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In philosophy, the interest in questions relating to markets has seen ebbs and flows. Starting roughly in the 18 th century, one finds debates about a society in which markets are a social sphere of their own, and have an impact on the society as a whole. This article presents the most important strands of the philosophical debate about markets. The main focus is on presenting the most common arguments for and against markets, and on analyzing the ways in which markets are related to other social institutions.

In the concluding section questions about markets are connected to two related themes, methodological questions in economics and the topics of business ethics and corporate social responsibility. To understand better what markets are, it is important to distinguish the concept of markets from other, related concepts. In markets, exchanges of goods and services take place for reasons of self-interest, in contrast to, for example, the exchange of gifts with the aim of building relationships on gift exchange see e.

Most markets use money as a medium of exchange. But there are also markets where exchanges take place in the form of barter or in different forms of auctions. In markets, competition results from the fact that agents seek to find the best deal, thus creating competition among the participants on the other side of the market, supply or demand respectively. In what follows, the focus is on competitive markets, leaving aside the specific problems in particular unequal market power of non-competitive markets such as monopolies or cartels. To the degree to which such deviations from the model of a competitive market are unavoidable - for example because network effects in the digital realm lead to highly concentrated markets — they need to be taken into account in normative evaluations of markets.

Polanyi has provided a classic categorization of allocation mechanisms: This shows that markets are only one form in which goods and services can be allocated in a society. Insofar as other structures — e. This typically leads to pressures to find profitable investment opportunities and to asymmetries between owners and non-owners of capital. Markets are a core element of capitalism, but in principle they can also exist in societies in which the ownership of capital is organized differently see e. Many arguments about the value of markets have to do with their impact on the character of a society as a whole and with the questions of where, when and how one should limit the influence of markets.

In Western thought systematic inquiry into the character and the value of markets starts in the early modern era. They raise fundamental questions about legitimate and illegitimate forms of exchange. From at least the 18th century onwards, one finds an intense debate about the nature of markets and their value for individuals and societies on the history of economic thought see for example the classic, but somewhat outdated, Schumpeter or for a more technical account Blaug The arguments by friends of markets have changed over time, but there are some threads that unite this tradition: There is also a long tradition of thinkers critical of markets.

Common themes in this tradition are the inegalitarian, disruptive results of unregulated markets, their instability, their alienating effects e. What also unites these thinkers is the hope that there are alternatives to markets for organizing the economic life of large-scale societies. In the 19th century and the first three quarters of the 20th century what was standardly quoted as an alternative to a market economy was a centrally planned economy. After the fall of communism in Eastern Europe and Russia other, usually more modest, models have been discussed and sometimes experimented with for examples see e.

Much of the force of criticisms of markets depends on the availability of alternative models that score better on a number of normative dimensions. Research on and experiments with alternative models are therefore of great interest for philosophers who wish to evaluate markets from a normative perspective. There is a third line of thinkers who stand between the friends and the foes of markets and argue for a qualified endorsement: Therefore, they either argue that the overall balance is positive, or that the problems can be mitigated by other institutions.

This position has been held by thinkers as diverse as G. Hegel [] , J. Mill , J. Keynes or John Rawls and by many social-democratic parties in Europe see Berman Whether and how this primacy of politics is possible is another important question in the philosophical debate about markets cf. Today, remnants of these historical traditions can be found in the ways in which different academic disciplines look at markets.

Although there are exceptions, economists typically see markets in a positive light. They standardly analyze them using abstract methods that model individuals as sovereign, rational choosers. This approach, which leaves a number of problems of real-life markets unexplained, has also been used for incentive-based analyses of other social spheres see notably Gary Becker, e. These have raised questions about the possibilities and limits of the rational choice approach, especially since behavioral economists have started to explore how real human behavior departs from the behavior assumed in the models see e.

Sociologists, anthropologists and historians use different, usually less abstract methods for exploring different markets. Their emphasis has often been on the relation of markets to other spheres of life, because they see individuals as socially embedded, and their decisions as shaped by their social environment. Many researchers from these disciplines are rather critical of capitalist markets. Their methods allow them to see problems that economists may be blind to.

But economists might reply that the methods used by historians, sociologists and anthropologists are in turn less suitable for grasping the positive indirect effects of markets, for example the benefits for customers when a company is restructured. Although they can sometimes be intertwined, it is therefore important to distinguish between disciplinary approaches, research methods, and substantive arguments about the value of markets.

Morals and Markets The Dangerous Balance

For the sake of clarity, the most common arguments about markets are here presented along the lines of justifications and criticisms. Some of these arguments apply to markets in general, some apply to market societies, and others apply to specific markets cf. Sen distinguishes two basic strategies for justifying markets: Arguments about antecedent rights and liberties often go hand in hand, as the rights in question are said to protect the liberties in question. In its paradigmatic form, this argument is based on a right to private property.

It gives individuals the right to do whatever they like with their property. This includes the right to enter into exchange relationships with others. Prohibiting such exchanges, or interfering with them in any other way, infringes on these rights and thus, it is said, on a basic form of freedom. The attractiveness of such justifications of markets lies in their a priori character and their intuitive plausibility.

But they only work if one can defend the a priori rights or liberties on which they are based. Arguments of this kind are therefore often joined with arguments about the naturalness of property rights as existing prior to the state. It is more plausible to hold that property rights must not be compromised if one holds that they are a priori, than when they are understood as dependent on consent by and enforcement through the state.

But this view of property rights has been disputed. Many thinkers point out the crucial role of the state in providing and protecting property rights and the right to free contract see e. A strict system of private property rights can lead to situations of extreme inequality in which some members of a society are left to starve, so that it becomes questionable in what sense they can be called free. This presents defenders of markets on a priori grounds with a choice: Or they have to step back from their pure a priori position and admit that consequences can play a role in the consideration of markets.

Then, one can admit that markets may have to be supplemented by other institutions, and their justification cannot be unconditional any more Sen Many justifications of markets, however, are based not on a priori rights or liberties, but rather on the consequences of markets. Several dimensions of these consequences can be distinguished. A first, historically important, argument holds that markets make individuals more virtuous and sociable: Markets therefore make manners more peaceful and civilized see Hirschman , who refers to Montesquieu and other 18 th century thinkers.

Hirschman has conjectured that the civilizing and moralizing forces of markets might just be sufficient to outbalance their self-undermining forces ; Bowles, in contrast, has suggested that non-market elements of liberal societies might counteract potentially dangerous effects of markets. A second argument concerns the consequences of markets in the sense of the distribution they bring about. This makes desert rather than traditional hierarchies the determinant of social positions e. Interestingly, even some defenders of free markets, such as von Hayek and Knight, have argued that the sense in which they can be called just only concerns the framework of rules within which they take place, not the resulting distributing of income.

They argue that what markets reward, namely the satisfaction of wants, has nothing to do with moral values , ch. One might argue that these rules can be more or less conducive to justice in the sense of desert, and that, ceteris paribus , they should be made more conducive to it rather than less e. V; see also Herzog , chap.

In that form, however, the argument concerns not the justification of markets, but rather the question of how their framework should be designed, such that they bring about results that reward desert. The most important argument for markets that builds on consequences, however, concerns their ability to deliver efficient outcomes and hence to create high levels of welfare. They spur economic growth, while not relying on a central planning mechanism, but on the self-interest of individuals. Under certain assumptions, such as stable preferences, the absence of external effects on third parties, equal and open access to information, and the absence of one-sided bargaining power, market outcomes are Pareto efficient.

This has been shown in the first theorem of welfare economics for the formal proof see e. The strict mathematical conditions of the first theorem of welfare economics never hold in practice. But the general equilibrium model embodies two arguments about markets that explain why they can spur economic growth, and these can also be applied to real markets. The emerging spontaneous order satisfies social needs in better ways than could be achieved by central planning see notably von Hayek Market prices serve as an instrument for determining the opportunity costs of certain uses of resources, which also allows for comparisons of the different sets of resources individuals hold see Dworkin , ch.

Rather, he points out that markets tap a source of motivation that goes beyond the benevolence that people show within a small circle of family members and friends. Their self-interest connects individuals to a much wider range of exchange partners, which allows for a greater division of labor and hence more efficient production. Defenders of markets also hold that they support innovation because they give individuals the possibility of using new techniques and new combinations of factors of production, and they provide capital for entrepreneurs and inventors.

The arguments from efficiency and growth do not, as such, say anything about the distribution of income and wealth that is achieved in a market economy. A situation can be Pareto-efficient while at the same time being extremely unequal cf.


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This can happen, for example, when the rich buy goods or services the production of which creates employment for the poor as argued by Smith in b [] IV. It is not clear, however, under what conditions this happens. As a matter of fact, market economies exist in egalitarian and less egalitarian societies. Surrounding institutions play a major role in determining the degree of inequality that results from them.

One can argue, however, that markets can make the pie of a national economy larger than it would otherwise be, and that the additional wealth can be redistributed through taxation or other measures. Such an instrumental defense of free markets can be found in many theories of what Freeman e. Numerous arguments have been brought forward against markets, either in order to reject them altogether or in order call for their limitation.

One of the main criticisms of relying on markets to organize economic life points to their unequal outcomes, and the poverty — understood in absolute or relative terms — they can create. In the 19 th century, this concerned in particular those members of society who did not own the means of production and therefore had to sell their labor to earn an income. To explain how ethics are relevant to uncertainty in such cases, we can draw a schematic map of various forms of uncertainty, beginning with a distinction between our knowledge and ignorance of the probabilities of adverse impacts.

When it comes to decisions that affect people's lives and health […] carrying out research to diminish uncertainty and, consequentially, risks can become an ethical duty. Within that framework, dangers are defined in terms of the possible outcomes of a given situation. To understand the potential adverse effects of a decision, we therefore require an approximation of the quality of dangers in any given event.

Consequently, a rational approach is to give an estimate of the probability that the respective event will happen, and to assess the hazard and the possible impact of the event. Classical risk assessment then takes the product of probability and the expected hazard dimension to obtain a quantitative measure of risk. However, decision-making often depends both on mathematical calculations and on moral considerations or other convictions, which risk assessment does not address. For example, regulations about the use of genetically modified crops in agriculture or stem-cell research are clearly governed by ethical and societal considerations in addition to quantitative risk assessments.

In this regard, it is important to distinguish between dangers and risks. A danger has a prescribed quality and a defined probability, and can therefore be avoided or counteracted. For example, car accidents that caused severe or deadly injuries prompted regulation for the mandatory installation and use of safety belts. By contrast, a risk can either be accepted by, or imposed on, a person. Driving without a safety belt is a self-accepted risk, while selling cars with faulty safety belts imposes a risk on unsuspecting buyers.

This is the decisive difference between danger and risk: When we know that a certain situation or decision will involve dangers and risks, it is a proactive and morally justifiable activity to reduce gaps in our knowledge. However, although such gaps can be successfully diminished by research, ignorance presents a greater challenge.

Not surprisingly, the Galileo effect is itself a risk factor and increases danger, although it can be overcome. A change in attitude would transform closed ignorance into open ignorance, which can, at least in part, be addressed by learning or by research. A prerequisite for turning danger into risk, either by accepting it or by being subjected to it, is acquiring knowledge about the danger, its nature and its probability. In this context, we can distinguish between closed and open knowledge with respect to risk—analogous to closed and open ignorance with respect to danger.

In this case, closed knowledge means comprehensive knowledge or the certainty that the adverse event will happen in any case. Under these circumstances, the most responsible and rational behaviour would be either to use a safety belt or to avoid the situation altogether.

References

Open knowledge, by contrast, means that there is sufficient information available to perform a risk assessment, and to give rational and responsible advice, such as requiring people to wear safety belts and imposing speed limits. An ethically responsible strategy to address gaps in knowledge and, therefore, uncertainties about possible outcomes requires insight into the particular type of uncertainty. Each of the sub-forms describes a particular type of mismatch between the knowledge required and the knowledge available for rational decision-making.

The former is caused by gaps in knowledge that can be closed by research. In this case, research becomes a moral duty that is required to avoid dangers or risks, to realize possible benefits, or to balance risks and benefits in a rational and responsible way. Still, given the need to make a decision at some point, decision-makers must both rely on existing knowledge and reflect on any remaining uncertainties.

One strategy in this regard is a comparative risk assessment of similar situations. For example, the assessment of the health or environmental risks of a new chemical could draw on both existing knowledge about related compounds and information from safety tests.

Markets (Stanford Encyclopedia of Philosophy)

The effects of interfering with financial markets or ecosystems, for example, are largely unpredictable; nevertheless, past experience and probabilistic reasoning at least provide some guidance on how such complex systems will react. The second main form of uncertainty in our taxonomy is subjective uncertainty, which is characterized by an inability to apply appropriate moral rules. Yet, even within a state of anomie, decisions have to be made.

Again, we can distinguish between two sub-forms of subjective uncertainty. The first is uncertainty with respect to rule-guided decisions. In this case, decision-makers have to fall back on more general moral rules and use them to deduce guidance for the special situation in question. Examples of these types of general rule are Immanuel Kant's moral imperative or the Hippocratic Oath taken by doctors. Unfortunately, deductions guided by general moral rules often give only poor satisfaction to the decision-maker.

A prerequisite for turning danger into risk, either by accepting it or by being subjected to it, is acquiring knowledge about the danger…. The second sub-form is uncertainty with respect to intuition-guided decisions—that is, uncertainty in moral rules.

Morals and Markets

In specific situations, we can make decisions only by relying on our intuition rather than knowledge, or explicit or implicit moral rules. This means that we act on the basis of fundamental pre-formed moral convictions in addition to experiential and internalized moral models. As with rule-guided decisions, a level of deduction is used here, but in a subconscious and intuitive way. Thus we face the benign paradox that if we treat nature as in limited supply in any given particular place and for any particular stretch of time, then we guarantee its real and eternal immanent inexhaustibility.

The superabundant fontal provision of a living cosmic organism, suffused by divine wisdom - the co-working of Lady Sophia - and not the bounded dead mechanism of modern theological imagining, doomed in the end to wind down like a clock, or to meet with eventual physical and Malthusian entropy. But if, by contrast, as with marginalism, one assumes the anarchically infinite variety of proper desire, then this false infinity effectively denies the real immanent infinity and non-scarcity of nature, if treated in due measure and in observance of reasonable and truly desirable ends.

It should be that it is our desires for our share of temporal rather than eternal things that is restricted, in contrast to nature's inexhaustible provision for all. But within the marginalist purview, this priority, by a further extension of reversed embedding, is turned upside down: So, instead of desire being seen in connected continuity with natural essences and their graded modes of return to their true selves and so to God, which reaches a culmination in spiritual creatures ourselves and the angels , nature is inversely and perversely located within our desiring purview.

Then, by a final twist of irony, the fantasy of a scarce nature proves a self-fulfilling prophecy, since unleashed anarchic desire, failing to observe due measure, times and seasons in justice to the surrounding natural world, indeed ensures that its real underlying meta-physical inexhaustibility is occluded by a man-made blight of really experienced ecological scarcity. The opposite of this, as the Skidelskys and the British Catholic Labour MP Jon Cruddas have so cogently argued, has to be some kind of re-invocation of eudaimonia in the Aristotelian sense; some sense of objective human flourishing.

In other words, if there is an objective scale of values, a shared sense of relatively worthwhile ends however subject, as for Aristotle and Plato, to constant civic debate then there can be something more like temporary and emplaced sufficiency. For the really worthwhile goods like marriage and children, and a fulfilling task you have to perform, and enjoying where you live and feel at home - these are obviously not so subject to these marginalist criteria, or finally not so subject at all. For this reason, and because we can perhaps never quite surrender our humanity which is linked to these goods, without ceasing to live and breathe altogether, it may be that one problem with modern economics is that it mis-describes even what is going on nowadays.

Perhaps, even today, more of a marketplace alongside the market remains than we think, however much it is being ceaselessly displaced from the centre of our lives. Have we ever been fully capitalist, any more than we have ever been fully modern? Surely not, just to the measure that we retain some sense, however minimal, of human decency. Thus even today, as with the considerable growth of hybrid business- cum -charities that pursue also social purpose and businesses clumping together under guaranteed charters of good practice especially in northern and central Italy , people naturally find ways to re-infuse the economy both with a properly parentalist care and a gift-exchanging reciprocity.

We have not entirely lost contact with the seemingly universal basis of all human society, nor with the specific Christian irruption of charity which, as I have argued, first bent society and politics in an "economic" direction - a turn that was eventually grossly transfigured.

In this sense there is hope: What, today, would an alternative to the justice-bracketing mechanisms of both market and bureaucracy really mean? Any re-embedding of the economy and the polity in social reciprocity implies "socialism," in a generic sense of the priority of the associative over the economic and the political, that may have little to do with what we have usually take socialism to mean.

I want therefore to conclude with a very brief account of the history of socialism in relation to economics. Socialism, it can be claimed, has, as a historical doctrine, basically exhibited three stages. To begin with socialism was a profoundly anti-economic doctrine, precisely because it assumed that the economic was defined in the way that the political economists had defined it as a distilling of order out of self-centred disorder. The early socialists tended therefore to see socialism and cooperation in production as alternatives to any kind of economic exchange, because they assumed that that was an amoral sphere.

Even Marx, in a sense, is imagining a future in which exchange will have ceased - exchange with nature or exchange with other human beings - and there will be a pure utopia of productivity. But after , we witness the birth of a second kind of novel economistic socialism, in which overwhelmingly the Left - whether we are talking about Fabians in England, or eventually the leaders behind the Iron Curtain - accept the precepts of marginalism, and so accept the logic of rational calculation and assumed, but actually contrived scarcity.

Thus many researchers have pointed out that the invisible hand of the market or the visible hand of the state can both operate in terms of rational technocratic utility. Indeed, sometimes when neoliberals like Friedrich Hayek were modelling the perfect market they used the socialist state as an example to model what it would be like, because in a sense the state is like God and it is a certain imagined God or nature that stands behind the idea of the invisible hand. Hence when "market socialism" arose in the former Yugoslavia, sometimes this was presented in terms of "this will better realise a perfect Smithean free market in terms of goods other than labour if you leave labour as a fixed and pre-priced entity.

The dominance on the political Left since the s of this second kind of socialism means that we have inherited, largely unquestioned, a dreadful failure on all sides of the political spectrum to challenge the idea that the economy and the market are necessarily amoral. But there exists a big historical contrast to this assumption, as has been narrated by the renowned Italian economists, Luigino Bruni and Stefano Zamagni. They have argued that the Italian tradition of civil economy never quite accepted the French and then Anglo-Saxon pietistically gloomy yet hedonistic way of looking at things.

The crucial thinker here is Smith's immediate predecessor, Antonio Genovesi, who when he was young heard the philosopher Giambattista Vico lecture in Naples, to which city both thinkers were native. The decisive point of contrast with Smith is that whereas Smith insists strongly on the role of mutual sympathy in the social realm, he does not allow sympathy inside the economic contract itself. Very simply, and famously, for Smith you and your butcher do not care about each other's welfare when you are making a transaction.

That is the exact point of difference with the Italian civic economic tradition: One can think today in a relatively trivial but illustrative way of shopping at your local butchers rather than at your local supermarket even though the latter is cheaper, in order to keep him, his livelihood, convenience and better practice in existence. Of course, such an instance occurs today rarely and not sufficiently to make an aggregative difference, but this is only because the market pressures are so massively stacked against it, and especially such that moral qualms become a middle-class luxury.

Yet the possibility remains that in a more locally collective mode combinations that pursue economically better practice can eventually accrue even a market advantage, since they will be offering a manifestly more desirable service. This feasible prospect can be connected with my earlier point that we have never become quite as capitalist as we imagine. Even now, today in the Britain, as in the rest of Europe and frequently more so, familial, neighbourly, local and regional social transactions may involve an economic element, but the two are interwoven with each other.

This connection can also operate the other way round as with the considerable success of the "Bristol pound," where usage of a strictly local currency in this city-region of the South-West of England has helped to keep wealth and resources within an area, and so both to recycle it and sustain it within what must ultimately be a circle of reciprocal benefit.

This kind of practice has been more consistently exemplified within the Italian tradition, where the city-state legacy of the commune has combined with Aristotelian, humanist and Catholic legacies to encourage also in practice Genovesi's sense that the economic contract itself can be a site of social negotiation. In other words, on this assumption, the cultural template for any economic engagement assumes that you are not just going for what independently you want, but you are also trying to work out what would be fair between you and your neighbour and for the wider community.

Such a model only appears unrealistic because we have so constructed our social codes as to make purely selfish economic behaviour seem something other than dishonourable - which it surely is, in intrinsic terms. Human beings by their very social nature seek first of all seek social recognition and they only pursue personal gain as a primary goal if, thereby, as in the United States supremely, social recognition thereby accrues to you. What I want to recommend is a third kind of socialism, which would be a civil economy socialism - if socialism is exactly the right word.

That would be a socialism that would see the economy as fully part of civil society and would try to redesign the economic contract itself.

The ethics of uncertainty. In the light of possible dangers, research becomes a moral duty

It would be a socialism less inimical to the co-priority with production of exchange. A socialism still suspicious of usury like Thomas Aquinas, but also accepting, like Aquinas and unlike most classic socialisms, of returns on shares, if real risks have been undergone and real responsibilities co-shouldered. This would be a new mode of modern market as still marketplace, but not, technically, a mode of modified capitalism, because any system of contract dominated by ethical justice rather than a machinic coordination of egotisms could no longer be a system in which the accumulation of capital rather than the general pursuit of human flourishing is the dominating factor.

Such a third socialism - economic like the second, but ethical like the first - would bring following Polanyi Maussian perspectives on gift-exchange as socially constitutive into dialogue with Marx's reflections on production and exchange, and with Catholic and Anglican social teaching's demand for a guiding architectonic justice in both the economic and the political spheres. This returns us to the entire question of who can be the agents of such transformation in practice, and how. I do not know of any full answer here, but I think that what the recent slogans of so-called "postliberalism" in British politics like "Red Tory" Phillip Blond , "Blue Labour" Maurice Glasman , "the big society" David Cameron , "predistribution" and "One Nation Labour" Ed Miliband - at least till recently are all groping towards in a new paradoxical fusion though very much in the traditions ultimately of Cobbett, Carlyle and Ruskin, of whose radical Toryism nearly all Anglican Christian socialism was, if we are honest, usually a development of a greater participatory democracy on the one hand, with some elements of high Tory parentalism on the other.

In other words, they suggest that we need to break with the paradigms of the past by combining in a paradoxical co-belonging a practice of honourable leadership and a more participatory democracy, in order to supplement representational democracy which is now so corrupted by propaganda and the decline of party membership that it no longer allows anyone to make the real, decisive choices.

A simultaneous restoration of virtuous ethos to both elites and popular forces through a wholesale renewal of education that must largely, perhaps, be undertaken by faith movements, combined with the social and political encouragement of ethical business, is surely needed if we are to re-embed the economic in the social and restore morality to the market.

Therefore, we need to work at the level of cultural ethos and at the same time at the level of legislation - from below and above at the same time. We need, for example, a change in company law that would insist that every company pursues a social purpose. If you are making cars, to choose an instance, then you are making cars and not just making money; you are making money, but you are also making cars and they should be well crafted by fairly rewarded workers.

We need vocational entry requirements for almost every profession and trade and therefore some kind of restoration of a guild process as still exists in Germany. We need a sharing of risk and responsibilities between investors and owners, shareholders and managers, lenders and borrowers, and employers and employees.

If we are going to have a market exchange, then let us have genuinely fair market exchange and competition. We also need, besides the participation of workers in businesses, a certain backing-up by courts of law of the questions of prices, wages and interest on loans.

Samenvatting

They have to be able to lay down certain boundaries. Now all this may seem well-nigh impossible in the current circumstances and it may indeed lamentably prove so. Yet without this sort of agenda we may well face multiple atavistic and quasi-fascistic backlashes against neoliberalism.

And, one can plausibly argue, that an ethical economy would be a more stable and more viable economy for two reasons. First, a lot of firms - even ones like Walmart in the United States - are discovering that if you are too uprooted and do not care about your communities at all, in the long term that has a negative business consequence.

But the paradox of such "social benefit" thinking is that you have to pursue it sincerely, not as a ruse of an ultimately utilitarian calculation, as business thinkers often recommend.