This article is part of the Thinking Points Discussion Series published by the Rockridge Institute in early 2007. It was written by Joe Brewer (Rockridge Institute staff member) on Monday, April 30, 2007
The market is a very important social institution that all communities need in order to thrive. The question we must consider is what kind of market should we have. In this article we explore the moral values that are expressed in conservative and progressive understandings of what the market is and how it should function.
The experiences of family life that shape our moral worldviews were explored in Chapter 4 of Thinking Points for both conservative and progressive morality. Chapter 5 shows how these different moral sensibilities get expressed in our understanding of markets. In this article we explore how different understandings of what the market is and what it should be have major consequences for real communities.
What is the Market?
Chapter 5 starts out in the following way:
You hear it all the time from conservatives: “Leave it to the market.” Health care: Leave it to the market. Social Security: Leave it to the market. The climate crisis: Leave it to the market. Campaign finance: Leave it to the market. Minimum wage: Leave it to the market.
Progressives – even the wealthy ones – tend to disagree with virtually all of the leave-it-to-the-market arguments. This is because we think of the market in very different ways from conservatives.
Markets are institutions for the exchange of “goods and services” that can be almost anything. Products include common things like food, drinking water, and clothing along with less obvious things like convenience, identity (brand image), and labor.
In the cognitive sciences we study the ways our brains make sense of information. One powerful tool used by our brains is the idealized cognitive model.
An idealized cognitive model is a mental structure that organizes information into a simplified representation. This representation is used to construct a mental space for meaning to arise.
In his book Women, Fire, and Dangerous Things: What Categories Reveal about the Mind, George Lakoff discusses idealized cognitive models extensively. An example he gives on pp. 68-69 is the word Tuesday. Tuesday can only be defined relative to a mental representation of natural cycles defined by the movement of the sun and rotation of the Earth, which is the standard means of characterizing the beginning and end of each day. The mental representation of natural cycles must also include the idea of a seven-day calendar cycle – the week – in order for the word Tuesday to be meaningful. These concepts do not exist in the world beyond our thoughts. There is no such thing as a seven day week in nature. Yet, we need these mental structures that organize information in this way for Tuesday to have the meaning it has.
An important thing to note about cognitive models is that they don’t need to actually exist in the world to be useful. The idea of a seven-day calendar week is not true in the world, but this doesn’t stop it from shaping our society in powerful ways that are very useful to us.
There is an idealized cognitive model for the market that is common in our society today. It is the mental representation of the Free Market. Just like in the example of Tuesday, the Free Market does not exist in the world but – unlike the concept for a seven day week – it doesn’t work. Yet, the consequences of this mental representation of the market are extremely important – shaping everything from the health of our planetary life-support systems to the existence of slave labor conditions throughout impoverished countries (and wealthy countries, including sweat shops in the United States).
How Should Markets Function?
The classical assumption behind markets is that everyone is trying to maximize profit, with sellers trying to maximize prices while buyers try to minimize costs. This leads to the idea that markets “determine value” – what the buyer is willing to pay and the seller is willing to accept.
From this arises the central idea promoted by Adam Smith that everyone is, or should be, trying to maximize profits. He termed the phrase “invisible hand” to say that the nature of markets is to maximize profits for all participants in a manner that helps everyone – including the nation – without any guidance from outside the market itself.
Is this how markets function? Perhaps more importantly, is this how markets should function? This is a moral question that can only be answered by recognizing the unstated assumptions of this idealized representation of the marketplace. Here are the assumptions necessary for this model to be true:
Assumption 1: There is near-perfect competition.
Assumption 2: There is perfect knowledge by both buyers and sellers.
Assumption 3: There is equal accessibility.
Assumption 4: There is no organizing of sellers to inflate prices.
Assumption 5: Both buyer and seller are equally powerful.
Assumption 6: Both buyers and sellers act rationally.
All of these assumptions are false. I have already written about the problems with rationality. The others are demonstrably incorrect, as you can see by looking at the real global marketplace any day of the week. This raises serious concerns about the natural and moral aspects of markets. Especially since most progressives and conservatives still assume that this idealization is true.
In order to answer the question – how should the market function? – we need to see the values that inform our understanding. The strict and nurturant family models provide different perspectives that help clarify the problems with this idealized cognitive model of the market.
Conservative View of the Market
The strict father family model uses the “free market” implicitly when it tells us that the market is a competitive system where the disciplined are rewarded through profit, and the undisciplined (thus immoral, according to this view) are punished through poverty. The market is understood as an instrument of morality. It is seen as natural, moral, and fair with the following logic:
- If you are not prosperous, it means you are not disciplined.
- If you are not disciplined, you cannot be moral.
- Therefore, you deserve your poverty.
This leads to a fundamentalist view of economics that parallels fundamentalist religion. Fundamentalist religion tells us:
God rewards the disciplined people who follow His commandments and punishes sinners who are undisciplined or rebellious.
Fundamentalist economics tells us:
The market rewards the disciplined who follow the Market Commandment – that every individual must seek to maximize profits – and punishes the undisciplined with failure and poverty.
There are a number of entailments that come along with this conservative view of the economy. Because the profit motive is assumed to maximize efficiency, the government is understood to be an interference because it is seen as wasteful and inefficient. Government interferes, according to this view, in four ways:
- Regulation limits what individuals can do to make profits.
- Taxes are seen as taking away profits.
- Workers’ rights and unions lessen corporate and investor profits.
- Tort laws take away corporate or investor profits.
This is why the right-wing is for deregulation, against taxation, against unions and worker rights, and for “tort reform.”
Additional Consequence: Earth as Resource
The Earth is to be used by human beings for making profits. Nature exists for the benefit of man. This leads to the understanding that anything that is not privatized and being used for production has no value – all value is expressed in economic terms. There is no room for an idea of the commons that should be protected from private development.
Progressive View of the Market
The nurturant family model starts with empathy for others and responsibility for ourselves and others. Thus markets should serve communities. They should make people free from harm and fear while allowing them to be free to meet their needs and fulfill their dreams. This leads to the idea that the purpose of the market is to serve the common good by allowing everyone who works to earn a decent living, preserving the natural world, and serving democracy.
Progressives focus on the ways real markets are different from the idealized “free market” and recognize the essential role government plays in protecting people from harm in the marketplace. All of the things conservatives see as harmful interference are seen by progressives as absolutely necessary:
- Regulation protects the public from harmful products and fraud by unscrupulous or irresponsible business.
- Taxation brings together the common wealth to build infrastructure that we all need. (Learn more about the fairness of progressive taxation in this article [link to progressive taxation].)
- Unions and workers’ rights help balance the unfair distribution of power in job negotiations and promote safe, healthy, and ethical workplaces.
- Tort lawsuits are the last defense against irresponsible companies that harm the public.
The Principle of the Common Good is central here. The common wealth has been used to build highways, educate citizens, regulate the stock market, and support the court system. No business can function in the market today without massive dependence on this infrastructure that is paid for with taxpayer money.
Progressives see the moral purpose of markets being to serve communities. We recognize this truth:
Markets can’t thrive and serve the common good without the constructive role of government.
Conservatives ignore this truth when they speak of the “free market.”
Seven Myths of the Free Market
Here is the conservative free-market frame:
Markets are free when government doesn’t regulate or interfere with the market. Through the “invisible hand,” markets maximize efficiency and wealth for all. Government “intervention” in the market stifles freedom, creates inefficiency and waste, and inhibits profitability for all. Seeking profit in the market is natural, moral, and fair. Because markets maximize profit overall, they contribute to freedom. Ensuring free markets is thus a moral cause.
This is a nice story, but it is not true, and conservatives know it! They supported bailing out the airline industry with $15 billion in taxpayer money because they consider the airline industry to be a vital part of the country. They also support giving a large chunk of taxpayer money to private defense contractors, the oil industry, and agribusiness corporations to keep profits high and market “costs” low (see Michael Pollan’s book The Omnivore’s Dilemma: A Natural History of Four Meals). How is it untrue? Here are seven common myths in need of being dispelled:
Myth 1: A Purely Free Market is Ideal
A market without government intervention would be a scary place. Drug companies could sell drugs that haven’t been tested. Oil companies could sell fuel containing lead to be released into the atmosphere. Toxic pollution could be dumped into rivers and streams. This is far from ideal!
Myth 2: People are Rational Actors
Consumers don’t make decisions based on cost-benefit analysis. We do not think using literal concepts and reason to conclusions in a conscious manner. We don’t make “free choices” either. Just think of the impacts of aggressive marketing to children that take advantage of developmental vulnerabilities. Corporations are well aware of the ways we are not purely rational, and they use this knowledge to their advantage to manipulate consumers (this is explored extensively in the documentary The Corporation).
Myth 3: There is a Level Playing Field
Employers have more power than employees. When corporations treat employees as resources – and upper management as assets – they apply the truism that profits rise when the cost of resources fall. The pressure to increase profits drives wages down. Unemployment increases competition so that the “invisible hand” of the market squeezes productivity from labor as efficiently as possible.
Myth 4: A Company’s Balance Sheet Reflects True Costs
One of the great challenges in corporate reform is figuring out how to get the market to reflect true costs. Right now the dominant paradigm in business is to externalize costs to an unknowing and uncaring public. Costs not recognized by the market include global climate change, health care costs associated with pollution, damage to ecosystems and loss of habitat, use of public military to stabilize regions to extract resources (Iraq should come to mind!), and restrictions on the functioning of democracy with the powerful influence of corporate interests on governance.
Myth 5: Everything, Including Life, Has a Fair Monetary Value
Value is not entirely determined by supply and demand. The value of healthy human life, healthy ecosystems, and aesthetic beauty in natural (or urban) settings cannot be captured with a dollar sign. Yet, corporations use cost-benefit analysis to determine whether to recall automobiles that have faulty designs which can kill people. HMOs use cost-benefit analysis to decide whether it is “worth it” to send a patient to a specialist. Assessments of monetary worth cannot determine whether these are fair costs or place a fair price on life-saving measures such as the reduction of greenhouse gases needed to have a secure and healthy future.
Myth 6: Markets Are Outside the Scope of Moral Judgments
The conservative view assumes unconstrained free markets are inherently natural and fair – and thus are outside the scope of moral judgment because they are inherently moral. In reality there are many moral factors that need to be publicly discussed about human health and life, the survival of species, and the quality of communities.
Myth 7: Everyone Can Pull Himself or Herself Up by the Bootstraps
An individual may be able to climb the ladder of success, but it is not true that all people can. Our economy is structured in a manner that requires the existence of dead-end jobs based on cheap labor. There aren’t enough advancement opportunities for everyone. Nor is there start-up capital to employ all of them. Besides, if all service-class people (gardeners, janitors, cooks, etc.) left these positions we wouldn’t have anyone to perform these important roles for society.
Government Close-out Sale
The “free market” frame has harmful consequences when it is applied to government. Privatization and deregulation are seen as virtues that lead to “less government.” This is simply false. They really lead to less responsible government! Here are a few examples:
- HMOs and drug companies are deciding what type of medical care people will have and how much it will cost.
- Automobile manufacturers are deciding how much greenhouse gas to put into the atmosphere.
- Petrochemical companies are deciding how many toxic chemicals will be allowed to contaminate ground water supplies.
- Agribusinesses are deciding the nutritional content of our food supply.
These decisions impact our communities in serious ways and they are not being made in democratic ways. They are moral decisions that affect the common good. They should be publicly discussed, and decision makers should be known and accountable to the public.
Privatization and deregulation constitute the outsourcing of democratically elected government with a moral mission (to serve the people) to corporations that have a profit-making mission (to serve investors). This turns our democracy into a corporatocracy.
The Price of Human Dignity
How much money would you pay to have affordable health care, quality education, and clean drinking water? Any answer to this question in its current form is misleading. The question has framed these concerns as monetary concerns to be dealt with in the marketplace. We need to turn this question on its head and instead ask “How much human dignity, well-being, and human health can we afford to sell on the market?” The answer then becomes obvious. Some things shouldn’t have price tags.
Our government was founded on progressive principles to protect the common good and ensure that We the People make the moral decisions that shape our health and well-being. Right now the most important moral decisions are not being made by the people. It is our responsibility to shift the politics of our country back to this time-honored mission.
We can do this by repeating the idea that markets must serve the common good every step of the way.
Go to the next discussion in this series.