AN OVERVIEW OF THE VOLUME
The remainder of the volume consists of eleven chapters, split into two parts. Part I of the volume, “Exploring and Extending the Theory of the Market Process,” consists of four chapters. Part II, “Interdisciplinary Applications of Market Process Theory,” consists of the remaining seven chapters.
The chapters in the first part of the volume explore and extend various aspects of market process theory from an interdisciplinary perspective. In chapter 1, Nathan Sawatzky argues that Plato’s economic genius has largely been overlooked. His central claim is that a careful assessment of Socrates’s economic analysis in the healthy, “early city” of Plato’s Republic reveals that historians of economic thought, including Schumpeter, Finley, and Robbins, have missed many or most of Plato’s contributions to economic theory. According to Sawatzky, Socrates’s analytical approach and resulting economic theory in the early city contrast sharply with the approach and conclusions of his interlocutors Glaucon and Adelmantus later in the Republic. These differences, thus, call into question the common view that Plato is a sort of communist, fascist, or totalitarian.
Among other things, Plato has Socrates adopt an approach to social and political analysis, similar to those of Weber and Mises, that seeks to account for the experiences of acting individuals. Plato through Socrates also systematically builds a theory of why such individuals exchange with one another. He also advances a theory that includes three reasons for the division of labor that complement but go beyond those offered by Adam Smith. Finally, Plato appears to understand the role of fiat money and articulates much of the theory of comparative advantage.
In chapter 2, Brianne Wolf explores Adam Smith’s writings on sympathy and the poor law. In the Wealth of Nations, Adam Smith provides a brief discussion of the English poor law as part of a larger discussion about labor markets. Smith argues that the law distorts the labor market in two ways: (1) by restricting the free circulation of labor and (2) by causing differences in price across labor markets. However, as Wolf notes, Smith spends a good deal more time talking about the moral consequences of the law. This chapter attempts to explain why Smith discusses the moral effects of the law rather than simply dismissing it on economic grounds by employing Smith’s argument about the poor law in Wealth of Nations together with his arguments about the extent of sympathy in Theory of Moral Sentiments.
Wolf argues that focusing on the moral consequences of this policy shows how economic liberty is also tied to the development of healthy moral judgment and sympathetic relationships. As Wolf recounts, Smith highlights two key aspects of the law that harm the moral situation of the poor by exacerbating the problem of distance in sympathetic relationships. First, the poor law establishes a position of arbitrary power for its overseers relative to the rest of society. Second, the law positions the poor as objects to be administered rather than individuals with moral worth. Smith shows that interfering with the market makes it more likely that we enhance its negative potential for fostering selfishness to the detriment of sympathy.
In chapter 3, Nick Cowen asks: How can liberal political theorists combine their normative commitments with realistic assumptions of human behavior and capacities? This is an important question for scholars who wish to use their theories to evaluate existing political institutions and recommend practical alternatives. This chapter describes a particular approach to realism in political theory by using the notion of “robustness” from the Robust Political Economy framework. Robust institutions are those that perform well even when people are neither omniscient nor perfectly motivated to follow the common good. On this view, certain market institutions (e.g., private property and the rule of law) are certainly robust institutions.
Cowen argues that the problems of limited knowledge and self-interest emerge from three assumptions about the constitution of human beings commonly found in the liberal theoretical tradition: methodological individualism, subjectivism, and analytical egalitarianism. He proposes a combination of public choice and market process theory as being best suited for evaluating the robustness of normative political theories. Cowen argues that this combination allows us to apply these assumptions systematically to all domains of human activity. Compared to standard neo-classical methodology, this approach offers an enriched account of the epistemic challenge to social cooperation that individuals face and the role of institutions, including private property and voluntary exchange, in ameliorating this challenge. Cowen shows how this systematic evaluation of the motivational and epistemic properties of institutions can help critique and extend Rawls’s contractarian theory of justice and offer a new perspective on the role of realism in political theory.
In the final chapter in part I (chapter 4), Dan Shahar examines the work of F. A. Hayek in the context of environmental political economy. Defenders of “free-market” environmentalism have often appealed to the writings of F. A. Hayek to support their favored approaches to environmental political economy. Yet Hayek’s power to vindicate such perspectives is controversial. In fact, some writers have found in Hayek’s writings an invitation to extensive political interventions in the environmental arena. Shahar explores three environmentally relevant themes in Hayek’s writings in order to clarify his true legacy for environmental political economy.
The first theme emphasizes that natural resources represent just one subset of the productive capital available to society and thus seeks to address environmental problems through the coordinating power of the market. The second stresses the challenges created by “neighborhood effects” in many environmental contexts, generating a potential case for political interventions aimed at preventing undesirable outcomes. The third theme highlights the need for principled protection of the complex, self-organizing systems on which humanity relies, potentially including certain natural ecosystems.
Shahar concludes that the paradigm resulting from a synthesis of these themes leaves significant room for political action to address environmental problems, contrary to the characterizations of some free-market environmentalists. But, Shahar argues, a Hayekian approach to environmental policy making also demands that interventions respect certain constraints to preserve the functionality of economic markets. Shahar argues that Hayek’s most important contributions to environmental debates can be found in his guidance for making public policies compatible with the functionality of the market order.
Part II, “Interdisciplinary Applications of Market Process Theory,” consists of the remaining seven chapters. These chapters apply the insights of market process theory to a variety of topics, demonstrating its continuing relevance. In chapter 5, Crystal Dozier explores the role of competitive feasting in the establishment of long-range trading relationships in three societies. Dozier begins with the recognition that human cooperation has been the focus of many disciplines of social science. While people have lived in small, mobile groups for the majority of our existence (over one hundred fifty thousand years) the sudden development of more complex societies in the Holocene (about eleven thousand years ago) is a phenomenon worthy of exploration. The first archaeological evidence of people meeting in large groups is represented through feasting traditions worldwide. Dozier argues that competitive feasting represents one of the first mechanisms through which individuals could gain special social status through trade and cooperation. Her chapter explores evidence for feasting traditions in Anatolia (now Turkey), among the Bronze Age Celts (now northern Europe), and Toyah Phase (now Texas) as case studies. In all of these examples, the first evidence for long-distance trade in the area is limited to nonfunctional or ceremonial goods, with evidence that these goods played a crucial role in gatherings of large numbers of people.
Dozier notes that the social differentiation afforded by feasting, emerging from more egalitarian forms of social organization, only succeeds because the hosts of the feast can fulfill their own desires as well as that of their guests. Motivation for competitive feasting spurred long-distance trade for exotic, luxury items as well as for the creation of special foods. These fundamental changes in human society are reflected in the first evidence for social ranking, private property, and long-distance trade—in other words, this transition marks the first evidence for an emerging market process.
In chapter 6, Nicholas O’Neill explains why the conservative Catholic press in France invoked a liberal political economy during the 1848 Revolution. He argues that as political actors attempted to define the fledgling republic that year, they grounded their claims to authority on external sources of legitimacy and established regimes of truth that could justify competing policy positions. As unemployment spiked in Paris, the debate over whether there existed a right to work played a pivotal role in determining the path of the revolution. O’Neill’s chapter reconstructs the moral economy rooted in Christian ethical teachings that radicals referenced to justify active state intervention in the economy to provide work to all in need. He highlights key elements of the era’s prevailing political economic theories about how market processes generated a market order. O’Neill also traces shifts in the conservative Catholic press when it embraced and then abandoned a liberal political economy as a political rhetoric against the radical understanding of the revolution. By doing so, his chapter emphasizes the importance of considering the political and cultural context surrounding the adoption of ideologies.
In the subsequent chapter (chapter 7), Bryan Leonard explores private property and collective action in the context of natural resource management. The problem of natural resource management has traditionally been confronted with either “top-down” or “bottom-up” institutions to coordinate individual actions. Top-down institutions prescribe particular outcomes or impose restrictions on individual behavior with the goal of preventing socially costly behavior. Alternately, bottom-up solutions for resolving collective action problems include two broad categories of institutions: informal institutions, where norms guide behavior, and market-based institutions built around formal property rights.
Leonard’s chapter focuses on how formal property rights can serve as a basis for coordination and explores the conditions under which property rights are a more effective solution to collective action problems than either political or informal institutions by exploring the development of the prior appropriation doctrine—a novel first-possession system of allocating water in the American West. First possession rights to water emerged as de facto claims because they made exclusion possible in a setting where agents arrived at different points in time and where land ownership—the traditional margin of demarcation for water rights—was in flux. The formal legal recognition of appropriative water rights made exclusion possible and allowed a market for irrigation clubs to form, generating information to help determine the efficient scope and size of irrigation works and governance. First possession property rights to water served as a basis for collective action in a setting where state provision of public goods and local informal arrangements built on cultural norms were equally infeasible.
Chapter 8, authored by Frank Garmon Jr., examines the logic behind Adam Smith’s principles of taxation and their application in the early American republic. He argues that early-American policy makers applied theories proposed by Smith and others because these fiscal strategies proved less distortional to the market process than other forms of taxation. Garmon outlines Adam Smith’s principles of taxation and investigates their relationship with other political theorists in the late eighteenth century. He then examines Smith’s reception in the early American republic. The founding generation read Smith avidly and incorporated elements of his maxims into their tax systems when they installed new tax administrations after the American Revolution. The combined system of federal and state taxation owes almost as much to Adam Smith’s principles as it does to Alexander Hamilton, who had read Smith closely and proposed a grand vision for concurrent tax powers. Hamilton articulated the benefits of constitutional limitations on taxing authority in the Federalist Papers. For Hamilton, the Constitution constrained the federal government’s power to levy direct taxes but provided it with unlimited authority over indirect taxes. The combined federal and state system of taxation had the effect of minimizing distortions in the market process by limiting the burden of taxation on average Americans.
In chapter 9, Jason Douglas discusses how stories can narrate and enhance the reach of market process theory. His chapter answers the following question: What does an account of the market process for the masses look like? Douglas contends that unlike some forms of specialized knowledge, economics has its greatest impact when it becomes part of public knowledge. Therefore, fostering greater public understanding of the market as a process requires multidisciplinary collaborations that draw from cultural studies. Douglas argues that stories are an essential tool for communicating economic ideas. Because people understand the world they live in through stories, we need to understand how such stories can be used to narrate the market process. In order to understand how stories can be effective tools of teaching and communicating economic ideas, Douglas identifies formal similarities between narrative and the market process by analyzing Cameron Hawley’s 1955 business novel, Cash McCall.
The subsequent chapter (chapter 10), authored by Jerrod Anderson, examines how market process theory offers insight into the operation of health care markets. Many economists argue that an unregulated health care market would be dysfunctional due to problems of high switching costs and asymmetric information, affecting both consumer and producer decision making. These critiques of the health care market often come with calls for more regulation in order to protect the consumer or increase transparency. Anderson provides an alternative analysis of the health care market and shows how expanding the scope of exchange relationships, rather than constraining them through regulation, can lead to an improved competitive environment. In order to illustrate his main points, Anderson uses the example of doctors hired by mutual aid societies in the early 1900s. In doing so, he shows how the problems of asymmetric information were mitigated through a mix of contracting and labor market competition. Anderson then examines the contemporary practice of medical tourism and describes how lessons from the mutual aid societies can be combined with medical tourism to improve domestic health care competition. Anderson’s analysis shows that while market imperfections may seem endemic to the health care market, these issues can be mitigated over time if consumers and producers are allowed the freedom to contract and engage in mutually beneficial exchange.
Finally, in chapter 11, Audrey Redford explores the connection between market process theory and the government prohibition of drugs. Markets for prohibited goods, specifically illegal drugs, exist, despite extensive efforts to suppress them. The intention of prohibitionist policies is to eliminate the market for a particular good(s). Redford argues that in order to remain in the market, prohibition entrepreneurs have the incentive to figure out ways of minimizing the costs of doing illegal business—for example, the costs required to evade law enforcement and consideration of the cost and likelihood of punishment—as well as establishing and maintaining institutions that promote cooperation where formal property rights are not provided. Redford’s analysis suggests that because illegal markets are forced outside of the traditional property rights-based institutional arrangements and must continually avoid law enforcement, entrepreneurial efforts within illegal markets will be channeled toward protective innovations that allow these entrepreneurs to remain in business. As entrepreneurs discover new methods by which to innovate, they will be shaped by the entrepreneur’s knowledge and the environment within which the entrepreneur is acting. This helps to explain why illegal and legal drugs diverge on margins, including the use of violence and advances (or lack thereof) in product quality.
Taken together, the chapters in the volume demonstrate the interdisciplinary relevance of market process theory. Each chapter offers specific insights into different areas of this theoretical framework. There is much additional work to be done in exploring, extending, and applying the insights of this framework from a variety of disciplinary perspectives. Our hope is that this volume will encourage an ongoing interdisciplinary discussion that is sure to generate mutual gains from intellectual exchange.