Introduction and Lesson Theme:
This lesson focuses on markets, the institution most commonly associated with capitalism and most widely vilified as impersonal and exploitative. While it is clear that markets are impersonal mechanisms of exchange, acknowledging their impersonal nature does not necessitate agreeing to the charge that they exploit the poor. Paul Heyne, writing on "Moral Criticisms of Markets" in 1995, celebrated the wealth-producing possibilities of impersonal exchange and summoned the history of the 20th century in challenging critics of capitalism to propose a better alternative:
There have in fact been massive experiments in this century with societies committed to the abolition of . . . production through the impersonal transactions of the market system. If history ever pronounces 'final verdicts,' it pronounced one in 1989 on these experiments. Market systems do not produce heaven on earth. But attempts by governments to repress market systems have produced in the twentieth century something very close to hell on earth. (3)
Criticism of markets often focuses on competition. Many see market competition as cut-throat and frequently immoral. Adam Smith, however, identified positive benefits of competition, calling it an "invisible hand" that shaped the social cooperation through which markets generate wealth. As we will see in lesson 3, the institution of market competition is both a defining and a limiting feature of capitalist economies and is essential to improving the lives of the poor. Critics see it as a means for the strong to enrich themselves at the expense of the weak, but following that line of argument leads, Heyne contends, to the flawed conclusions that eliminating competition is both a viable goal and a means of helping the poor. This unfortunate line of reasoning fails to recognize that because scarcity exists, competition, in some form, must take place.
Another common moral objection to market systems is the objection to competition, usually thought of by the critics as an interpersonal struggle for superiority. . . . [It is instead]. . . a process - often completely impersonal . . . - of trying to satisfy whatever criteria others are using to allocate scarce goods. Scarcity means that it is not possible for everyone to have as much as they would choose to have if they were not required to make any sacrifice to obtain it. Scarcity therefore necessitates rationing, which means allocation by some set of discriminatory criteria. It follows that competition is the unavoidable accompaniment of scarcity and will consequently be found in every human society, whatever the form of its economic organization.
The question is not whether we shall have competition, but what forms it will take (emphasis added). That will be determined by the criteria used to allocate scarce goods. . . . [The]. . . criteria in a market system are usually monetary: people compete largely by offering to pay more money for what they want to obtain and by agreeing to accept less money for what they are trying to supply.
When governments . . . set up alternative systems for allocating scarce goods, competition does not stop. It merely takes new and almost always more destructive forms. . . . Even a transformation of human nature would not eliminate competition. If everyone in the society became a saint, competition would still exist because the saints would be committed to different charitable projects, and they would consequently have to devise some (saintly) way to decide how many resources to allocate to each project. Nothing can abolish competition except the abolition of scarcity. (Heyne 3-5)