ACCEPTING THE INVISIBLE HAND

ACCEPTING THE INVISIBLE HAND

PERSPECTIVES FROM SOCIAL ECONOMICS Series Editor: Mark D. White, Professor in the Department of Political Science, Economics, and Philosophy at the College of Staten Island/CUNY. The Perspectives from Social Economics series incorporates an explicit ethical component into contemporary economic discussion of important policy and social issues, drawing on the approaches used by social economists around the world. It also allows social economists to develop their own frameworks and paradigms by exploring the philosophy and methodology of social economics in relation to orthodox and other heterodox approaches to economics. By furthering these goals, this series will expose a wider readership to the scholarship produced by social economists, and thereby promote the more inclusive viewpoints, especially as they concern ethical analyses of economic issues and methods. Accepting the Invisible Hand: Market-Based Approaches to Social-Economic Problems Edited by Mark D. White

Accepting the Invisible Hand Market-Based Approaches to Social-Economic Problems Edited by Mark D. White

ACCEPTING THE INVISIBLE HAND Copyright Mark D. White, 2010. Softcover reprint of the hardcover 1st edition 2010 978-0-230-10249-1 All rights reserved. First published in 2010 by PALGRAVE MACMILLAN in the United States a division of St. Martin s Press LLC, 175 Fifth Avenue, New York, NY 10010. Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978-1-349-28683-6 ISBN 978-0-230-11431-9 (ebook) DOI 10.1057/9780230114319 Library of Congress Cataloging-in-Publication Data Accepting the invisible hand : market-based approaches to socialeconomic problems / edited by Mark D. White. p. cm. Includes bibliographical references and index. 1. Free enterprise Moral and ethical aspects. 2. Social policy Moral and ethical aspects. 3. Social problems. I. White, Mark D., 1971 HB95.A25 2010 174 dc22 2010015501 A catalogue record of the book is available from the British Library. Design by Newgen Imaging Systems (P) Ltd., Chennai, India. First edition: November 2010 10 9 8 7 6 5 4 3 2 1

Dedicated to the memory of Daniel C. Kramer (1934 2010), an exemplary scholar, colleague, mentor, and friend.

Contents Preface and Acknowledgments Mark D. White Notes on the Contributors ix xiii 1 Markets and Dignity: The Essential Link (With an Application to Health Care) 1 Mark D. White 2 Markets, Discovery, and Social Problems 23 John Meadowcroft 3 Economic Freedom and Global Poverty 43 James D. Gwartney and Joseph S. Connors 4 Don t Let the Best Be the Enemy of the Good: A Stoic Defense of the Market 69 Jennifer A. Baker 5 Ethics in the Mayan Marketplace 87 Benjamin Blevins, Guadalupe Ramirez, and Jonathan B. Wight 6 Philanthropy and the Invisible Hand: Hayek, Boulding, and Beyond 111 Robert F. Garnett, Jr. 7 Life in the Market Is Good for You 139 Deirdre Nansen McCloskey 8 Doing the Right Things: The Private Sector Response to Hurricane Katrina as a Case Study in the Bourgeois Virtues 169 Steven Horwitz Index 191

Preface and Acknowledgments Mark D. White Markets are hard to appreciate. Gary Becker In an interview in The Wall Street Journal in early 2010, Gary Becker, professor at the University of Chicago, fellow at the Hoover Institution, and Nobel laureate in economics, explained how people tend to have distrust of markets, despite the tremendous increases in standards of living enabled by them: People tend to impute good motives to government. And if you assume that government officials are well meaning, then you also tend to assume that government officials always act on behalf of the greater good. People understand that entrepreneurs and investors by contrast just try to make money, not act on behalf of the greater good. And they have trouble seeing how this pursuit of profits can lift the general standard of living. The idea is too counterintuitive. So we re always up against a kind of in-built suspicion of markets. There s always a temptation to believe that markets succeed by looting the unfortunate. 1 It is the purpose of this book to help show that markets indeed do not succeed at the expense of others that commerce is rarely a zerosum game and that markets not only serve to increase wealth and standards of living, but can also be effective means of helping alleviate social problems, as well as enhancing human life in ways deeper and more meaningful than material satisfaction (important though that is, especially in developing countries). The contributors to this book are drawn from a wide variety of fields and specializations, and each provides a unique perspective on the social benefits of the market. All of the chapters in this book focus on positive arguments for markets, eschewing well-known criticisms of the efficiency, efficacy, or ethics of state intervention in the economy. Readers who are looking for those arguments can easily

x PREFACE AND ACKNOWLEDGMENTS find them elsewhere possibly even written by some of the present contributors but the chapters in this book argue the case for markets, not the case against government. In my chapter, for instance, I argue that the most essential feature of markets is not their capacity for wealth creation or efficiency, but rather that they embody respect of the dignity of persons as described by the philosopher Immanuel Kant. I then apply this analysis to the case of health care, arguing that rather than representing an inappropriate use of the market, the intimately personal choices that are made in the realm of health care necessitate a market setting in which they can be made by patients themselves. Along similar lines, John Meadowcroft argues that market-based solutions to social problems are preferable to political ones because they are more responsive to the diversity of individual preferences, and he uses the examples of smoking regulations and education to illustrate his point. James Gwartney and Joseph Connors provide theoretical arguments and evidence, based on World Bank poverty rates and the Economic Freedom of the World index, that economic freedom, including a strong reliance of markets, not only increases wealth in countries around the globe but also lowers their poverty rates, countering the frequent charge that the spread of free markets benefits the wealthy at the expense of the poor. Jennifer Baker provides a philosophical complement to Gwartney and Connors chapter, suggesting that Stoic ethics, with its bilevel account of value, can recognize the good that the market does in generating widespread affluence, while at the same time calling attention to its possible faults in terms of issues such as unequal distribution and access. She argues that the Stoic account can also help us ethically consolidate our marketoriented behavior (which usually makes up much of our day-to-day lives) with our moral responsibilities and duties to others. Citing the economic and moral insights of Adam Smith (who was influenced by Stoic thought), Benjamin Blevins, Guadalupe Ramirez, and Jonathan B. Wight examine the ethics surrounding market behavior in Mayan culture, arguing that without understanding the history and culture of different regions of the world, the impact of aid from abroad will be radically diminished, if not self-defeating. They also describe the Highland Support Project, which has provided much-needed assistance to the Mayan areas in Guatemala by respecting and building on existing cultural practices to help enhance markets on the Mayans terms, not according to standard Western conceptions. Robert Garnett brings the thought of Friedrich von Hayek and Kenneth Boulding together with that of Adam Smith to explain why

PREFACE AND ACKNOWLEDGMENTS xi charity and commerce have been separated for so long in economic discussion, and why they must be brought together to grasp the full scale and scope of meaningful economic activity. Deirdre McCloskey, one of the most prominent exponents of Adam Smith s moral philosophy and the virtues of commerce, explains in her unique way that market activity is not only honorable and virtuous work, but is often also affirming and satisfying if you do it right. And finally, in the spirit of McCloskey s book The Bourgeois Virtues, Steven Horwitz provides real-world examples of private firms acting charitably toward both their communities and their employees, focusing on the efforts of firms such as Wal-Mart during the tragic events and aftermath of Hurricane Katrina. Cynics may argue that these companies engaged in charitable works simply for the publicity, but Horwitz effectively answers this charge, providing ample evidence from numerous interviews and other sources to support his argument. Together, I feel the chapters in this book make a strong case for the use of markets to enhance the material and ethical aspects of society: helping deal with problems such as poverty and natural disasters, contributing to the provision of services such as health care and education, and enhancing standards of living and inner fulfillment. Following Becker s lament, I hope that this book will make markets a bit easier to appreciate (and perhaps a bit harder to denigrate). My debts regarding this book are few in number but inestimable in size. First and foremost, I thank Laurie Harting at Palgrave Macmillan for helping me launch the Perspectives from Social Economics series and suggesting that I edit the first book myself. Thanks go also to Laura Lancaster at Palgrave, editorial assistant extraordinaire, who made my job so much easier. Finally, I thank each and every one of my contributors, who made my job so very enjoyable and gratifying, and to whom I attribute any success and acclaim this book may garner. Note 1. Peter Robinson, Basically an Optimist Still: The Weekend Interview with Gary Becker. The Wall Street Journal, March 27 28, 2010, A13.

Contributors Jennifer A. Baker received a BA (philosophy and political theory) from Brown University in 1995 and a PhD (philosophy) from the University of Arizona in 2003. She is an assistant professor at the College of Charleston and has also taught at Duke and UNC-Chapel Hill. Her research is focused on the usefulness of the traditional accounts of virtue ethics for solving impasses in psychology, ethics, political, and economic theory. Benjamin Blevins is the founder and executive director of the Highland Support Project (HSP) of Guatemala. HSP is a 501(c)(3) organization based in Richmond, Virginia, which serves the Mayan communities of Guatemala through transformational development projects. It also offers service-learning trips to North Americans in its mission to foster meaningful exchange and understanding across the Americas. Ben is a graduate of the University of Richmond, where he has been a frequent lecturer; his current work focuses on developing agency in marginalized communities through empowerment programs and market access. Joseph S. Connors is a doctoral candidate and BB&T dissertation fellow at Florida State University. His dissertation research is on the role of institutions in helping to reduce poverty in developing countries. His areas of specialization are development economics, applied econometrics, and financial and monetary economics. Before beginning his graduate studies, he worked for nine years as an electrical engineer in the San Francisco Bay Area. Robert F. Garnett, Jr. is Associate Professor of Economics at Texas Christian University, United States. His current work focuses on the virtues of pluralism in economic inquiry and economics education, and the philanthropic dimensions of commercial societies. He is the editor (with Erik Olsen and Martha Starr) of Economic Pluralism (Routledge, 2009).

xiv CONTRIBUTORS James D. Gwartney holds the Gus A. Stavros Eminent Scholar Chair at Florida State University, where he directs the Stavros Center for the Advancement of Free Enterprise and Economic Education. He is the coauthor of Economics: Private and Public Choice (Cengage South-Western Press, 2010), a widely used principles of economics text that is now in its thirteenth edition. He is also the coauthor of the annual report, Economic Freedom of the World, which provides information on the consistency of institutions and policies with economic freedom for 141 countries. His publications have appeared in scholarly journals, including the American Economic Review, Journal of Political Economy, Southern Economic Journal, and Journal of Institutional and Theoretical Economics. During 1999 2000, he served as chief economist of the Joint Economic Committee of the U.S. Congress. He is a past president of the Southern Economic Association and the Association of Private Enterprise Education. His PhD in economics is from the University of Washington. Steven Horwitz is Charles A. Dana Professor of Economics at St. Lawrence University in Canton, New York. He is the author of two books, Microfoundations and Macroeconomics: An Austrian Perspective (Routledge, 2000) and Monetary Evolution, Free Banking, and Economic Order (Westview, 1992), and has written extensively on Austrian economics, Hayekian political economy, monetary theory and history, and the economics and social theory of gender and the family. His work has been published in professional journals such as History of Political Economy, Southern Economic Journal, and The Cambridge Journal of Economics. He has also published public policy on the private response to Hurricane Katrina for the Mercatus Center, where he is an Affiliated Senior Scholar. Deirdre Nansen McCloskey teaches economics, history, English literature, and communications at the University of Illinois at Chicago. An internationally known economic historian and rhetorician of science, she has written fifteen books and several hundred articles on topics ranging from mathematical models of medieval agriculture to the poetics and economics of magical beliefs. Her recent books include Bourgeois Virtues: Ethics for an Age of Commerce (2006), The Cult of Statistical Significance: How the Standard Error Costs Jobs, Justice, and Lives (with Stephen Ziliak, 2008), and Bourgeois Dignity: Why Economics Can t Explain the Modern World (2010). Educated at Harvard, she taught for twelve years at the University of Chicago in

CONTRIBUTORS xv its best years of scientific creativity, and then for nineteen years at the University of Iowa. John Meadowcroft is Lecturer in Public Policy at King s College London. He is the author of The Ethics of the Market (Palgrave, 2005), which won an Intercollegiate Studies Institute Templeton Enterprise Award, coauthor with Mark Pennington of Rescuing Social Capital from Social Democracy (Institute of Economic Affairs, 2007), which won the Arthur Seldon CBE Award for Excellence, and editor of Prohibitions (Institute of Economic Affairs, 2008). Since 2004 he has been a deputy editor and book review editor of the journal EconomicAffairs. He is also series editor of the twenty-volume Major Conservative and Libertarian Thinkers series published by Continuum in 2009 and 2010. Guadalupe Ramirez is the founder of the Highland Women s Association (AMA), and owner and manager of AlterNatives, a fair trade marketing enterprise. Her current work focuses on providing indigenous people access to skills and resources needed to succeed in exporting to global markets. AMA is a nonprofit organization based in Quetzaltenango, Guatemala, and serves the Mayan communities of Guatemala through transformational development projects. Guadalupe is a frequent lecturer on women s issues in development and Mayan cosmo-vision. Mark D. White is Professor in the Department of Political Science, Economics, and Philosophy at the College of Staten Island/CUNY, where he teaches courses in economics, philosophy, and law. He writes and blogs regularly on these topics, and is the author of Kantian Ethics and Economics: Autonomy, Dignity and Character (Stanford, 2011) and editor of The Thief of Time: Philosophical Essays on Procrastination (with Chrisoula Andreou; Oxford, 2010), Theoretical Foundations of Law and Economics (Cambridge, 2009), and Ethics and Economics: New Perspectives (with Irene van Staveren; Routledge, 2009), among others. He is the series editor of Perspectives from Social Economics from Palgrave Macmillan, of which this book is the inaugural volume. Jonathan B. Wight is Professor of Economics and International Studies in the Robins School of Business at the University of Richmond. Recent research focuses on the intersection of economics and ethics. His academic novel Saving Adam Smith: A Tale of Wealth, Transformation, and Virtue (2002) explores the moral foundations

xvi CONTRIBUTORS of capitalism through the eyes of Adam Smith. In 2007 he published Teaching the Ethical Foundations of Economics (with John Morton), a set of ten lessons on ethics for economics classrooms. Recent research focuses on Adam Smith s understanding of instincts as a foundation for survival and group success. Jonathan is helping to launch a major in Philosophy, Politics, Economics, and Law at the University of Richmond.