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THE ETHICAL AND WORLDVIEW TENDENCIES OF THE DEVELOPMENT OF THE MARKET ECONOMIC SYSTEM

THE ETHICAL AND WORLDVIEW TENDENCIES OF THE DEVELOPMENT OF THE MARKET ECONOMIC SYSTEM
Ирма Багратиони, доктор философских наук

Тамта Варшанидзе, докторант

Батумский государственный университет им. Ш. Руставели, Грузия

Участник конференции

UDC 17+241+334.02+338.02

 
The present paper deals with the basic aspects of  the relationship between the market system and morality and thus also - at the theoretical level - between the social market economy and Philosophical-Ethical teaching. The relationship between these two theories was never entirely free of tension.
The paper underlines, that Ethical-worldview teaching categorically rejects the “central administrative system” because of its determinist and utopian philosophical assumptions which render it incompatible with personal dignity. Inasmuch as classical economic liberalism interprets the market as a social "mechanism" whereby the economic subjects automatically achieve economic benefits for everyone solely by pursuing their own interests, this kind of approach may be said to harbour a determinist superstition. However, the observation on the fundamental ethical soundness of the market principle as a useful instrument to an optimal supply of goods accompanied by safeguards for human liberty depends on the fulfillment of certain prerequisites, and it is subject to certain limits. The limits to every market economy derive quite simply from the fact that only part of the goods of economic benefit or currently in demand can be made available via the market.
Keywords: economic system, business ethics, morality, religion, philosophical, worldviews, market economy, economic policy, world economy.
The present paper deals with the basic aspects of  the relationship between the market system and morality and thus also - at the theoretical level - between the social market economy and Philosophical-Ethical teaching. The relationship between these two theories was never entirely free of tension.
The paper underlines, that Ethical-worldview teaching categorically rejects the “central administrative system” because of its determinist and utopian philosophical assumptions which render it incompatible with personal dignity. Inasmuch as classical economic liberalism interprets the market as a social "mechanism" whereby the economic subjects automatically achieve economic benefits for everyone solely by pursuing their own interests, this kind of approach may be said to harbour a determinist superstition. However, the observation on the fundamental ethical soundness of the market principle as a useful instrument to an optimal supply of goods accompanied by safeguards for human liberty depends on the fulfillment of certain prerequisites, and it is subject to certain limits. The limits to every market economy derive quite simply from the fact that only part of the goods of economic benefit or currently in demand can be made available via the market.
Keywords: economic system, business ethics, morality, religion, philosophical, worldviews, market economy, economic policy, world economy.
 

It is known, that a continuous planning of governmental correction of any market failure, such as various types of externalities and information asymmetry, has been strongly recommended by the pioneers of free enterprise systems. Capitalism - in which private ownership of means of production, physical capital, human capital, financial capital, brand-name capital, social capital, land, and mineral deposits are all protected by law without implementation of a series of certain evolving ethical standards and principles - may not continue to be the same efficient system as implied to be by the cost-benefit balancing forces of free markets. 

Here it needs to be noticed, that the economic inequality between the northern and southern hemispheres of the globe is becoming more and more an inner threat to the cohesion of the human family. The danger for our future from such a threat may be no less real than that proceeding from the weapons arsenals with which the East and the West oppose one another. New exertions must be made to overcome this tension, since all methods employed hitherto have proven themselves inadequate. In fact, the misery in the world has increased in shocking measure during the last thirty years. In order to find solutions that will truly lead us forward, new economic ideas will be necessary. But such measures do not seem conceivable or, above all, practicable without new moral impulses. It is at this point that a dialogue between Church and economy becomes both possible and necessary. We’d like to clarify somewhat the exact point in question. At first glance, precisely in terms of classical economic theory, it is not obvious what the Church and the economy should actually have to do with one another, aside from the fact that the Church owns businesses and so is a factor in the market. The Church should not enter into dialogue here as a mere component in the economy, but rather in its own right as Church.

Such an objection holds that the economy ought to play by its own rules and not according to moral considerations imposed on it from without. Following the tradition inaugurated by Scottish Moral Philosopher Adam Smith, this position holds that the market is incompatible with ethics because voluntary “moral” actions contradict market rules and drive the moralizing entrepreneur out of the game [1, pp. 71-72]. For a long time, then, business ethics rang like hollow metal because the economy was held to work on efficiency and not on morality. The market's inner logic should free us precisely from the necessity of having to depend on the morality of its participants. The true play of market laws best guarantees progress and even distributive justice.

As we know, the great successes of this theory concealed its limitations for a long time. But now in a changed situation, its tacit philosophical presuppositions and thus its problems become clearer. Although this position admits the freedom of individual businessmen, and to that extent can be called liberal, it is in fact deterministic in its core. It presupposes that the free play of market forces can operate in one direction only, given the constitution of man and the world, namely, toward the self-regulation of supply and demand, and toward economic efficiency and progress. This determinism, in which man is completely controlled by the binding laws of the market while believing he acts in freedom from them, includes yet another and perhaps even more astounding presupposition, namely, that the natural laws of the market are in essence good and necessarily work for the good, whatever may be true of the morality of individuals. These two presuppositions are not entirely false, as the successes of the market economy illustrate. But neither are they universally applicable and correct, as is evident in the problems of today's world economy. Without developing the problem in its details here - which is not my task - let me merely underscore a sentence of  American Economist Trees Andrew's that illustrates the point in question: “The economy is governed not only by economic laws, but is also determined by men” [2, pp. 44-45]. Even if the market economy does rest on the ordering of the individual within a determinate network of rules, it cannot make man superfluous or exclude his moral freedom from the world of economics. It is becoming ever so clear that the development of the world economy has also to do with the development of the world community and with the universal family of man, and that the development of the spiritual powers of mankind is essential in the development of the world community. These spiritual powers are themselves a factor in the economy: the market rules function only when a moral consensus exists and sustains them.

If we have attempted so far to point to the tension between a purely liberal model of the economy and ethical considerations, and thereby to circumscribe a first set of questions, we must now point out the opposite tension. The question about market and ethics has long ceased to be merely a theoretical problem. The result is that broad sectors of the Third World, which at first looked forward to development aid with great hopes, now identify the ground of their misery in the market economy, which they see as a system of exploitations, as institutionalised sin and injustice. For them, the centralized economy appears to be the moral alternative, toward which one turns with a directly religious fervor, and which virtually becomes the content of religion.  

As famous American politician and economist Alexander Hamiltonpoints out “for while the market economy rests on the beneficial effect of egoism and its automatic limitation through competing egoisms, the thought of just control seems to predominate in a centralized economy, where the goal is equal rights for all and proportionate distribution of goods to all. The examples adduced thus far are certainly not encouraging, but the hope that one could, nonetheless, bring this moral project to fruition is also not thereby refuted” [3, pp. 24-25]. It seems that if the whole were to be attempted on a stronger moral foundation, it should be possible to reconcile morality and efficiency in a society not oriented toward maximum profit, but rather to self-restraint and common service. Thus in this area, the argument between economics and ethics is becoming ever more an attack on the market economy and its spiritual foundations, in favor of a centrally controlled economy, which is believed now to receive its moral grounding.

It is interesting for us, that the full extent of this question becomes even more apparent when we include the third element of economic and theoretical considerations characteristic of today's situation: the Marxist world. In terms of the structure of its economic theory and praxis, the Marxist system as a centrally administered economy is a radical antithesis to the market economy [4. pp. 104-105]. Salvation is expected because there is no private control of the means of production, because supply and demand are not brought into harmony through market competition, because there is no place for private profit seeking, and because all regulations proceed from a central economic administration. Yet, in spite of this radical opposition in the concrete economic mechanisms, there are also points in common in the deeper philosophical presuppositions. The first of these consists in the fact that Marxism, too, is deterministic in nature and that it too promises a perfect liberation as the fruit of this determinism. For this reason, it is a fundamental error to suppose that a centralized economic system is a moral system in contrast to the mechanistic system of the market economy. Indeed, determinism is here far more radical and fundamental than in liberalism: for at least the latter recognizes the realm of the subjective and considers it as the place of the ethical. The former, on the other hand, totally reduces becoming and history to economy, and the delimitation of one's own subjective realm appears as resistance to the laws of history, which alone are valid, and as a reaction against progress, which cannot be tolerated. “Ethics is reduced to the philosophy of history, and the philosophy of history degenerates into party strategy” [4. pp. 124-125].

But we return once again to the common points in the philosophical foundations of Marxism and capitalism taken strictly. The second point in common - as will already have been clear in passing - consists in the fact that determinism includes the renunciation of ethics as an independent entity relevant to the economy. This shows itself in an especially dramatic way in Marxism. Religion is traced back to economics as the reflection of a particular economic system and thus, at the same time, as an obstacle to correct knowledge, to correct action - as an obstacle to progress, at which the natural laws of history aim. It is also presupposed that history, which takes its course from the dialectic of negative and positive, must, of its inner essence and with no further reasons being given, finally end in total positivity. That the Church can contribute nothing positive to the world economy on such a view is clear; its only significance for economics is that it must be overcome. That it can be used temporarily as a means for its own self-destruction and thus as an instrument for the “positive forces of history” is an ‘insight’ that has only recently surfaced [5. pp. 114-115]. Obviously, it changes nothing in the fundamental thesis.  For the rest, the entire system lives in fact from the apotheosis of the central administration in which the world spirit itself would have to be at work, if this thesis were correct. That this is a myth in the worst sense of the word is simply an empirical statement that is being continually verified. And thus precisely the radical renunciation of a concrete dialogue between Church and economy which is presupposed by this thought becomes a confirmation of its necessity.

In the attempt to describe the constellation of a dialogue between Church and economy, we have discovered yet a fourth aspect. It may be seen in the well-known remark made by an American statesman, economist and reformer Theodore Roosevelt: “I believe that the assimilation of the Latin-American countries to the United States will be long and difficult as long as these countries remain Catholic” [6, pp. 40-41]; along the same lines, in a lecture in Rome, an English political economist David Ricardo recommended replacing the Catholics there with other Christians an undertaking which, as is well known, is in full swing. “In both these remarks, religion - here a Christian denomination - is presupposed as a socio-political, and hence as an economic-political factor, which is fundamental for the development of political structures and economic possibilities” [7, pp. 80-81]; this reminds one of the Germanphilosopher and political economist Max Weber's thesis about the inner connection between capitalism and Calvinism, between the formation of the economic order and the determining religious idea. “Marx's notion seems to be almost inverted: it is not the economy that produces religious notions, but the fundamental religious orientation that decides which economic system can develop. The notion that only Protestantism can bring forth a free economy - whereas Catholicism includes no corresponding education to freedom and to the self-discipline necessary to it, favoring authoritarian systems instead - is doubtless even today still very widespread, and much in recent history seems to speak for it. On the other hand, we can no longer regard so naively the liberal-capitalistic system as the salvation of the world. We are no longer in the Kennedy-era, with its Peace Corps optimism; the Third World's questions about the system may be partial, but they are not groundless. A self-criticism of the Christian confessions with respect to political and economic ethics is the first requirement” [8, pp. 89-90]. But this cannot proceed purely as a dialogue within the Church. It will be fruitful only if it is conducted with those Christians who manage the economy. A long tradition has led them to regard their Christianity as a private concern, while as members of the business community they abide by the laws of the economy. These realms have come to appear mutually exclusive in the modern context of the separation of the subjective and objective realms. But the whole point is precisely that they should meet, preserving their own integrity and yet inseparable. It is becoming an increasingly obvious fact of economic history that the development of economic systems which concentrate on the common good depends on a determinate ethical system, which in turn can be born and sustained only by strong religious convictions. Conversely, it has also become obvious that the decline of such discipline can actually cause the laws of the market to collapse. An economic policy that is ordered not only to the good of the group - indeed, not only to the common good of a determinate state - but to the common good of the family of man demands a maximum of ethical discipline and thus a maximum of religious strength. The political formation of a will that employs the inherent economic laws towards this goal appears, in spite of all humanitarian protestations, almost impossible today. It can only be realized if new ethical powers are completely set free. A morality that believes itself able to dispense with the technical knowledge of economic laws is not morality but moralism. As such it is the antithesis of morality. A scientific approach that believes itself capable of managing without an ethos misunderstands the reality of man. Therefore it is not scientific. Today we need a maximum of specialized economic understanding, but also a maximum of ethos so that specialized economic understanding may enter the service of the right goals. Only in this way will its knowledge be both politically practicable and socially tolerable.

It is not possible in this context to provide answers to the questions emerging from the above- mentioned contributions  to  the  discussion.  Inasmuch as an economic system rests on the fact that each individual knows best what he or she needs and therefore tries to obtain it, this system accords completely with Religion-worldview teaching. It is precisely on the soil of such a realistic anthropology that Italian Catholic Priest and Doctor of the Church Thomas Aquinas defends the right to private ownership of the means of production against the concept of a collectivist productive system. To this extent, the market principle operates "along the lines of economic efficacy and economic progress" [9, pp. 47-48]; within these precincts, the market is therefore a moral institution to the extent that it attains the good goal of an optimal supply of goods with the help of the acceptable medium of competition.
As Rome German Pope Benedict XVI (Born Joseph Alois Ratzinger) in his work “Market Economy and Ethics” notes, it is not capable of unlimited extension. It is precisely this recognition which distinguishes the theory of the social market economy from its early and lateliberal cousins. The preconditions of a social market economy include, at the very least, the existence of equally strong competitors. None the less, equality of opportunity and the prevention of the monopolist concentrations of power do not arise per se. They presuppose a governmental policy of establishing a framework system. Pursuant to the metaphor used by one of its proponents, the social market economy is not a natural product but a sensitive "cultivated plant" [10, pp. 144-145]. From the point of view of German Cardinal, “in a few succinct words, that here remains enough for the State to do in respect of what we now call collective needs: Nowadays, these collective needs - of which only some are marketable - range from supplies for the disadvantaged and passive members of the market to the environmental compatibility of production and a certain proportion of development aid in line with the common weal of the world” [10, pp. 150-151]. If one accepts the descriptions hitherto offered, then the requisite link between market and morality falls from the Tree of Knowledge like a ripe apple. But one of the absolutely constituent elements in the theory and practice of a social market economy is the fact that there exists a consensus on basic values which is sanctioned by society regarding the preconditions  and limits in respect of the market. Just as a democratic constitutional state committed to a respect for human dignity cannot cope without an institutionally anchored and universally obligatory agreement on fundamental values, so the same holds true under a really social market economy. The reference to an ethical pluralism does not help us any further. Adam Smith was aware of this when he wrote his "Moral Sentiments" although he perhaps failed to think out the institutional consequences of his economic philosophy. Based on our specific goal, it is interesting, that Cardinal Ratzinger laid his finger precisely on this weak point in the untenable "modern separation between the subjective and objective world"; and he drew the appropriate conclusions: "It is becoming an increasingly obvious fact of economic history that the development of economic systems which concentrate on the common good depends on a determinate ethical system, which in turn can be born and sustained only by strong religious convictions. Conversely, it has also become obvious that the decline of such discipline can actually cause the laws of the market to collapse. An economic policy that is ordered not only to the good of the group -indeed, not only to the common good of a determinate state -but to the common good of the family of man demands a maximum of ethical descipline and thus a maximum of religious strength" [10, pp. 170-171].
It is not possible in this context to provide answers to the questions emerging from the above- mentioned contributions  to  the  discussion.  Inasmuch as an economic system rests on the fact that each individual knows best what he or she needs and therefore tries to obtain it, this system accords completely with Religion-worldview teaching. It is precisely on the soil of such a realistic anthropology that Italian Catholic Priest and Doctor of the Church Thomas Aquinas defends the right to private ownership of the means of production against the concept of a collectivist productive system. To this extent, the market principle operates "along the lines of economic efficacy and economic progress" [9, pp. 47-48]; within these precincts, the market is therefore a moral institution to the extent that it attains the good goal of an optimal supply of goods with the help of the acceptable medium of competition.
As Rome German Pope Benedict XVI (Born Joseph Alois Ratzinger) in his work “Market Economy and Ethics” notes, it is not capable of unlimited extension. It is precisely this recognition which distinguishes the theory of the social market economy from its early and lateliberal cousins. The preconditions of a social market economy include, at the very least, the existence of equally strong competitors. None the less, equality of opportunity and the prevention of the monopolist concentrations of power do not arise per se. They presuppose a governmental policy of establishing a framework system. Pursuant to the metaphor used by one of its proponents, the social market economy is not a natural product but a sensitive "cultivated plant" [10, pp. 144-145]. From the point of view of German Cardinal, “in a few succinct words, that here remains enough for the State to do in respect of what we now call collective needs: Nowadays, these collective needs - of which only some are marketable - range from supplies for the disadvantaged and passive members of the market to the environmental compatibility of production and a certain proportion of development aid in line with the common weal of the world” [10, pp. 150-151]. If one accepts the descriptions hitherto offered, then the requisite link between market and morality falls from the Tree of Knowledge like a ripe apple. But one of the absolutely constituent elements in the theory and practice of a social market economy is the fact that there exists a consensus on basic values which is sanctioned by society regarding the preconditions  and limits in respect of the market. Just as a democratic constitutional state committed to a respect for human dignity cannot cope without an institutionally anchored and universally obligatory agreement on fundamental values, so the same holds true under a really social market economy. The reference to an ethical pluralism does not help us any further. Adam Smith was aware of this when he wrote his "Moral Sentiments" although he perhaps failed to think out the institutional consequences of his economic philosophy. Based on our specific goal, it is interesting, that Cardinal Ratzinger laid his finger precisely on this weak point in the untenable "modern separation between the subjective and objective world"; and he drew the appropriate conclusions: "It is becoming an increasingly obvious fact of economic history that the development of economic systems which concentrate on the common good depends on a determinate ethical system, which in turn can be born and sustained only by strong religious convictions. Conversely, it has also become obvious that the decline of such discipline can actually cause the laws of the market to collapse. An economic policy that is ordered not only to the good of the group -indeed, not only to the common good of a determinate state -but to the common good of the family of man demands a maximum of ethical descipline and thus a maximum of religious strength" [10, pp. 170-171].
 

Reasoning from the previously mentioned we may conclude, that if our work have produced nothing except an understanding of the meaning and necessity of a more profound discourse between economists and ethicists, then it would have achieved its most important objective. But if it managed to discuss in a more profound manner the above-mentioned questions concerning the relationship between Philosophical-Ethical  teaching and the social market economy, to rid these of mutual misunderstandings, and to find a sustainable consensus on fundamental matters - then this could possess considerable importance in the light of the common responsibility for the world economy borne by the Ethical worldview and the economic sector. 

 

References:

  • 1.    Adam Smith, an Inquire into the Nature and Causes of the Wealth of Nations, 4th Edittion, London, “Free Press”, 2012 (In English).
  • 2.    Trees Andrew, the Founding Fathers and the Politics of Character, Detroit, Publisher “Detroit Free Press”, 2005 (In English).
  • 3.    Randolph Ryan, Alexander Hamilton’s Economic Plan: Solving Problems in America’s New Economy, New-York, Publisher “New-York City”, 2003 (In English).
  • 4.    Karl Marx, Wages, Price and Profits, Reprinted in Marx-Engels Selected Works, Volum Second, Moscow, “Progress Publishers”, 1979 (In Russian).
  • 5.    Karl Marx, Capital: A Critique of Political Economy, Edited by Friedrich Engels and Reprinted in 1986, New York, “Penguin Books”, 1999 (In English).
  • 6.    Murphey William, Theodore Roosevelt and the Bureau of Corporation: Executive-Corporate Cooperation and the Advancement of the Regulatory State, American Nineteenth Century History, New Haven, “Yale University Press”, 2012 (In English). 
  • 7.    On the Principles of Political Economy and Taxation, In The Works and Correspondence of David Ricardo, Cambridge, “Cambridge University Press”, 2001 (In English). 
  • 8.    Swedberg Richard, Max Weber and the Idea of Economic Sociology, Princeton, “Princeton University Press”, 1998 (In English). 
  • 9.    Bruno Heck, Pope John Paul II, Church and Economy: Common Responsibility for the Future of the World Economy, Potsdam, “Hase & Koehler”, 1987 (In English). 
  • 10.    Joseph Cardinal Ratzinger, Truth and Tolerance: Christian Belief and World Religions, San Francisco, “Ignatius Press”, 2004 (In English).  
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