The Market System: What It Is, How It Works, and What To Make of It by Charles E. Lindblom (Yale University Press, 200; 296 pgs.)
Charles Lindblom is at it again. In God and Man at Yale, William Buckley, Jr.’s indictment of leftist teaching at Yale University written half a century ago, a young teacher at the college was mentioned as a source of anticapitalist sentiment. How can one justify the large incomes obtained by the fortunate few, this instructor wanted to know, when these lucky ones owe their opportunities to society? Professor Lindblom, long since retired, still finds persuasive this sophism of his youth.
In The Market System, he challenges those who defend the justice of market allocation. Given an initial assignment of resources, a capitalist system leaves everything else to the voluntary transactions of individuals. If you earn a great deal of money, you do so because other people voluntarily pay you for the goods and services you provide them. Concerning this line of argument, Lindblom asks us to consider a case where someone increases his price while making the “same” contribution.
He remarks:
“Perhaps all that has changed is the distribution of wealth and income, with the result that some people who earlier valued your services no less than they do now are now able to spend more on them, thus raising the price you can charge. Generalized, that conclusion means that because what the market pays anyone depends on the existing distribution of wealth and income, we cannot measure a person’s market contribution . . . by looking at what one is paid. . . . What any individual can accomplish in market cooperation depends on the skills, capacities, and placements of the others and thus on the degree and quality of organization of the whole system” (p. 119).
Professor Lindblom’s argument manifests a fundamental misunderstanding of the case for capitalism. Unless some people with money to spend wanted to read books critical of capitalism written by leftist intellectuals, our author would be unable to sell his book. But this does not weaken his claim to the money he is paid for the book: quite the contrary, that very fact is his claim to the money.
Lindblom assumes without argument a principle of the form, “Someone in the market system is justly entitled only to the value which he bears exclusive responsibility for creating.” Triumphantly discovering that nothing meets this requirement, he concludes that market allocation lacks an ethical basis. But his conclusion follows only if one adopts his odd and ungrounded premise.
Lindblom’s abuse of logic in his argument goes further. Suppose one grants him that because the value of his book in large part depends on the preferences and actions of people besides him, he is not entitled to what people choose to pay him. It hardly follows that it is up to “society” to decide the issue. Lindblom has argued in this way: The value of what someone produces depends on the actions of everyone else, that is, on “the whole system.” But this is to reify “the whole system” as if it were a separate entity with rights and entitlements of its own.
I fear that Professor Lindblom has a bee in his bonnet about laissez-faire capitalism. He simply will not let up in directing bad arguments against this most productive of all social systems. He complains: “The market quid pro quo rule acknowledges no ethical value—no human merit or contribution to society worth rewarding—other than the capacity to offer the kinds of objects and performances that can be sold in markets. . . . I [Lindblom] know of no ethical principle that defends distributing the benefits of social life only in response to market contributions, in disregard of all other contributions” (p. 118).
One is reminded of the opening line of one of Kipling’s last articles: “What nonsense!” Of course a free-market society does not confine its rewards to what can be bought and sold in markets. Only what is offered for sale in a market receives a market reward, but this is not a controversial ethical principle. Rather, it is a mere tautology. Objects and performances not sold in markets receive nonmarket rewards.
Why does Lindblom assume that people in a capitalist society value nothing but what the market produces? His confusion is all the more surprising as he himself elsewhere reminds us that the market is only part of society: “the idea of a society in which the market system alone is society’s coordinator is obviously nonsense and is fortunately only rarely espoused. Most of us well understand the need for state, family, enterprise, and the various arrangements of civil society” (pp. 106–07). Some of us would demur about the need for a state, but Lindblom’s point is in substance right. Why then does he forget it when he indicts capitalism for recognizing only market values?
Professor Lindblom next tugs at our heartstrings. Does not the market system with its quid pro quo rule allow those who have no productive contribution to make to starve? He imagines a visitor from another planet who, encountering a free-enterprise system, shrinks back in horror when he discovers that people have no rights to welfare. The interplanetary visitor says, in Lindblom’s rendition, “Do you mean to tell me that in your society, other than a claim to liberty to work for wages and to hold and use assets if you can get any, no one has any claim on anyone else, on government, or on society other than what one can claim by offering something in return. . . . You call yourselves human beings?” (p. 114).
Clearly, the spaceman speaks for our author, who elsewhere bemoans the millions of people who would starve, were the market rule strictly applied. Would not all infants fail to reach adulthood, since they make no market contribution? “[T]he world would lie depopulated in a generation” (p. 120).
I venture to suggest that Lindblom has totally misapprehended the issue. The question is not whether people without assets or marketable skills should starve; of course they should not. But does it help these unfortunates to give them enforceable rights to sustenance? A legal enactment of this kind will not conjure into existence any resources, and these can be obtained only from the productive. Why will the poor fare better if they depend on the state to seize wealth from others, rather than rely on charity? Again Lindblom falls into the fallacy of thinking that a market society contains nothing but market transactions. 1
One must give Lindblom credit. He tosses out arguments against the free market in almost endless profusion. One of these is ingenious, though mistaken. When defenders of the market laud it as efficient, they mean by this that it tends to produce goods and services at the least cost in resources, given an initial distribution of assets. I will exchange my apples for your oranges, so long as trade benefits us both. The distribution of apples and oranges that results from our trades will thus be efficient, relative to our starting point.
With entire correctness, Lindblom emphasizes that market efficiency is relative to a starting point. But then, incredibly, he claims that because of this fact, the market is not really efficient. “Market systems . . . largely give up the possibility of an efficient resource allocation and pattern of production. They settle instead on inefficient allocations improved to the degree that voluntary transactions make improvement possible” (p. 174).
I gather that what he means is this: A market system always begins from an initial distribution, and we cannot ask whether this is efficient. A planner, however, is not bound by an initial allocation of resources. He can ask what is efficient in a wider, common-sense use of the term. “But for our purposes it is regrettable that economists wish to appropriate the word ‘efficiency’ for only the mutually advantageous interactions.
The more common definition of efficiency—and the one used throughout our analysis—says that a choice is efficient if the gains warrant the losses, no matter on whom the gains or losses fall” (p. 285). The planners, then, will assess gains and losses; and society will end up more “efficient.” How the gains and losses are to be assessed we are not told. To be informed, “Judgments of that kind are inescapable” (p. 285) does not help very much. In practice, Lindblom’s “efficiency” merely substitutes the judgment of the planners for the free choices of market participants.
I have so far been very critical of The Market System, much against my easy-going nature; so I am happy to acknowledge that the book contains some good things. Professor Lindblom has no use for the anticapitalist argument that the free market degrades work, “because its ennobling purposes are either lost or subordinated to gaining income” (p. 203). He aptly points out that the “most conclusive refutation of the degradation-of-work thesis . . . simply points to attitudes toward work in premarket societies. To Aristotle, labor was degrading, a judgment dominant into the nineteenth century, as illustrated in English upper-class contempt for both work and trade. It is only with the rise of the market system that the contempt begins to die away” (p. 204).
The book contains several other insightful points, but I shall mention just one more. Lindblom notes that “monopoly is a lesser source of inefficiency than commonly thought because, in the extreme form in which it is often imagined, it does not exist. All sellers compete with all other sellers, and each limits the power of the others to manipulate prices” (p. 155).
Unfortunately, insights like this appear but rarely. Lindblom is for the most part content to repeat his arguments of fifty years ago. Perhaps in another half-century he will grasp what is wrong with them. 2
- 1A fuller treatment would also need to consider whether the notion of welfare rights is coherent. I touch on this in my review of The Ideal of Equality elsewhere in this issue.
- 2 I hope he will also acquire a more accurate knowledge of Newton’s Principia . It is not true that Newton attributes “nothing to God except responsibility for setting celestial mutual adjustment in motion” (p. 29).
