Man is a social animal. Every person's happiness is bound to the happiness of others. But. People's benevolence is limited. Typically, a person feels intense love for her family, strong affection for friends, and cordial goodwill to mankind. The market limits the extent to which people need to have shared aims in order to cooperate.
It is often claimed that "market values" are corroding social bonds. But the market has only one value: Consent. It is true that in a market people are often greedy and calculating. But people can be greedy and calculating under any social system. (What's so bad about being calculating, anyway?)
The substitute for the market is not cooperation. It is force.
These arguments are a vulgarization of the ideas of Friedrich Hayek, especially as those ideas are developed by Thomas Sowell in Knowledge and Decisions. (The key point that the price system conveys effective knowledge, at best implicit in Hayek's "Use of Knowledge in Society," is made explicit in Sowell's book.)
These considerations, which explain the failure of communism, are accepted by both modern and classical liberals.
In the 1950's, Arrow and Debreu provided a mathematical model in which a decentralized price system produced an optimal outcome. This First Fundamental Welfare Theorem is often termed the Invisible Hand Theorem, and regarded as the formalization of the argument Adam Smith makes in Wealth of Nations.
There are two possible interpretations of the First Fundamental Welfare Theorem. One can be impressed by the result, or by the assumptions. That is, one can say, "Look how great the market is. It achieves Pareto Optimality!" Or one can say, "Look what unrealistic assumptions it takes for the market to reach Pareto Optimality." In practice, despite recent claims by anti-capitalists, the "Invisible Hand Theorem" has served, not as a blanket justification for laissez faire, but as the starting point for rationales for government intervention.
Indeed, many classical liberals believe that the FFWT is not what Adam Smith was getting at with his Invisible Hand metaphor, and that the efficiency properties which the FFWT demonstrates for the price system are not the market's chief virtues.
Return to main Apology page.
This page maintained by Steven Blatt. Suggestions, comments, questions, and corrections are welcome.