, upon their success, ultimately turn into monopolies that will extract rents from their clients. And what about “market failures”? Every economics textbook holds a large chapter on the various types of market failures: natural monopolies, externalities, public goods, merit wants, asymmetric information etc. It seems that markets are really high-maintenance.
Much of the current debate therefore centers on this question: Are markets self-enforcing and efficient by nature or are they full of requirements and preconditions? How much work needs to be done to make a market work? Philosophically speaking, how distinct is the market as a phenomenon (exchange) from the market as an institution (an economic order)? Would the results still be satisfactory, in terms of efficiency and justice as well as liberty, if we left markets alone? The answers differ even within the classical liberal camp. When it comes to competition, for example, libertarians trust that monopolies won’t last and cartels will break up because rivals will at some point either take their position or permanently threaten to take it. If that doesn’t happen, libertarians expect the reason to be political intervention – and thus a condemnable infringement on individual liberty.
The so-called ordo-liberals of the Freiburg school, thinkers like Walter Eucken and Franz Boehm who left a strong mark in the German constitution and public conscience after 1945, gauged this question with more anxiety. They lobbied for active competition policy. In their prudent approach, extended later by James M. Buchanan’s Public Choice School, government generally ought to take the role of the umpire, staying off the playing field but putting down the rules in the first place and ensuring then that the game is played accordingly. The Weimar experience had taught the Ordoliberals that control was needed for the market not to fall prey to special interests and also in order to prevent disequilibria of power in the market itself. The strength of this liberal approach is that it starts from where we are, conscious of history, while the more radical libertarians are utopian.
Ordoliberalism, however, is currently under threat of being usurped from the left. Chiming in to the urge for a “strong state”, for more government control of financial markets, for restoring the primacy of government over money, politicians like Germany’s Sahra Wagenknecht, economists like Paul Krugman, and a vast number of public intellectuals around the world call for the umpire – but they mean the interventionist player. While referring to the eternal idea of a humane and just society, they shift the emphasis from procedural to distributive justice. When talking about liberty, they cast away the problem of coercion and focus on the material possibilities instead. But do they realise that vast redistribution distorts incentives and necessarily implies coercion of one group in the interest of another, the latter usually richer in terms of vote potential? Do they understand, unlike the former German president, that government cannot possess the knowledge needed to ride the horse that they want to see bridled? Are they aware, unlike Michael Sandel, that non-market provision of goods often ends in the non-provision of goods? If they are, their stance is an evil one, that markets are cold and cynical. The way the left turn the classical liberal message is upside down.
The AEC’s fundamental goal is to promote a free, responsible and prosperous society. Through education and improving public understanding of key economic questions, the AEC promotes the idea of a free market economy and the ideal of a free society.