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Book Review: Free Market Morality

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Free Market Morality: The Political Economy of the Austrian School
by Alexander H. Shand ( New York: Routledge, 1990) 228 pp.; $16.95 (h).

The global collapse of socialism and central planning have left a large ideological vacuum on the world stage. What shall replace them remains uncertain. Declarations in support of “democracy” and a “market economy” create the illusion that the world knows where it is going.

Is democracy to be a method for peaceful political change within a constitutional structure that recognizes and protects individual liberty and private property? Or is it to be a political mechanism for mutual plunder and wealth redistribution under the slogan, “the will of the people”? Will a market economy be an arena for peaceful, voluntary exchange in which contracts and honestly acquired property are protected by the rule of law? Or will it be a sham in which some private interests use the power of the state to gain economic privileges and favors for themselves at the expense of others?

Before individual liberty and a free-market economy can really prevail, its case will have to be made, and made effectively.

A recent volume which tries to make that case in a fair and dispassionate manner is Alexander H. Shand’s, Free Market Morality: The Political Economy of the Austrian School. Mr. Shand presents the ideas of some of the modem members of the Austrian School of Economics – primarily Ludwig von Mises, Friedrich A. Hayek and Murray N. Rothbard – and tries to explain the political and economic conclusions which they derive from their theories about man and the market economy.

Mr. Shand not only summarizes the Austrian positions, he also contrasts them with the rationales and policy prescriptions of those on the left. And he leads the reader to see why the Austrian perspective carries within it the greatest possibilities for both liberty and prosperity.

What are the Austrian views of man, society and the market order?

1. Individualism. Only individuals think, choose, and act. All references to “society,” “the nation” or “the people” which lose sight of this, head down a road toward collectivism.

2. Unintended Consequences. While society originates in the actions of individuals, those individuals make their choices with imperfect knowledge. As a result, many of the outcomes that arise from our actions, and our interactions with others, contain unintended consequences. Many of the social institutions which we take for granted-language, custom, law, the market order – have arisen as the result of human action, but not human design.

3. Markets and Prices. Competitive markets are an arena in which each man is left free to make his own production and consumption choices. Voluntary exchange assures that each person in the marketplace must take into consideration the interests of others if he is to attain his own desired ends. In the market, prices not only act as incentives for people to use their labor and resources in various productive ways. They also serve as a “telecommunications system,” dispersing knowledge and information throughout the market to assist each individual to best apply his skills and resources for the mutual coordination of all market activities. Prices and markets spontaneously integrate more knowledge and human activity than any social planner could ever hope to successfully master and control.

4. Inequality of Market Outcomes. The market rewards people on the basis of how well they can serve the wants and Desires of their fellow men in the competitive arena of voluntary exchange. Since consumers and employers will evaluate people’s worth in satisfying consumer demands in different ways and in different degrees, the incomes that people receive for services rendered will be unequal. When governments redistribute income according to some notion of ‘social justice,” the economic order is politicized; and the redistribution is based on the illusion that government has the capacity to evaluate and judge the “real” worth and merit of each person’s contribution to the economic order.

5. State Management for Prosperity. Interventionism is merely a less extreme version of socialism. The State attempts to manipulate market outcomes through regulation and through control of the money supply. The end result of such policies is economic distortion and inflation. Governments cannot create prosperity and “full employment” through monetary expansion. Such monetary manipulations merely disrupt the normal and smooth working of the market process. They set the stage for future unemployment when the inflation ends, and the distortions which the inflation produced now become visible.

In explaining these Austrian perspectives, Mr. Shand carefully weighs many of the arguments by the social planners and the interventionists for the welfare state and government control. While treating their proponents with courtesy and care, he demonstrates that such policies cannot work. They either operate under the false assumption that the state planners have more knowledge than mortal men can ever be reasonably expected to possess; or they lead to conclusions which are contrary to the ones in the advocates hope to attain.

The only moral society, he concludes, is one which accepts the nature of man and the limits of his knowledge, and which respects human freedom as the basis for the good and prosperous social order.

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    Richard M. Ebeling is a professor of economics at Northwood University. He was formerly president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).