I wrote in the previous post that markets are the most just and efficient way of allocating resources in mass society. But as I noted at the end, markets are far from perfect. Neither are they appropriate for all forms of human interaction. I want to spend the rest of this series of posts discussing the limits of markets and exploring in what ways markets need to be supplemented.
The first thing we need to acknowledge is that markets are not appropriate for all forms of human relationships. We have a growing tendency to think in terms of only two realities: Individuals and mass society. When I hear the word “we” among libertarians, I get a sense that “we” means the collective behavior of atomized individuals. When I hear “we” among liberals … as in I think “we” are obligated to care for the poor … “we” is frequently synonymous with “government.” But “we” don’t just exist as individuals or as mass society. We also exist as families, as neighborhoods, as worshiping communities, as members of voluntary associations, and so on. These societal institutions are intermediate (bigger than the individual and smaller than society) and intermediary (they help connect and facilitate aspects of human existence.)
Going at least as far back as Adam Smith, there has been an awareness that we exist as members of both face-to-face community (FFC) and mass society (which in economic terms I’ll refer to as commercial society (CS).) Early sociologist Ferdinand Tonnies wrote Gemeinschaft und Gesellschaft (roughly “Community and Society”) in 1887, attempting to work through the distinctions between the two. There have been many theorists sense who have characterized the two in various ways. In my estimation, much of it comes down information.
The family is probably the most elemental FFC. Imagine a multigenerational family living under the same roof. There is a married couple with three children ages 15, 12, and 6. The wife’s widowed father lives in the home along with the wife’s sister who is mentally impaired. The internal functioning of the household is not going to be on the basis of market transactions. Most of the members of this household are incapable of taking full financial responsibility for themselves. Most likely, the father and mother will be breadwinners for the household. The grandfather probably has retirement income and social security. There may be some government assistance for the sister.
Most living space will likely be shared communally, with each person assigned a private space according to their needs. Meals will like be prepared and shared communally. There will be a “needs” based allocation.
Parents will likely have chores for the kids to do and completion of those chores may be tied to an allowance. Certainly a minimal standard of good behavior will be expected to receive allowance. In other words there will be “cronyism” … you have to get in the good graces of the one with the resources to get what you want.
Other models of allocation may also come into play. Unless prior arrangements have been made, the one who gets to the TV first may be the one who chooses what program to watch … “first come, first serve.” Other resources may be divided by equal shares. There are many different allocation models like those we saw in the previous post that could apply in a family FFC for very legitimate reasons.
Now we could expand this model to, say, three families living communally. But we can only expand this model so far. When a community begins to have more than a few dozen people the FFC begins to breakdown. Essential to strong FFCs is the ability to have reasonably good knowledge about the other community members. Solidarity and accountability come through ongoing interaction. When more than a few dozen people are involved it is humanly impossible to have this level intimacy. Free riders begin to emerge who take advantage of the work of others. It is no longer possible to know enough about others to justly allocate resources based on individualized need. Some people become neglected.
It is impossible for society to function as a family writ large. So there are two options. One is for FCCs to become completely self-sufficient communities. While this may seem plausible at first, consider the creation of a simple pencil. If we are going to be self-sufficient communities making our own pencils, then we will need to find the graphite and process it into tiny graphite rods, collect wood and process it down to a pencil cylinder, find tin and process it into an eraser holder, collect and chemically process materials to form an eraser head, and then find the materials and dye to paint the pencil. Think of the number of hours expended by our small community of to create the pencils.
Now multiply this by countless products vastly more complex than a pencil. The computer you are using right now has components made from raw materials that come from as many as forty different countries. How will you make computers from local materials? And assuming you lived in one spot on earth where are all these materials are available, how likely is it that our tiny community would have the productive capacity to produce a computer … not to mention cars, medical devices, building products, power plants and an endless variety of things we take for granted?
The only other option is for FCCs to engage in trade with those outside the community. It is the only way to achieve this standard of living. How will that trade be coordinated? It means producing goods (or hiring your labor out to produce goods) that can be sold to generate income to purchase goods from others. We each put goods up for sale in the auction and then the supply and demand price mechanism provides a real time feedback loop of how much of which things people are wanting. Those that do the best at meeting demands get rewarded.
As noted, the auction method is the only allocation method that links production and allocation. If there were no market prices, and producers were not looking to make the best sell they could, how would we know how much of which things to make all across society? There is no practical alternative that works with any kind of efficiency and justice.
But to say that the auction, or the market, is the most efficient and just system does not mean that it will avert all inefficiency or injustice. Far from it. So what are the challenges and how do we create greater efficiency and justice within markets? Stay tuned.