The Market System, by Charles Lindblom

Lindblom's book explores the "market system -- how it works and what to make of it."

To place the market system in context, he urges the reader to "think society, not economy." Human beings engage in massive amounts of social coordination to feed, clothe, and entertain themselves. To educate a child requires buildings, books, teachers, people who educated the teachers, raw materials to build the buildings, and so on -- a nearly unfathomable number of people. The market system is one method by which society achieves coordination -- others include the state, the family, the corporation (a command structure in a market milieu), and "civil society" (including political parties, lobbying organizations, museums, charities, and research laboratories).

For an object or service to potentially fall under the domain of the market system, it needs to (a) be controllable (i.e., respond to an on/off switch); (b) be scarce; and (c) be obtainable without compulsion. The market system relies on the principle of "quid pro quo" -- an individual can make claims based on voluntary transactions he makes with others.

But not everything that could fall in the domain of the market system actually does. There are a number of objections to the application of the market system, particularly that the process of the market is immoral, unethical, or simply inappropriate in some areas.

For example, consider the following ideas:

• Blood should be donated, not sold
• Family members should not engage in financial transactions with one another
• Social solidarity is undercut by the very process of buying and selling
• Buying insurance reveals a lack of faith in God's care [a bit non-mainstream]
• Some people oppose shopping as a matter of principle
• Some activities are only enjoyable if done for free
• High culture needs to be subsidized by the government
  
• Drugs and prostitution are often illegal
• People should not be able to buy guns (or have private armies for that matter)
  
• Education should be provided universally, without regard to ability to pay for it
• People with nothing should still be taken care of, not frozen out
  
• Government officials need to be isolated from the market -- corruption is bad
• It may be cheaper to bypass the market (for example, to collect trash)
• Entrepreneurs seek state protection and privileges
• People doubt the competence and motives of individual choice, and want deliberating collective authority over some decisions (such as food regulation, environmental issues)

So the actual domain of the market system is somewhat less than its theoretical maximum reach, for a number of reasons -- which may be good or bad.

In the spirit of placing the market system in a larger context, it should be pointed out that quid pro quo is not the only basis on which a society can justify individual claims to resources. There can also be claims based on birth, ancestry, group membership, good conduct, prowess, and simple human status. Furthermore, the market system places a particular value on certain kinds of contributions, but it neglects to value non-market contributions (raising one's own children) and does not even necessarily value market contributions appropriately (no way to take into account dependencies on existing infrastructure; there are also spillover and monopoly issues).

I've neglected to mention the pro-market arugment in this summary, because that is best left to the discussion of the economics textbooks. In contrast to the pro-market argument, there are leftist concerns with inequality, the poor, and elite manipulation of the masses. (Lindblom mentions some other worries about the market -- namely, that work is degrading, that the market encourages people to view each other as means rather than ends, and that the market ethic corrupts moral values by glorifying greed and naked self-interest, but thinks these worries are misplaced.)

Lindblom also discusses whether the market system adds to or subtracts from human freedom (it's complicated), and whether the market system enhances or obstructs democracy (it's complicated). A key question is the extent to which elites are able to manipulate the masses (via advertising, in both the market and political contexts). [His suggested story seems to go as follows: democracy got its start with the rise of merchant/entrepreneurial elites who curbed the state's powers before launching an informational assault to obstruct fuller democracy.]

In the end, the take-away message is: Think society, not economy. Lindblom concludes: "What kind of society do you want?"

George Soros and Market Fundamentalism

In the Introduction to "Open Society," (page xxiv), Soros writes:

Market fundamentalists believe in individual freedom, which is the cornerstone of open society, but they exaggerate the merits of the market mechanism. They believe that efficient markets assure the best allocation of resources and that any intervention, whether it comes from the state or from international institutions, is detrimental. Since market fundamentalism has become so influential, it today constitutes a greater threat to a global open society than communism or socialism, because those ideologies have been thoroughly discredited.

In "Milton Friedman Was Right: 'Corporate Social Responsibility' Is Bunk," Henry Manne argues that while he once thought that laws against corporate social responsibility (CSR) were ill-advised -- after all, corporations might easily dress up the pursuit of private profit as social responsibility -- it turns out that he was wrong, and the late Milton Friedman was right. The bottom line: the notion of CSR has been used to turn Coca-Cola and Wal-Mart into "crypto-public enterprises that are the essence of socialism."

Since even the largest corporation starts out as an idea in someone's head, and grows through a vast number of voluntary contractual agreements, Manne wonders when exactly the public gains a stake in the private property. "If one apple is a fruit, even a billion apples do not become meat."

Manne also views the stakes as very high: "Our laws against extortion do not function effectively when it comes to corporations." And he views responsible business officials as being too afraid to contradict the notion of CSR publicly -- "for fear of financial ruin, even though the practice continues to cost shareholders and society enormous amounts."

And: "The origins of this transformation lie in the minds of people who do not like or appreciate the genius of capitalist success stories, including always politicians, who will generally make any argument in order to control more private wealth."