Conclusion

3.2 Free Markets and Rights: John Locke 3.2.1 Criticism of Lockean Rights 3.3 Free Markets and Utility: Adam Smith

3.3.1 Criticisms of Adam Smith 3.3.2 The Keynesian Criticism

3.3.3 The Utility of Survival of the Fittest: Social Darwinism

4.0 Conclusion 5.0 Summary

6.0 Tutor-Marked Assignment 7.0 References/Further Reading

1.0 INTRODUCTION

The second unit is centred on the economic systems: the free market, its rights and utilities as explained by John Locke and Adam smith.

However, their explanation never went without criticism as forwarded by Keynes. Also, the unit explained the utility of the survival of the fittest from the angle of Social Darwinism.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

• explain why government must leave people free to exchange their property;

• state why Adam Smith believes that free market produces results and should be consistent with the public good;

• examine the Keynesian criticism

3.0 MAIN CONTENT

3.1 Economic Systems

Arguments about free markets and free trade are arguments about economic systems. An economic system is the system a society uses to provide the goods and services it needs to survive and flourish. This

76 system must accomplish two basic economic tasks: First is the task of actually producing goods and services, which requires determining what will be produced, how it will be produced, and who will produce it. The second is the task of distributing these goods and services among its members, which requires determining who will get what and how much each will get. To accomplish these two tasks, economic systems rely on three kinds of social devices: traditions, commands, and markets. Each of these three provides a way to organise people’s activities, a way to motivate them, and a way to decide who owns or controls the society’s productive resources.

The so-called primitive societies used economic systems based primarily on tradition. Tradition-based societies are small and rely on traditional communal roles and customs to carry out the two basic economic tasks.

Individuals are motivated by the community's expressions of approval or disapproval, and the community's productive resources, such as its herds are often owned in common. A small nomadic tribe, for example, that survives by hunting and herding might rely on the traditional roles of husband, wife, mother, father, son, and daughter to decide who does what and who gets what and may hold its herd in common. Societies that are almost completely tradition-based exist even today among Bushmen, the Inuit, Kalahari hunters, and Bedouin tribes.

Large modern societies carry out the two main economic tasks primarily through two very distinctive ways of organising themselves: commands and markets.; In an economic system based primarily on commands, a government authority (a person or a group) makes the economic decisions about what is to be produced, who will produce it, and who will get it. Productive resources such as land and factories are owned or controlled by government and are considered to belong to the public or to “the people.” Individuals are motivated to put forth the required effort by the rewards and punishments government doles out and by its exhortations to serve society. China, Vietnam, North Korea, Cuba, the former Soviet Union, and several other nations have run their economies primarily on the basis of commands.

By contrast, in a system based primarily on markets, private individuals make the main decisions about what they will produce and who will get it. Productive resources like land and factories are owned and managed by private individuals and are consequently considered “private property.” People are motivated to work primarily by the desire to get paid for voluntarily supplying the things others are willing to pay for.

England in the 19th century is often cited as a prime example of an economy that was based primarily on a market system.

77 Economies today contain elements of all three of these devices:

traditions, commands, and markets The United States, for example, is highly “market-oriented,” yet some Americans still consider some jobs to be “men's work,” or “women’s work,” so for them “tradition”

determines who does those jobs, and the U.S. government not only issues “commands” that regulate business, labour, and international trade but also owns several important businesses, including the Export-Import Bank, the Postal Service, the Tennessee Valley Authority, and several others.

In fact, it would be undesirable to run an economy completely on the basis of traditions, commands, or markets. If an economy was a pure market system, for example, with no economic interventions by government, there would be no constraints whatsoever on the property one could own or what one could do with it. Slavery would be entirely legal, as would prostitution and all drugs, including hard drugs. Today, the governments of even the most market-oriented economies decree that there are some things that may not be owned (such as slaves), some things that may not be done with one's own property (such as pollution), some exchanges that are illegal (children's labour), and some exchanges that are imposed (through taxation). Such limitations on markets are intrusions of a command system: Government concern for the public welfare leads it to issue commands concerning which goods may or may not be produced or exchanged. Similarly, even under the almost all-encompassing command system of the former Soviet Union's harsh Stalinist regime, local markets-many of them so called "black markets"-existed where workers could trade their wages for the goods they wanted.

Since the 18th century, debates have raged over whether economies should be based more on commands or on markets. Should we have more government commands in the form of more economic regulations and more government control of business enterprises, or should government stand back and trust the economy more to the workings of the “market” and the decisions of private owners of companies?

Sometimes these debates have been expressed in terms of whether economic activities should be more or less “free” of government

“intrusions” and then the discussion is over “free markets” (“free,” that is, of government) and “free trade.” Sometimes the debate is over

“laissez-faire” policies, which, literally, in French is for policies that “let us act” free of government controls.

Today these debates continue on two levels:

• Arguments for and against “free markets” within a nation,

• Arguments for and against “free trade” between nations. The

78 reader should not confuse the two different levels of these debates, although the two levels are related. The debate at the first level asks whether a nation's government should regulate business exchanges between its citizens or, instead, allow its citizens to freely exchange goods with each other. The debate at the second level asks whether a nation's government should allow its citizens to freely trade goods with the citizens of other nations or, instead, impose tariffs or quotas on the goods foreign citizens want to trade with them. We can call the first debate the debate over free markets and the second the debate over free trade. In this unit, we will examine the arguments on both sides of these debates, which are, in the end, debates over the proper role of commands and of markets both nationally and internationally.

In analysing these arguments on free markets and free trade, on commands and markets, we in effect analyse what sociologists refer to as ideologies. An ideology is a system of normative beliefs shared by members of some social group. The ideology expresses the group’s answers to questions about human nature (e.g., Are human beings only motivated by economic incentives?), the basic purpose of our social institutions (e.g., what is the purpose of government; of business, of the market?); how societies actually function (e.g., are markets really free?

Does big business control government?), and the values society should try to protect (e.g., freedom, productivity, equality etc). A business ideology, then, is a normative system of beliefs on these matters, but specifically one that is held by business groups such as managers.

The importance of analysing business ideologies is obvious: A businessperson's ideology often determines the business decisions made;

through these decisions, the ideology influences the person’s behaviour.

The businessperson’s ideology, for example, will colour the person's perceptions of the groups with whom the person has to deal (employees, government officials, the poor, competitors, consumers); it will encour-age the person to give in to certain pressures from these groups (perhaps even to support them) and oppose others; it will make the person look on some actions as justified and legitimate and other actions (both those of the person and those of other groups) as unjustified and illegitimate.

If a person's ideology is never examined, it will nonetheless have a deep and pervasive influence on the person’s decision-making, an influence that may go largely unnoticed and that may derive from what is actually a false and ethically objectionable ideology.

The ideologies that Americans hold today incorporate ideas drawn from the thinking of Adam Smith, John Locke, David Ricardo, and other influential thinkers whose normative views we examine and evaluate in this unit. We discuss these ideas not only because of the significant

79 influence they have on our ideologies but because many people today argue that these ideologies must be adjusted if they are to meet the contemporary needs of business and society. It would be a valuable exercise for the reader to identify the ideology he or she holds and to examine and criticise its elements when reading this unit.