Strain on the Free Market

Over at First Things, my friend Andrew Strain has a fresh piece up, “Free Markets and Unicorns.” Strain is skeptical of the neoliberal narrative that “the market is a self-regulating mechanism sufficient unto itself, a system naturally suited to achieve the best outcomes overall.” In other words, free markets, according to some contemporary strands of economic ideology, maximize social welfare while public regulation, what with its risk of being captured by special interests, impedes such gains. As Strain, leaning on David Ciepley, points out, the market as we see it today relies on both private initiative and public cooperation with those initiatives. For instance, corporations are, today, considered a “natural” part of the market, though their makeup, character, and liability for potential harms they may cause are calibrated by public law. The entire post is well worth reading.

While I agree with Strain’s position, I can already see the rebuttals on the horizon. Those who lean libertarian will argue that it is unnecessary for there to be public regulation of corporations; corporations should always be the outcome of private initiative secured by contract. To the extent corporations do wrong, those wrongs can and ought to be addressed by private law, specifically tort law or, in certain instances, contract law. For example, a corporation that pollutes a river which causes X amount of damage to homes and farms down that river can be held accountable under a theory of strict liability; if they break it, they buy it. Similarly, if a corporation defrauds shareholders or fails to deliver on a good or service it has contractually obligated itself to, then the terms of the respective contract will dictate the damages to be awarded.

This is not a new position. In one of his early books, Simple Rules for a Complex World, Richard Epstein—arguably the premiere libertarian legal theorist of the last 50 years—sought to dispose of the complex web of public regulatory measures in favor of a comparatively simpler system of private law governed by tort, contract, and property. Whether they know it or not, many libertarians (and neoliberals) hold fast to Epstein’s thesis when pushing back against public regulation; they’re just not as articulate as Epstein is. What Epstein and his epigones miss, however, is that a system of private law, particularly in common-law countries, is not neutral. It is informed by decades, if not centuries, of assumptions and ideologies that tend to shift with the development (or distortion) of social norms. For Epstein’s libertarian schema of private law to work, the freedom of contract must be nearly absolute (coercion and fraud don’t count), as are property rights. But why make either absolute? A pre-legal argument has to be constructed for that, and too often the argument is assumed rather than made.

None of this detracts from Strain’s position, of course. Perhaps in a subsequent piece he will meet these and other lines of criticism that are sure to come on the heels of his piece. Make no mistake about it. Despite the radical shifts in our understanding of the origins of “economic science,” the unpredictability and volatility of global markets, radical shifts in attitude around the world toward capitalism, and the unnerving realization that neoliberalism has failed to unite the world and cease conflict through the establishment of an international marketplace fueled by free trade, neoliberal ideology, in both its moderate and radical forms, remains alive and well.

A Remark on Economics/Political Economy

The Josias recently offered up a fresh translation of Pope Pius XII’s 1941 Pentecost radio address which, inter alia, commemorates the 50th anniversary of Leo XIII’s landmark social encyclical, Rerum Novarum. Patrick Smith, who had a hand in its publication, offers up some thoughts on the address over at his web-log while highlighting Pius XII’s reaffirmation of the Catholic Church’s competence to teach when the social and moral order intersect. That is distinct from teaching on purely practical matters, such as how a society ought to calibrate its competition (antitrust) penalties or design social safety nets. While popes—and indeed the episcopate as a whole—can weigh-in with suggestions, the faithful are not necessarily bound to follow them.

With this noted, it is important to highlight the fact that a great deal of confusion surrounds statements such as, “The Church does/does not have the competence to speak on economics.” Why? Because “economics,” in the widespread understanding, refers to a particular academic discipline which is often regarded as part of the “social sciences.” Economics, in this sense, refers to both a theoretical and practical discipline which, like so many academic disciplines, remains fractured into a series of “schools,” many of which disagree with each other on questions ranging from methodology to normativity. Those wishing to set aside the Church’s social magisterium when it conflicts with the tenets of libertarian or neoliberal ideology are, in a certain sense, correct when they say that the Church has no competence to speak on economics when “economics” is understood as “economic science.” (More on that below.) This is an easy parry, and one that needs to be addressed.

One way to do that is for Catholics who wish to defend the Church’s authentic social magisterium to move away from using the expression “economics” as commonly understood in favor of an older—and more defensible—expression, “political economy,” which does a better job of capturing the policy aspect of economics. Economics is not, as many economists would have it, a “value neutral” science; behind every economic theory or research question lies pre-scientific value judgments over what is to be studied, why, and how. Anthropological assumptions, which have nothing to do with economics per se, animate most branches of the economics discipline, and too often those assumptions are directly at odds with what revelation and natural reason tell us about the human person. Today, however, the economics discipline has cloaked itself in the garb of the physical sciences in order to give itself a prestige which it may not deserve. As the old joke goes, economists love to say that what they do is similar to what physicists and biologists do; but physicists and biologists would never dare say that what they do is similar to what an economist does.

The Concept of Progress

The concept of progress, i.e., an improvement or completion (in modern jargon, a rationalization) became dominant in the eighteenth century, in an age of humanitarian-moral belief. Accordingly, progress meant above all progress in culture, self-determination, and education: moral perfection. In an age of economic or technical thinking, it is self-evident that progress is economic or technical progress. To the extent that anyone is still interested in humanitarian-moral progress, it appears as a byproduct of economic progress. If a domain of thought becomes central, then the problems of other domains are solved in terms of the central domain – they are considered secondary problems, whose solution follows as a matter of course only if the problems of the central domain are solved.

– Carl Schmitt, The Concept of the Political 

In an unintentional manner, Schmitt summarizes well not just the concept of progress generally, but — unintentionally — the ethos of think-tanks such as The Mises Institute, The Cato Institute, and even the Catholic-backed Acton Institute. It is the ethos of the so-called “Washington Consensus” that emerged after 1989, the consensus which gave us the World Trade Organization, NAFTA, and a global investment regime that erodes national sovereignty in the name of economic improvement. “Spread the wealth” via “free trade” and everything will fall into place: peace, security, stability, “human rights,” etc. How quickly has that dream, that myth, unraveled in the wake of the terrible realization that human souls cannot be placated with “stuff” and a life infused with meaning, even demonic meaning, has more power to move mountains than the wealth of every global elite combined.