What is Economic Justice and How Can We Create It?

Introduction: what do we mean by economic justice?

We are going to define economic justice as follows: the organisation of the production and distribution of resources in a way that accords with “Golden Rule” style morality. By “Golden Rule” style morality we mean respecting everyone else’s need for fulfilment as much as your own, provided they return that respect. (We explored “Golden Rule” style morality, its justifications and its implications in “Questions and Some Answers: How to Live with Yourself and Others“). “Golden Rule” style morality implies a strong commitment to equality, but also, within the constraint implied by that commitment to equality, a maximisation of total fulfilment. In particular, it excludes an equalisation that reduces total fulfilment in such a way that it makes the least well off even less well off. As we stated in “Questions” Golden Rule style morality “is not, for example, a mandate for everyone just being “equally poor”, unless, of course, being poor is what gives people fulfilment.”

As hinted at by that quotation, we also have to ask the question: to what extent does fulfilment mean acquiring resources? There is obviously far more to fulfilment than mere economics. Indeed, once basic needs are met, such as clean air, water, food, shelter, clothing, healthcare and security, fulfilment may well be served better through companionship, supportive connections with others and a life based around activity that seems meaningful. Beyond that, deepest fulfilment may reside in being able to identify with something greater than the narrow, limited, fragile and needy “self”.

We also have to be careful about issues of economic context. Here we are talking about economics in a situation of “scarcity”. By “scarcity” we do not mean necessarily a situation of resource “poverty”, but we do mean one where individuals cannot freely obtain anything that they feel they want. In a “post-scarcity” situation, by contrast, there will usually be be no problem obtaining economic justice, since no one can deprive anyone of anything.

We also do not mean those aspects of any economy that are dominated by emotional ties, “gift” and mutual but informal obligations, such as within a family, or between friends, although such interactions usually form an important part of any economy.

Here we are, instead, dealing with the economic interactions in a “scarcity” situation between individuals with no pre-existing emotional ties to each other. Such interactions are unavoidable in a “mass population” society that is not in a post-scarcity state.

In a scarcity and mass population situation, it is usually impossible for most individuals to meet even their basic needs through “emotional tie” based obligations alone. Moreover, the differences in fulfilment between those whose basic needs are met, and those whose basic needs are not met, will usually be huge, up to and including the point where fulfilment for those who are so deprived becomes, as far as we tell, impossible, simply because they are dead. Of course, even what we mean by “basic needs” is somewhat subjective, and can only morally be decided by the consensus generating mechanism of a moral society, but it seems very likely that in most circumstances such a definition would at least include the necessities needed to preserve life and the avoidance of forms of suffering so severe that most so afflicted would prefer death to carrying on living. It follows that any moral society that is capable of arranging its economy in a way that meets the basic needs of all its members must do so.

This highlights a vital point: the economy of a moral society is not an end in itself. Instead, the purpose of such an economy is to serve the members of the society, rather than vice versa, and the most essential function of an economy is to meet the basic needs of all the members of a society, in other words to provide what we could define as “freedom from want”.

The proposition that the meeting of such basic needs is usually an essential pre-requisite to fulfilment is uncontroversial. Indeed many societies, that are at least trying to be moral, elevate meeting such needs to the level of human rights. Beyond “freedom from want”, however, to what extent does fulfilment equate to the acquisition of resources?

There is no getting away from the fact that, although it is likely that most people would find marginal utility, the idea that ever more wealth brings diminishing returns, an acceptable and credible notion, that individuals spend a lot of effort seeking fulfilment through gains in material resources, way beyond meeting their basic needs. Even if some of that quest is chimerical, and never actually leads to fulfilment at all, and even if what is being sought is often more about acquiring status and power than pure wealth, it nevertheless seems likely that more wealth improves the chances for finding fulfilment and that, even though the increases in chances for fulfilment as wealth is gained may fall off dramatically as wealth increases, that we cannot say with confidence that marginal utility ever falls to zero for most individuals in most contexts.

However, against this we should weigh two other factors. Firstly, resource acquisition will likely to be less important, perhaps much less important, to individuals in a moral society that is able to guarantee freedom from want, for wealth is often accumulated as a way to provide security and some protection against the depredations of others. Secondly, as we have touched upon above, resource acquisition is not, for most people, the only source of fulfilment: indeed, provided basic needs are met, it is likely to cease to be a major source of fulfilment. Caring, moral, societies are also likely to produce less mercenary individuals.

Distributed, egalitarian, ownership and control

There is one other concern that has significance, and that is the question of economic power. If only a few control the means all need to live and make a living, such as land, or manufacturing machinery, or investment capital, or intellectual property, or even just housing stock, then those few will have power over the many, that they will tempted to use that power to break their Golden Rule style obligations.

Moreover, “freedom from want” is likely to be best protected where all individuals, rather than depending on some form of redistribution, themselves have access and control of the things they need to live and make a living. Such an arrangement is likely to best secure both basic individual levels of fulfilment and individual autonomy, plus create a situation optimally amenable to all individuals having an equal voice in the creation of the consensus of the moral society. If “economic power”, in terms of control of the means needed to live and make a living, is concentrated in the hands of a few, those few will also likely be able to “buy” influence, or coerce others into adopting their viewpoint.

Then there is a question of work. Work can be a source of meaning and therefore fulfilment, but it can also involve sacrifice: of effort, time and sometimes health or even life. The sacrificial aspects of work therefore count against fulfilment, and should be compensated for, usually through some form of economic gain, as a basic issue of economic justice, aside from any, often very real, practical issues of needing to incentivise work in order to keep an economy productive. However, if sources of unearned wealth, such as control of the land, are in the hands of a few, some will, if they so choose, be able to make economic gains without such sacrifice, allowing them to avoid work, or at least avoid work where the balance between material or non-material rewards and sacrifice is poor. Like freedom from want, freedom from the sacrificial aspects of work can therefore contribute very significantly to individual fulfilment. Therefore, sources of unearned wealth should be shared as equally as possible. As sources of unearned wealth usually equate to control of the means to live and making a living, we are therefore led to a similar conclusion to that above: by mechanisms agreed by the consensus of a moral society, such sources of wealth should be equitably shared.

As we have touched upon, work can also offer a sense of meaning, as well as, for most, being the only source of significant income. However, any situation where the “few” control the things everyone needs to make a living, i.e. the “factors of production”, will cause unemployment. That is because the “few”, to maximise profits, will only employ workers to work their factors of production until they cannot make additional profit by producing any more, for example because demand is exhausted or the costs of producing yet more will exceed revenue. Beyond that there is no point employing further workers. It could be argued, that it would still be worthwhile employing further workers because the wages of those workers will increase demand, and therefore increase the point of output at which, in economic jargon, “marginal cost equals marginal revenue”. But for the individual owners of factors of production they can never receive more back from the worker as a customer than they have to pay out to the worker as wages (unless the workers have multiple sources of income, but equally the workers are likely to buy at least some goods and services from other people than their own employer). Each individual owner of the means and factors of production therefore cannot increase the level of output at which their marginal cost equals their marginal revenue by simply employing more workers.

Consider, for example, the limiting case, where the owners of factors of production have eliminated all labour costs, because they can produce outputs using only robots, and even the robots can make other robots. At this point anyone who owns sufficient means and factors of production uses those means and factors of production to satisfy their own needs. Anyone who does not is not only unemployed, but starves.

Indeed, as the few who control the things others need to make a living, have more economic power than the “dispossessed”, the competition between those who control those “means of production”, and the “workers”, is not on a level playing field. Those who control the means to make a living, such as the land, or investment capital, or factories, or intellectual property, can maximise their return from that capital in ways that exclude others from access from the things they need to make a living for themselves. The owners of the “means of production” are not as desperate to obtain workers, as the workers are to use those “means of production” to generate a livelihood, as those who control the things others need to make a living have many options to use that capital other than providing “full employment” to all who are skilled enough to use those means to create wealth. Owners of capital can potentially work their own capital, “store” their capital (assuming little or no depreciation) and work for others with capital, use their capital to earn rent or interest and/or hire others to work their capital. As we have seen, even if the owners of the means of production actually do seek to employ others to help “work” their capital, that does not mean they will maximise the labour they employ. Rather, not only won’t they hire labour to create supply beyond the point where their profits are maximised, but they will continually seek to maximise returns by minimising the cost of labour they need to use. That could mean more automation, but, as soon as societies start to trade and use money to create stores of value and facilitate exchange, it has meant many other “innovations” too. Self-sufficient societies that lack advanced mass automation need to use a considerable amount and variety of labour to meet all their needs, but money and trade open up the possibility of specialising to “work” capital in non labour intensive ways, for example, in the Highland Clearances, evicting tenant farmers to graze sheep for wool production instead.

Contrast this to a situation where everyone has access to the means and factors of production. In this scenario, provided those means and factors of production are sufficient, everyone uses those means and factors of production to work to satisfy their own needs, and the only unemployment that could arise is in the case where some of those workers lack the ability or skill to carry out the necessary work.

Therefore, capitalism, meaning a situation where the few control the means the many need to make a living, causes unemployment. It causes unemployment because, where the few, the capitalists, control the means and factors of production, and no one can perform productive work without access to those means and factors of production, the few will only employ workers up to the point where they can maximise profits from their means and factors of production. Beyond that, there is no point in them employing more workers. Yet again, we are forced to conclude that, to attain economic justice, control of the things people need to make a living should, by mechanisms to be agreed by the consensus of a moral society, be equitably shared.

Markets

So far we have deduced that, within the context of scarcity based, non emotionally tied, economic systems, moral societies need to agree ways to equitably share control of the means by which individuals need to live and make a living, in order to best secure freedom from want, ensure that the burden of sacrificial work is borne as equally as possible, curtail deprivation due to worklessness and to best protect personal autonomy and equality of voice.

That addresses resource generation. Now we move onto the question of how, in such a context, the mechanisms for allocating and exchanging resources should work in a way that is most consistent with economic justice.

In industrialised societies the market mechanism is a common way to organise the production and exchange resources, even if, in practice, the most essential services are actually commonly publicly run, such as defence, security, emergency services, basic infrastructure, education and healthcare, or are, at very least, highly regulated.

So what did we mean by the market mechanism? We mean a situation where resources are distributed by economic actors choosing what to buy and sell or exchange with each other. So what, by contrast, would be a non market mechanism? It would be one where economic actors are allocated what they need, or can take what they need. Such non market ways of distributing resources are common in close knit groups such as families and in non or post scarcity scenarios. Here, however, by definition, we are considering non-emotionally tied scarcity scenarios and, within such a situation, market based interactions are fairly commonplace.

We will call a situation where the market mechanism is allowed to operate, at least in the short term, to its fullest extent an “open market”. In an open market there are many suppliers and customers for every commonly consumed product or service, so the choice of all economic actors is maximised. Furthermore, though all markets must be based on some rules to allow the market to function in the first place, in an open market those rules are minimised so as to, again, maximise the options available to all participants in the markets, at least initially, even though it is possible, as we shall see, that an open market established with the minimum set of rules may not be sustainable as an open market in the longer term.

NOW MARKET MECHANISMS HAVE MANY ADVANTAGES:

The first such advantage is that they allow individuals to buy what they want. No time, resource wasting, possibly biased, or even corrupt, “planning” is necessary, nor is there any need for often tortuous attempts to “objectively” define a concept that is inherently subjective, the concept of “value”. Instead an objective measure of value arises as aggregate demand interacts with the supply or scarcity of the good or service in question to generate a measurable market value or “price”, as a result of the purely subjective decisions of many individuals. Such a way of arising at notions of value and price is very consistent with our idea that all concepts are, by definition, ultimately subjective.

Markets operating in the above manner can also create prices that are optimal in two senses. The first way that prices are optimal is that suppliers will expand production of goods, or the availability of a service, up to the point where they will not be able to make any more profit from supplying the next “unit” of production. That is usually the point, described in economic terms, where “marginal cost”, i.e. the unit cost to produce an extra unit, equals the individual price of all the units (we are assuming that all units have the same price, as would be natural if, from the consumers point of view, there is nothing to distinguish a unit produced in a run of one unit from a unit produced in a run of “n” units). It can also be described as the point where “marginal revenue” is zero, as increasing production by that extra unit will not generate any more profit.

Supplies of goods and services tend to reach this point of zero marginal revenue for a variety of reasons, such as it being ever more costly for the supplier to ever more intensely use their finite factors of production as supply is increased, perhaps because it involves wearing out machinery or exhausting soils more quickly.

Therefore, demand, supply and price tend to converge at this zero marginal revenue point, which is noteworthy as this point also has moral implications that can make it optimal from a moral standpoint. If we assume that both suppliers and consumers are acting under their own determination and are fully aware of the consequences of their actions at least for their own fulfilment, then we can deduce that suppliers are seeking profit because it furthers their fulfilment, and that consumers are also buying whatever the supplier supplies also to further their own fulfilment. Therefore, this economic interaction, between suppliers and consumers, is one that involves changes in fulfilment, and that the consumers have an interest in the largest possible, and therefore cheapest possible, supply, while suppliers have an interest in maximising their profits. If we further assume that there is no innate, marked difference in the fulfilment of suppliers and consumers, so no moral obligation to transfer fulfilment from one group to the other, then the zero marginal revenue point is a “win-win” scenario that best balances the interest of suppliers and consumers in a way that is most consistent with Golden Rule style morality, as consumers are not damaging the interests of suppliers by forcing them to produce supply beyond the point where it starts to reduce their profits, while suppliers are producing as much supply for the consumers as they can before their own livelihood starts to suffer, and are not forcing consumers to pay certain prices. As the market mechanism naturally causes supply, demand and prices to converge at the zero marginal revenue point, the market mechanism naturally tends to produce a moral result.

However, it is worth noting that this way of modelling how prices, supply and demand converge at a point that can be seen as optimal from a moral point of view depends on a number of assumptions. Some of these are fairly natural, for example that the “nth” unit of production should have the same price as the first unit of production, as, for consumers, all units of production are the same, or that, regardless of the efficiency or “economies of scale” of the producer, there will come a point, within the timescales where producers cannot expand production by acquiring say more plant or land (what economists’ call the “short run”)  where they will struggle to squeeze any more output out of their fixed productive capacity. There are, nevertheless, three further assumptions that will not naturally hold in quite common situations. The first is that the markets are competitive: meaning that a producer cannot force up prices by constraining supply because then they will simply lose market share to competitors. The second assumption is that supply is “elastic”, in that it will vary, and increase, as prices increase. The third assumption is similar but applies to demand, in that it is assumed that demand is also “elastic”, though, in this case, that it negatively correlates to price, so that demand falls as price increases. As we shall see later, there are common situations where one of more of these assumptions do not hold. Nevertheless, these assumptions frequently do hold, and, in these scenarios markets can find an optimal convergence of price, supply and demand in the manner described.

The second way that open market generated prices are optimal is that such prices reflect and thereby manage demand and supply, so that unwanted goods or services have low prices, and the price of desired but scarce goods or services will increase so as to moderate demand and there-by prevent over-consumption. Incentive is also taken care of automatically: higher prices, for whatever is most in demand, incentivise greater supply.

So optimal setting of prices and there-by automatic management of supply and demand is often a very significant advantage of the market mechanism.

Another advantage of markets is that the lack of reliance on any form of central planning reduces the risk that power, concentrated centrally, leads to authoritarianism. Indeed, as buying and selling decisions are decentralised and often delegated to individuals, the market is very compatible with the principle of autonomy.

Though markets encourage competition they are also reliant on co-operation. Markets require rules under which to operate: at the very least a basic notion of trust that the agents in the markets will trade and not just seek in some way or other to steal from each other. Advanced markets, with different types of monetary exchange and financial instrument, complex contracts and abstract forms of property such as intellectual property rights, require many volumes of rules to operate efficiently. The notion of a “free market”, if that means a market without formally agreed rules, is really an oxymoron. However, as societies are also groups of individuals bound by certain sets of rules, societies create markets, and markets create societies. Markets can therefore encourage mutually beneficial co-operation.

There is no monolithic or monopolistic single employer, so workers potentially have freedom about who to work for, better protecting their interests and making the economy as a whole more responsive to changes in demand. Labour rights are as important to the operation of a market as property rights, indeed, labour is effectively a form of property, often the only wealth-generating property that workers themselves own, and needs equal protection if market mechanisms are to efficiently match supply to demand. Consider, if workers are not free and incentivised to seek the best employment opportunities, then workers will not change jobs to fill gaps in the labour markets where there are skill shortages, constraining supply. The emphasis on the importance of purely non-labour property rights for the efficient operation of markets, and the neglect of labour rights, stems from the abuse of market theories by the capitalist class as post-facto rationalisations and legitimising ideologies. As a result ironically capitalism itself has seriously distorted our understanding of the market mechanism, including even under-stating some of its more socially progressive implications, such as the need to avoid anything that artificially suppresses workers’ rewards, such as indentured labour, servitude or slavery, domination of market places for certain types of work and in a certain locality by a small number of employers, or employers using political influence to coerce workers or rig the rules against them.

In an open market there are, by definition, many suppliers and many customers, all free to interact with each other. This can maximise choice and therefore the autonomy for all parties, and, because there is competition both to sell and buy, most efficiently align what people want with what is supplied. The market ends up supplying what people actually demand, at the lowest possible cost, and does so “emergently”, meaning that the market achieves this result by being “self-organising”, without requiring any centralised planning beyond, importantly, the setting of the rules under which the market operates.

Markets involve interactions between buyers and sellers in a process of continual feedback that forces markets to use data about prices, and volumes of goods and services exchanged, to seek ever more profitable outcomes. Evolving by incremental trail and error, markets, or more specifically the individuals and organisations operating in those markets, learn dynamically, and those economic actors that do not so learn will eventually be replaced by those that do. It is even tempting to wonder if, markets, like similar “adaptive algorithms”, can potentially find solutions, to problems of efficiently meeting demands, that would be effectively impossible to anticipate in advance. However, we need to be careful here: “adaptive algorithms” can find completely unexpected solutions by evolving at least “pseudo-randomly”. In practice markets, because they involve intelligent agents making conscious decisions, are “semi-blind” rather than completely blind: truly random innovations will more usually than not be second-guessed and suppressed. For example, we could imagine that a mistake in a manufacturing run of a product creates an apparent “flaw” in each unit of production that, in fact, makes those products more marketable, and such an outcome is indeed possible, but it is unlikely to play out in practice, as a “quality controller” is more likely to have the product run recycled, or sold off cheaply as “reject stock”. Furthermore a desirable change is often the result of an accumulation of neutral changes, “spandrels” in terms of evolutionary theory, that any form of intelligent, conscious, “quality controller” is even less likely to continuously tolerate. Then, of course, there is the issue of waste: for every neutral or beneficial random change there will be far more that are harmful. Totally blind evolutionary processes are fine for adaptive software, when failed solutions can be thrown away multiple times a millisecond, but, in the real world, can be brutal. Markets, though dynamic and adaptive, may therefore create genuinely “novel” solutions only rarely. However, markets, by tracking towards ever more efficient outcomes step by small step, may still eventually lead to outcomes, by a series of beneficial increments, that would have been completely unpredictable many “steps” ahead.

One of the very desirable “emergent properties” of such markets is that all suppliers, in theory, specialise in producing whatever they can produce most efficiently, maximising total production. Each specialist supplier’s product is then exchanged with that of other suppliers so that everyone ultimately receives the full range of goods and services that they need. Under what is termed the “Law of Comparative Advantage”, even in a situation where one supplier can produce everything more efficiently than another supplier, it still makes sense, in terms of maximising overall wealth, for each of those suppliers to specialise in whatever each one does best.

Open markets can therefore self organise in a way that drives economic growth. In particular as the market mechanism generates prices that match supply and demand, and as the suppliers, and methods of supply, that best meet demand naturally grow at the expense of those that do not, markets become ever more efficient at satisfying at least resource-based needs, and therefore increasing total fulfilment. For example, markets are therefore often credited with providing freedom from want, especially the lifting of a vast proportion of humanity out of poverty. In the case, however, of the late 20^th and early 21^st Centuries, where economic “liberalisation” and global capitalism is often advanced as making vast in-roads in alleviating poverty in what had been some of the poorest parts of the world, it is very difficult to disentangle outcomes arising purely from the market mechanism, to those that are really down to scientific and technological advance (often driven by conflict between states and therefore being generated by the “public sector”) and simple technology and resource transfer, i.e. “investment” in all its forms. Although that investment was itself often motivated by the market mechanism, many other factors were also, or could have been, in play, both at the national and geopolitical level, including altruism, direct interventions by governments, and a commitment to “social progress” for its own sake. The extent to which that transfer of wealth and technology really depended on the market mechanism is unclear. Some might even argue that capitalist concentrations of economic power contributed to the problems of poverty in the first place. The case for global capitalism having improved the lot of the world’s poor becomes even more questionable when different definitions of poverty are used, such as having sufficient income and quality of life to be able to live a full human life-span, or “hidden costs”, such as greenhouse gas emissions, are factored into the analysis. Nevertheless, the basic fact that markets can drive economic growth appears inarguable.

HOWEVER, THE MARKET MECHANISM ALSO HAS MANY DISADVANTAGES:

Firstly, though an objectively quantifiable notion of value is arrived at by the subjective decisions of many, it is not necessarily a true “consensus” value, in terms of how a consensus generating mechanism of a moral society would normally be expected to work. To coin a phrase, markets are not necessarily what we will term “consensus based markets”. To respect the Golden Rule, markets would need to give each individual’s need for their own form of fulfilment equal respect, and require that individuals act morally. Such “consensus based markets” would therefore need the following conditions to be satisfied:

• Consumers have equal purchasing power, i.e. “equal voice”.

• Consumers are fully and equally informed about their own needs and how well what they could buy would satisfy those needs. If this condition is not satisfied, consumers could be tricked into making decisions that are not, even on their own individual, subjective terms, in their own best interest.

• Consumers are free to buy what they feel they need.

• Consumers are fully informed about the potential affects of their purchases on others, and then act as moral agents. Remember, it is the willingness to act morally, to respect the interests of others as much as your own, provided those others are willing to return that respect, that confers on individuals the right to have a voice in the creation of any consensus of a moral society.

• Suppliers engage in “moral competition” with each other, and do not seek to control prices in any way.

• Prices fully reflect costs, so that no “hidden costs”, such as those created by pollution, are passed onto others.

In practice, markets may approximate to the above conditions, but, the further they deviate from those conditions, the less consistent is the operation of such a market with “Golden Rule” style principles, of respecting everyone’s interests equally, and the less likely the market to generate market values that match society’s consensus values.

The deviation of market values, i.e. prices, from how goods and services are actually valued by the consensus mechanisms of a society, can have very perverse consequences. For example, dangerous and addictive drugs, can have a high market value, while actually being prohibited by the laws agreed by a society’s consensus mechanisms, indicating that society as a whole formally regards such drugs as being harmful and having a negative value. Equally, potentially highly beneficial medicines, but which address diseases that tend to afflict the poor, for example, at the time of writing, anti-malarial drugs and vaccines, can fail to be supplied by the market, because such medicines cannot command a price that would justify their cost of production, as the purchasing power of the poor is too low. A market mechanism that is not functioning as a consensus based market can therefore generate perverse values.

In particular, there is one “market failure” implicit in the above that is often lethal. As prices represent how much money is chasing after each item, the outcome of the market mechanism is that, the more desirable something is, at least to those with purchasing power, the less affordable it becomes. Most importantly, in a situation where there is a shortage in supply, i.e. where demand exceeds supply, the market mechanism means that prices rise. In theory, this situation is meant to eventually stimulate an increase in supply. However, in the mean-time, the consequences of the “eventually” are that demand will be “managed” by simply pricing some consumers out of the market.

Note also that in a situation of short supply even competing suppliers have no incentive to compete on the basis of cost, as all can anticipate selling all their stock. In other words this is a situation where one of the assumptions about markets causing supply, demand and prices to converge at an optimal point has ceased to hold, as in a short supply scenario supply has become “inelastic”: it has become unresponsive to changes in price. Rather for each supplier, assuming that they don’t seek to hoard in anticipation of rising prices, and that each supplier can not significantly boost prices by constraining their own supply, the most rational price to charge is the one that allows them to sell their supply at the same rate as they can acquire or create new supply. Charging any less means that, over any given interval, the supplier sells the same number of units (the number they can acquire or create during that interval) but at a lower unit price than they could have done otherwise, and so making less profit. Charging more means supply starts to accumulate, risking a loss if prices then fall that could become a real loss as, if acquiring each unit of supply has greater than zero cost, the accumulated supply represents actual sunk cost, and therefore a financial risk.

Of course, the “price signal” of increased prices both prevents over-consumption of a scarce item and is likely to cause suppliers to expand their supply, so that supply again eventually meets demand. But, again, the “eventually” is absolutely key here: and “eventually” could even mean never. In the mean-time, as we have seen, demand is “managed” by pricing poorer buyers out of the market. In the case of a shortage in staples, such as during a famine, or, for example, a scarcity of healthcare, that “management” of demand can be lethal. “Over-consumption” is avoided only by excluding and victimising, or even killing, the poorest. There is therefore a potentially disastrous “pricing out problem” with open markets. Demand management by pricing out poorer consumers is another key failure of the market mechanism.

For essential items, those that individuals need to have freedom from want, a more moral way of dealing with that scarcity would often be rationing and/or waiting lists.

We have seen that inequality in purchasing power amongst consumers, combined with the price mechanism, can therefore have some very undesirable consequences for the attainment of economic justice.

There are many other potentially disastrous consequences of open markets. One that is currently threatening the very survival of human civilisation itself is “externality”. “Externality” refers to a situation where the provision of a good or a service causes costs or benefits to people other than those involved in selling or buying the good or service. An example of a negative externality, i.e. a cost, is pollution, such as greenhouse gas emissions. Such costs end up borne by everyone, not just the producers of the emissions, so act, for the producer, like hidden subsidies. By contrast, positive externalities are benefits that cannot be confined to those paying for a good or service. These are often termed “public goods”, such as street lighting. Positive externalities act to reduce what anyone is willing to pay for a good or service that they can, at least in part, receive for free. Positive externality can so reduce the prices obtainable for a good or service that it becomes unprofitable to deliver via an open market mechanism at all, so either a non open market mechanism has to be substituted or artificial scarcity has to be created so that it is then possible to charge for a good or service that has ceased to be freely available.

Taking fulfilment from others by imposing costs upon them without sufficient compensation, or being unable to provide a good or service because it is impossible to charge for it, or creating a scarcity, and so pricing out the poorest, when no scarcity needed to exist save for the need to operate a market mechanism: these are all clear violations of economic justice.

Then we have “races to the bottom”, where intense competition means that the “winners” in providing a good or a service are those willing and able to drive down costs to a point that would be considered unacceptable to the consensus of a moral society. Such a “race to the bottom” could mean a ruthless exploitation of workers, or consumers, or the environment. Sometimes market mechanisms may act to limit “races to the bottom”, for example where consumers are informed accurately and quickly enough to stay wise to suppliers of shoddy goods, or workers are easily able to escape an exploitative employer and move elsewhere. In the real world, though,there are usually enough possible “angles” available for exploitation by the unscrupulous, for example shifting production to a region where the work-force is, for any number of reasons, not free to easily change employer, or constantly changing company and product name to avoid any brand notoriety, that market mechanisms themselves will seriously struggle to restrain races to the bottom. Indeed “built in obsolescence”, where-by the lifetime of products is artificially limited so as to reduce production costs and increase sales, causing otherwise avoidable, wasteful, consumption and as a result even completely unnecessary environmental damage, but in a way that consumers are unlikely to notice in a sufficiently timely fashion or in large enough numbers to significantly affect their future purchasing choices, is one example of a “race to the bottom” effect that is almost ubiquitous. Indeed, the very ubiquity of such practices makes them hard for consumers to detect, as there are few enduring benchmarks of more “economically just” behaviour with which to compare, so that every “race to bottom” is self reinforcing.

Races to the bottom can easily create a situation where everyone loses. In the words of Robert Tressell’s “Ragged Trousered Philanthropist”:

“Happiness might be possible if everyone were unselfish; if everyone thought of the welfare of his neighbour before thinking of his own. But as there is only a very small percentage of such unselfish people in the world, the present system has made the earth into a sort of hell. Under the present system there is not sufficient of anything for everyone to have enough. Consequently there is a fight–called by Christians the ‘Battle of Life’. In this fight some get more than they need, some barely enough, some very little, and some none at all. The more aggressive, cunning, unfeeling and selfish you are the better it will be for you. As long as this ‘Battle of Life’ System endures, we have no right to blame other people for doing the same things that we are ourselves compelled to do.”

Another disadvantage, that often motivates the ruthlessness of races to the bottom, is market short-termism. In an open market those producers of goods and services who make the most profit can re-invest those profits and grow the fastest. As we have seen, that is one of the advantages of open markets: competition means producers who are most effective at meeting demand grow fastest, so production overall should become ever more efficient at meeting demand. However, the need to compete by growing as fast as possible at every moment in time means drastic short termism. Maximum returns must be sought constantly in the immediate future regardless of long term consequences. Consider, for example, the justification in Hayek’s “The Constitution of Liberty” for farming land to the point of exhaustion: “Soil mining may in certain circumstances be as much in the long range interests of a community as using-up any stock resource.” This is because “… our problem is not to preserve this stock in any particular form, but always to maintain it in a form that will make the most desirable contribution to total income. The existence of a particular natural resource merely means that, while it lasts, its temporary contribution to our income will help us create new ones that will similarly assist us in the future.”

Open markets can therefore propel societies on a roller coaster ride of seeking further growth, in the necessarily eternal hope that any negative externalities, such as accumulated environmental damage, can always be dodged by finding new sources of growth to replace those that are now exhausted. Indeed, this constant drive for growth is often cited as itself one of key failures of open markets in their present form.

However, it seems more likely, that it isn’t growth itself that is the problem, so much as the nature of that growth, and how we define or measure growth in the first place. Growth that involves providing the very latest consumer gadgets built with minerals mined by slaves in conflict zones and manufactured using energy from coal-fired power stations would seem indefensible to most, but few would see a problem with, say, growth that takes the form of expanding healthcare, or that provides public sanitation to a megacity slum. We should remember that Golden Rule style morality also means attempting to increase overall levels of fulfilment: it is not about everyone being equally “austere” or miserable. Also, if externalities were measured and accounted for properly, it’s very likely that many activities that superficially produce growth would actually be seen as harming the economy, i.e. as actually deducting from “real” growth.

This ruthless competition for growth means that markets, even while they extend frameworks for co-operation by generating more rules and encouraging specialisation and trade, can actually impede real cooperation in certain key areas through what economists term “coordination problems”. In a coordination problem everybody suffers because something of mutual benefit cannot be achieved because everyone has to co-operate to achieve that mutual benefit, while in any situation where everyone or anyone fails to co-operate, anyone failing to co-operate ends up better off than anyone still struggling to co-operate, and so everyone loses out on those potential mutual benefits. One famous example is the “Prisoner’s Dilemma”. In economic terms, both “public goods” and market short termism could be seen as examples of co-ordination problems. For example, investing to opening up new markets would expose a company to cost and risk, set against the promise of future profits. Factor in opportunity costs, meaning that the given investment would, in the short term, produce greater profit if invested elsewhere, and the fact that the new markets would also be open to competitors, and no company will on its own decide to open those new markets, even if, in the longer term, this means market saturation and eventual business failure for most companies competing in this particular economic sector.

The fact that wealth tends to beget further wealth, in other words that profits can be re-invested to further expand profits, in a process that can easily turn exponential, though itself being one of the key advantages of the market mechanism in so far as it encourages the most efficient providers to expand, also creates a tendency toward oligopoly or even monopoly. If a market ends up dominated by a few suppliers, who can suppress the emergence of new start-ups due to factors such as economies of scale, network effects (where a network controlled by a supplier becomes ever more valuable to each participant the more participants join), sheer capitalisation or other in-built advantages, can mean that the market mechanism, left unrestrained, eventually negates its own drive toward competitiveness.

Of course, monopolies can also occur naturally, such as controlling the water supply within a particular locality. In such situations the market mechanism cannot create the competition needed to protect consumers (and sometimes also workers) from exploitation, that is from having their interests subordinated to those controlling the natural monopoly, and violations of economic justice are likely. This is, in fact, another common scenario where the assumptions underlying the model where-by supply, demand and price converge at an optimal point breakdown: as monopoly means that a supplier can manipulate prices, and, in the case of a natural resource such as water, it is also likely that demand is relatively inelastic. Where the demand for the monopolised service is in large part inelastic the monopolist will, unless restrained, push prices as high as consumers can sustain, because the monopolist will sell roughly the same amount of “supply” regardless of price. Indeed, in reality the situation may become even more destructive of economic justice. For example, a monopoly water supplier to domestic consumers may charge the most for the “essential” volume of water that every family will need to consume, but then reduce prices for amounts consumed above this in order to sell more water to those capable of “preferential” use, such as to the rich for swimming pools or garden sprinklers. In this way an outcome is created that increases inequality in fulfilment, as well as possibly causing negative externality, such as using up water in an aquifer faster than it is replenished.

Then there is the argument that markets actually waste resources and disrupt the economy. Markets can be chaotic. Competition and the turn of fate can drive suppliers and even entire industries into bankruptcy, blighting lives and sometimes entire communities for decades. If services are essential, meaning needed to ensure freedom from want, consumers of a service that has ceased to trade can be plunged into immediate crisis. Furthermore, the collapse of a financial institution can wipe out savings, again causing real want if, for example, those savings were intended to provide workers with an income when they cannot be employed, such as due to old age or infirmity. Sometimes market chaos can even make entire essential industries impossible to sustain if those industries are exposed to “pure” market forces. Farming tends to be one such example, as vagaries in harvests can produce scarcity in one year and glut in the next. Both situations can be extremely harmful: a farmer with a failed harvest has nothing to sell, but a farmer with a glut, having already “sunk” all the cost to produce that season’s “output”, is faced with having to sell a perishable commodity with a potentially fairly inelastic demand (for example, there are only so many potatoes consumers can eat), and will, most likely, have to sell his product for below what it actually cost to produce.

Markets, like evolution, are “blind”: they can not only be cruel and wasteful, but will produce outcomes with no regard to long term consequences. For example over-specialised suppliers in a complex market are just as vulnerable to extinction due to changing conditions as specialised species in a complex ecosystem. To be fair, perhaps a more reasonable description would be that markets are “semi-blind”. Evolution can never produce a solution, no matter how beneficial to a species survival, that would involve an intermediate step that actually temporarily reduced the species “fitness”. In an open market, however, as economic actors are “intelligent”, such an outcome is just about possible: for example a company might decide to “loss lead”, i.e. engage in predatory pricing, in the hope that the sacrifice in shorter term profit and growth will be more than offset by much greater profit and growth in the longer term, due to increased market share. Such resistance to market short termism is, however, likely to be rare: the type of strategy used by companies who are already dominant, and so can “afford” to forgo immediate growth for a short time to defend a position of oligopoly. To return to the example of farming, blind market forces can also drive a lot of land out of production, and perhaps reduce farming to a few very large potentially oligopolistic farmers, placing the food supply of an entire society in a very precarious position. Markets therefore don’t only suffer from co-ordination problems, but from even more general problems of inability to perform long term or strategic planning.

Interestingly, even Hayek concedes an entire chapter of the “Constitution of Liberty” to the necessity of “Housing and Town Planning”, because of what he calls “neighbourhood effects”, meaning “the effects of what one does to one’s property to that of others.” What Hayek does not acknowledge is that, because of the dependence of all upon all in complex societies, not only is wealth itself a social construct, that is dependent on the operation of society as a whole, but that, through feedbacks and knock-on effects, “neighbourhood effects” extend everywhere. After all, arguably, that is the essential message of J B Priestley’s “An Inspector Calls”: “We don’t live alone. We are members of one body. We are responsible for each other. “

Closely related to the problems of semi-blindness, chaos and waste, is the tendency of markets to generate “asset bubbles”. In an asset bubble something that can be purchased, retained for a while and then re-sold, steadily increases in value simply because further purchases are driving up the price, so that the item becomes desirable purely because it’s price is increasing, resulting in further purchases and price increases by feedback alone. Participating in an asset bubble can be “economically rational” even when prices have exceeded any realistic conception of the asset’s actual value, as provided the trend continues for just long enough for the purchaser to be able to sell before the bubble bursts, they will still make a profit. Indeed, market short-termism, as discussed above, may actively force participation in an asset bubble. Historically, asset bubbles have been highly disruptive, contributing to “business cycles” so extreme that the result of an asset bubble bursting can be economic dislocation severe enough to wreck societies, causing political upheavals up to and including mass conflict.

Advertising and all forms of commercial promotion are also sometimes cited as waste of resources associated with the market mechanism as, again, enterprises that do not engage in such activities are likely to be outgrown by those that do. However, advertising and promotion can facilitate economic justice, better informing consumers and encouraging them to make more sensible choices between suppliers, in turn making the market function more closely to our notion of a consensus market, and inducing the market itself to evolve in a direction that ever more efficiently satisfies overall demand. Advertising and promotion, done honestly, accurately and proportionately, does not seem, in itself, to constitute a failure in terms of serving economic justice.

Nevertheless, there is obviously a dark side to advertising, and to open market based demand management in general. Left unconstrained, advertising can be used by the richest suppliers as a means not to inform consumers, but for their deception and mass psychological manipulation. In particular demand can be created: needs can be invented and products or services can be provided that are actively intended to be addictive. In the case of, say, tobacco, or opium, or alcohol, this has cost millions of lives. Invented need can also drive up consumption, resulting in waste of resources, environmental degradation and damaged lives, as individuals work harder and compete with each other more intensely in order to be able to afford things that they don’t really need. Inventing need and encouraging addiction are therefore other points where the market mechanism can fail to further economic justice.

Finally, the market mechanism can promote a host of other more general social ailments. The need for each supplier to continually outgrow other suppliers, especially where the tendency of the market to produce oligopoly is concentrating wealth in a few hands, can result in suppliers interfering with politics to promote their own interests, generating political corruption, rigged markets and sometimes even state sponsored attacks on other societies to capture natural resources or trading opportunities. Then there is the influence on the individual to consider, as the market mechanism, and especially mass consumerism and “race to the bottom” style competition, left unrestrained, can encourage selfishness, greed, insecurity, loneliness and a mercenary or materialistic state of mind that, in the words of Oscar Wilde, “knows the price of everything and the value of nothing”.

On balance, therefore, it seems fair to say that the market mechanism is like fire: used appropriately and managed properly the market mechanism can be essential in promoting the well-being of the members of a society, in our context meaning furthering economic justice. However, left unrestrained, the market mechanism, like an out of control fire, can cause mass destruction.

The market mechanism is a tool that we can use to promote economic justice. In itself it is value neutral: it is how the market mechanism is used in practise that counts. Like the economy as a whole, within the economy the market mechanism should be used to serve people rather than people being used to serve markets.

So, we therefore have to ask: when is it and isn’t it appropriate to use the market mechanism, and, where we do use the market mechanism, how are markets best managed?

Taming the market mechanism

Economic democracy, by which we mean control of the things people need to live and make a living is equitably shared, can help to tame the market mechanism, because every participant in the economy is more likely to have an at least roughly equal voice, and so have their interest and viewpoint fully represented. This means that economic actors are more likely to make decisions consistent with Golden Rule style morality.

However, it would be very naive to think that economic democracy alone can fully control the “fire” that is the market mechanism. It is easy to imagine, for example, a market composed of competing worker co-operatives, who find themselves, regardless of their best intentions, forced by the market mechanism itself to engage in races to the bottom, short-termism, manipulative marketing and participation in asset bubbles, and then that situation further evolving into one where the most ruthless worker co-operatives then effectively emerge as the new capitalists, or even as monopolists.

Therefore, we have to expand our concept of “economic democracy” still further, to include regulation. As we have seen, markets are dependent on rules, so the need for “regulation”, even if we only mean respect for property, that is “not stealing”, is in-built into the concept of a market. Here we are talking about not the need for regulation, but its extent, and about how the regulations are decided upon.

To tame the market mechanism we need regulations agreed upon democratically by the consensus of a moral society. Such regulations should mitigate the failures of the market mechanism explored above: address negative externalities, for example by adopting the principle of “polluter pays”, restrict the emergence of monopolies or oligopolies, for example by introducing “anti-trust” laws, prevent “races to the bottom”, by creating environmental, worker and consumer protections, and moderate advertising, for example ensuring accuracy or even possibly restricting forms of advertising most likely to create “invented need”, such as unsolicited individually targetted advertisements. In the financial area, other regulations can attempt to constrain speculation likely to produce asset bubbles, and to contain any damage from such bubbles should they still form and burst. Note that it is vital that these regulations are agreed democratically, and also applied in a way that is held democratically accountable: the phenomenon termed “regulatory capture”, by which larger enterprises come to dominate their own regulators, is an ever present threat that can result in “crony capitalism”, where big business and government become indistinguishable, and regulation may actually be used by monopolists to stifle competition.

Though , as we have seen above, it is vital that the things people need to live and make a living are shared reasonably equitably, to best ensure freedom from want, ensure that the burdens and benefits of work and leisure are shared reasonably equally and minimise the risks of abuses of economic power, that “reasonably equitable distribution” is unlikely to be sustainable without being complemented with some degree of redistribution. “Pre-distribution”, i.e. sharing the sources of wealth equitably, is to be preferred to redistribution, partially because it involves less interference with personal autonomy, but mainly because, once wealth as been acquired, reliably and regularly prising it from the death-like grip of the acquirers is not easy.

However, pre-distribution itself cannot be sustained without redistribution. This is because wealth generates wealth, meaning that even small differences in economic outcomes can rapidly exponentiate into new class structures. Therefore, some redistribution is essential but, given our preference for pre-distribution, and so in order to keep the need for redistribution minimised, redistributed wealth should ideally be used to help equalise pre-distribution. For example, even in a society where all private enterprises are owned by their own workers, so could be described as “worker cooperatives”, we could imagine a progressive tax on profits with those tax revenues being redistributed to workers from failed cooperatives, to give them a stake to establish new cooperatives, and to sectors of the economy and communities on the losing side of the economic impacts of changes in technology, to allow them to retrain and invest in new cooperatives, hopefully in a timely enough fashion that the mass social and economic dislocations, including wasted lives and talents, that result when such adjustments are left entirely to “market forces”, can be avoided. Those benefiting from the economic vagaries of technological change have a moral obligation to devote some of their good fortune to helping those on the losing side. Such measures would therefore both mitigate the tendency of the market mechanism to produce oligopoly and help prevent market induced chaos. A scheme along these lines could even be formulated as insurance against business failure.

The other main source of redistribution is likely to be revenues from “capital” that is owned in common. We have seen, for example, that sources of unearned wealth, such as land, should be held in common. We could imagine a situation, for example, where, land held beyond a certain basic allocation for each citizen, is subject to a rent, or “land tax”, payable to everyone else in society in exchange for use of a common asset. Other forms of common ownership could revolve around public investment funds, such as “sovereign wealth funds”.

It could be countered that such public investments will be problematic, for a couple of reasons. Firstly, if we imagine that all private businesses are actually worker co-operatives, in a way consistent with the things that people need to make a living being owned reasonably equitably, then how could society as a whole invest in businesses that are actually meant to be owned by their own employees? One possible solution could be new financial instruments, perhaps “share-of-profit” loans, so that the lender receives either a share of profits for a fixed term, or the repayment of the loan plus interest, whichever takes longer. A second objection would be that public investments are likely to become inevitably “political”, impeding the ability to generate profits for society as a whole, and perhaps even causing corruption. In theory, and often in practice, that issue is fairly trivially dealt with: though the principles upon which public funds are to be invested, especially any ethical guidelines, ought to be agreed democratically, the individual investment decisions need to be done transparently and accountably but also by appropriate experts given, within the scope defined by those principles, autonomy.

Revenues generated from such commonly owned assets already belong to a society as a whole, and could relatively easily be used to fund schemes such as, for example, a basic income. Also, in a situation where new workers have to initially build up a transferable stake in an employing worker cooperative by deductions from their wages, these revenues could be used to subsidise stakes for workers starting new worker cooperatives, or joining younger, riskier and less profitable worker cooperatives. This would help keep the economy competitive, so also further mitigate any tendency of the markets to generate oligopoly.

Redistribution of inherited wealth is also likely to be key, to prevent fortunes growing across many generations that distort economic power relations and prevent at least approximate equality of purchasing power. We could imagine here not only progressive inheritance taxes, but a system where-by it is no longer the value of the total estate that is taxed, but each individual’s personal share of inheritance, with the amount to pay also depending on that individual’s current level of wealth. In this way inheritances that are spread out amongst the poor would be taxed more lightly than those that are simply transferred between the rich, so that, rather then inheritance being a way in which new class structures can emerge, it becomes a mechanism for gradually equalising the distribution of wealth over time.

Similarly any other taxes that are necessary, in a given context and with democratic approval, such as an income tax, should be progressive in nature, so again to best ensure rough equality of purchasing power and prevent an exponentiation in differences in economic power. Consumption taxes should not be used as a general revenue generating instrument as they bear most heavily on the poorest who, because they are poor, are forced to spend a much larger share of their income than the rich. Instead consumption taxes are best reserved for forcing customers, either individuals or organisations, to pay for the negative externalities that they cause, for example taxing unhealthy food choices in order to meet the extra healthcare costs so incurred.

Two of the main failures of the market mechanism, in terms of the generation of “perverse values” and the pricing out of the poor, arise from inequalities in purchasing power, and so can be be significantly mitigated by measures of pre-distribution and redistribution such as those described above.

Societies should also stand ready to intervene in markets, in order to address co-ordination problems and issues around long term economic strategic planning. For example, because knowledge is usually a “public good”, societies may choose to invest public resources in research and development. A long term strategic economic plan may also identify opportunities for the society’s “real” (meaning economically just) growth over future decades, and perhaps invest a certain fixed proportion of public funds, such as a fixed proportion of sovereign wealth funds, to promote that plan. In other areas, such as farming, subsidies, in the form of direct grants and/or guaranteed prices, may be necessary to protect essential industries such as farming from the vagaries of the climate and markets. This is not, note, in any way, detailed centralised economic planning.

Instead, we can term the market mechanism employed in the ways described above as creating a “managed market”. Sometimes though, regulation and even regular intervention, such as agricultural subsidies, are insufficient, and the market mechanism must be supplemented by non-market ways of operating the economy. Ultimately, one way to enjoy the advantages of markets while minimising the disadvantages is to supplement markets with strong non-market mechanisms. We shall discuss these situations next.

Alternatives to the market mechanism

We have left some critical failures of the market mechanism unaddressed, including, for example, the “pricing out of the poor” from essential goods or services in a short supply situation. Therefore, we need to extend our concept of the “economic democracy” still further, to include direct participation in the economy of entities directly controlled by the consensus of the moral society.

Almost unavoidable candidates for some form of direct social control are the provision of public goods and the running of natural monopolies. Public goods, by definition, cannot be supplied in any other way, while direct social control dissolves the concentration of economic power associated with owning a natural monopoly, by placing the ownership of the natural monopoly in the hands of everyone and making its running democratically accountable. Essential services are other strong contenders, where “essential” means those services that are needed to provide freedom from want, though here market mechanisms may often also be workable, provided the markets are democratically regulated and society as a whole stands ready to intervene to address any market failures. For example, even in capitalist, supposedly free market, societies there tends to be an extensive framework of public regulation and intervention in food production, from subsidies for farming to detailed rules and checks on food safety. Such measures, combined with advances with science and technology, and at least a basic welfare safety net, were, in the developed world in the second half of the 20^th Century, consistent with reliably being able to feed the entire population, albeit with the occasional public health crisis. However, if such measures are ever insufficient in ensuring freedom from want then direct public provision, including potentially rationing, is morally inescapable.

Where direct control is necessary it can take multiple forms: from publicly but temporarily awarding contracts to private enterprises, so that competition and accountability can be sustained by society retaining the right to re-award such contracts, to the establishment of public bodies that directly provide services.

Out-sourcing provision of public services to private enterprises which, given the need to avoid concentrations of control over capital will have to be worker owned such as worker cooperatives, is a viable strategy that brings with it the possibility of using many of the advantages of the market mechanism. Nevertheless, outsourcing is still something that needs to be done with great care. Certain services, with defence and security being strong contenders, cannot be out-sourced at all, because that would involve a moral society giving up too much power to other groups, risking it’s own destruction. Defence and security are therefore not only public goods, but examples of services too essential to have their provision under anything other than the direct, immediate and continuous democratic supervision of society.

In other areas out-sourcing is possible, but a whole number of possible pitfalls have to be avoided. Firstly, smaller and simpler services are easier to outsource. Fully defining a complex service in a contract is extremely difficult and private enterprises, always eager to keep costs to a minimum in order to maximise profits and remain competitive, and to avoid legal difficulties, will tend to scrupulously work to contract, and may not be averse to exploiting any loop-holes, especially when they have, for any reason, no immediate fear of losing a contract. Inflexible legalism can therefore be a market failure of out-sourcing and one that, by definition, is impossible to regulate against. The only mitigation against such practises is competition: replacing a supplier who has been inflexible with one who is more co-operative. However, that often doesn’t work. A supplier that is too compliant may become unprofitable and be forced, in contract renewal, to raise their charges, almost certainly losing the renewal as a result to a less flexible competitor. Out-sourcing markets can be highly inefficient, because purchasers may find it very difficult to make free and accurately informed decisions, as here we are not talking about a finished product that can be scrutinised before buying, but a potentially complex service to be provided in a changeable and therefore unknown future context. Furthermore, larger suppliers of outsourced services will be able to cultivate close contacts with those institutions of society that tend to award such contracts. In the worst situation this turns into active corruption, including “capture” of the governmental functions by big business, often encompassing both out-sourcing and general regulation and resulting in “crony capitalism”. It is not without cause that the word “venality” has its origin in the sale of public offices in pre-revolutionary France. To avoid such an outcome, strict rules on tendering public contracts are created, but these again can result in various market failures: either so restricting purchaser choice that tenders can only be awarded according to overly simple and easily gamed criteria, such as price, or even making purchasers very likely to award contracts to the richest and most influential private enterprises, which will be most disposed to mount and win a legal challenge if the contract is awarded elsewhere. Finally, there is a risk of “lock-in”: where-by a supplier of outsourced services, especially if a service is complex, becomes the only viable choice for provider that service, meaning that those managing the contract have little practical alternative to indefinite contract renewal. Also, the more an organisation outsources all capability to perform a certain function, the less able it is able to intelligently manage such contracts in the future.

Therefore, direct public provision of essential services, public goods and natural monopolies is often the best choice. Where that happens, it is essential that the management of the service, both the setting of the rules under which it operates and its day to day running, is democratic. If we fail to do that, we again concentrate control of the things that people need to live and make a living into the hands of a few: corrupt apparatchiks are no better than capitalists. Such “state capitalism” can easily create a new ruling class and again prevent society being run according to Golden Rule principles, because equality of power, equality of “voice”, has been abrogated. Only the most powerful again have a say in how society is run, and are too easily tempted, or forced by competition amongst themselves or with other elites, to act towards the “mass” of the population in way that violates the Golden Rule, by failing to respect the interests of everyone who is willing to return that respect as equal to your own. Of course, exact arrangements will depend on context: but representation of all stakeholders: workers, consumers, tax-payers, is necessary.

Furthermore, as fulfilment is entirely subjective, the political ideas that derive from the need to respect everyone’s individual notion of their own fulfilment, include the principles both of autonomy and, extending the concept of autonomy from individuals to the communities with which those individuals identify, the principle of subsidiarity. Moral societies will therefore often be composed of many other societies. Public provision is not just a function of the most “encompassing” moral society, but could also be a function of many of those component societies. Therefore, again, we should not, must not, imagine public provision as being centralised and monolithic.

Now, public provision will most likely satisfy actual needs in situations where it is easiest for the consensus of a moral society to define and measure the “value” of the service provided. For example, in healthcare benefit can be measured, according to scientific evidence, in terms of the number of days of life saved or, slightly more subjectively, but more meaningfully, in terms of number of “quality” days of life saved, where we could define quality as meaning that most people prefer, in such a situation, to experience that day of life rather than be dead. Such quantified benefits, versus cost, therefore generate a measure of value for money, which can be used to plan and ration. Where it is possible to agree on such a measurable concept of value then we can combine that concept with evidence based policy-making, scientifically monitor outcomes, and then feed the data derived from that monitoring into advanced models and simulations to drive ever more effective planning by continuous feedback and adaptation.

Where value is more subjective it may again be appropriate to employ the market mechanism, in an attempt to generate some form of “consensus” value, but this time within the context of public provision. Here we could imagine different public providers, or even different units within the same public provider, engaging in “moral competition” (where “moral competition” is as we defined in “Questions”) to produce the “bestselling” services.

One of the main points of public provision is to ensure that essential services are free or at least affordable to all, so helping to ensure freedom from want. Indeed, such services, because they are both vital and available to all, can themselves constitute a useful form of redistribution, one that is difficult to challenge, because universal, and yet also one that is likely to make the most difference to the lives of the poorest. In some situations, however, public provision operates in a context where there is no shortage of supply of something essential, where instead it is necessary to provide public goods or ensure democratic, accountable control of natural monopolies, or just to keep something absolutely critical under the direct management of society, and, in these scenarios, it may be desirable to charge “market prices” for the goods and services produced. It is entirely possible for any monopoly public provider to find that “market price”, if we mean by “market price” the point where marginal cost = marginal revenue, as that seems like a moral outcome where the interest of suppliers and consumers balance, as supply is maximised to consumers but without the supplier being forced to make a loss.

Imagine the monopoly public provider is monitoring stock levels, so can respond if stock levels show a falling or rising trend. In other words, the supplier is ensuring that supply automatically tracks demand. If the supplier also monitors marginal revenues, i.e. knows how revenues change as supply is marginally adjusted, then the supplier knows if marginal revenue is positive or negative. If marginal revenue is negative then that means prices are too low and demand (and therefore supply, as supply is simply tracking demand to keep stock levels constant) is too high. In that situation the supplier can increase prices and reduce supply until marginal revenue is zero. Alternatively, if marginal revenue is positive that means prices are too high and so demand (and therefore supply) is too low. Then the supplier can decrease prices and increase supply until, again, marginal revenue is zero. By either route we have reached the morally optimal pricing point, and the supply, demand, price and cost intersection, with neither suppliers or consumers taking advantage of one another, without inviting all the failures of open markets (including the fact that, in practice, it is unlikely that open markets often actually achieve such price perfection).

Of course, it is possible that such a monopoly supplier will not be as efficient, in terms of providing value for money/reducing costs per “quality adjusted” unit of output, as one subject to competition, but, equally, it is possible that the monopoly condition is itself hard to avoid in the first place, in other words that we talking about some form of “natural monopoly”: for example running trains on popular routes at peak times, where congestion, and the need for coordination and the costs of running the rail network itself, would mean that competition, sufficient to create benefits, in terms of furthering economic justice, that exceed market disadvantages, is very difficult to create or sustain. It is also entirely conceivable that democratic inputs and accountability, especially with sufficient stakeholder representation, from efficiency improving initiatives proposed by workers to challenges raised by customers, could offset a lack of competition. Limited internal competition and experimentation is also not ruled out: for example, buffet services being offered on certain train services to see if that boosts ticket sales.

In the manner described above, we can therefore create “surrogate markets”, which combine positive aspects of the market mechanism with public provision, especially where there are many public providers, often operating at different levels of “society”. The other advantage of diversity in public provision, complemented of course by a dynamic marketplace of worker owned enterprises, some of which may also be fulfilling public contracts, is that workers have a wide choice of where to work, better enabling them to protect themselves from arrangements that could otherwise turn exploitative, again, ultimately due to over-concentrations of economic power.

We should also note that strong, if indirect, evidence for the limitations of the market mechanism emerges from the way many supposedly “free market” capitalist societies, especially those subject to some form of mass democratic constraint, manage markets and complement markets with forms of direct public control. As we saw above, in such societies the most essential services are actually commonly publicly run, for example: defence, security, emergency services, basic infrastructure, education, with others, such as healthcare, where not publicly run, then at least being highly regulated. Unfortunately, market fundamentalism is often used by the richest and most powerful, seeking to reduce their taxes and expand opportunities for their businesses, to roll back public provision and replace it either with outsourcing or entirely private markets, to an extent that often yields dangerous results, up to, and including, even “supplementing” defence and security forces with private contractors. Such programmes, especially when combined with the concentrations of economic power typical of capitalist societies, can be highly inimical to economic justice, and even to democracy itself.

Of course, ironically, it is possible that the market mechanism and aspects of the market mechanism, as employed in managed markets and surrogate markets, will be so effective at delivering socially desirable outcomes, i.e. at producing what we have described as “economic justice”, that it’s use can actually be extended further than in supposedly “free market” capitalist societies. Ironically, the market mechanism may sit better within arrangements that can loosely be described as on the “Left” of politics, then those on the “Right”, because the “Left”, being much less prone to fetishise markets, is willing to address the disadvantages with markets, and to force them to operate within a scope, in terms of widely distributed ownership and control of the things that people need to live and make a living, that inherently creates and helps maintain a “level playing field” in terms of economic power.

If public provision can be effective at producing economic justice, including addressing increasing overall levels of fulfilment as well as simply furthering equality, some might ask whether private markets should actually be entirely suppressed. However, normally, it would highly undesirable to do so, for three important reasons. Firstly, private markets can possibly provide useful competition to public provision, so ultimately, for example, forcing public provision to be more effective at meeting demand, or increasing employment options for workers with particular skill-sets. It is even possible that symbiosis might develop between parallel private markets and public provision, with each enriching the other with innovations and best practice. Secondly, prohibiting markets limits autonomy and possibly also subsidiarity. If individuals or even entire communities want to engage in market-based interactions, either as buyers or sellers, then they should not be prevented from doing so without “sufficient reason”, especially as such freedoms might not amount solely to a preference for “buying or selling”, but could arise from other socially non-conformist choices (choices that are still perfectly valid when consistent with the consensus of the moral society as a whole), such as particular belief-based communities wanting to have their children’s education tailored to those beliefs. Finally, a suppressed market is likely to be driven underground: to become a “black market” that is impossible to regulate. “Sufficient reason” to restrict any given private markets would be where the moral consensus of a society judges that the operation of such a market has significant and negative effects on others, and that the harm so done is likely to be greater than the harm risked through potentially driving the market underground.

Such negative effects could include the situation where the demands from the private market create a short supply situation, such that the poorest are deprived of goods or services needed to ensure freedom from want. Another not unusual possibility would that that the market could create a two tier system, limiting general public support for the system of public provision (for example the richest might resent funding the public provision with their tax contributions if they invariably use the alternative private markets) or creating privileges (as one person’s privilege always means that someone else is a victim of discrimination. The flip side of privilege is always discrimination).

Conclusion

Morality defines how we should behave toward each other and therefore, by definition, should be the basis of all social interactions, including economics. The objective of economics must be to further economic justice, which means best ensuring outcomes in terms of the levels and distribution of fulfilment that are most consistent with Golden Rule style morality. That means that economics should serve the individuals who comprise a moral society, not the other way around.

Economics is not the only source of fulfilment, but can be an important factor, partly through how it influences the general mood of society and how individuals interact with each other, but also, importantly, by providing basic needs, such as freedom from want, minimising drudgery or other degrading, mind or body breaking work and maximising possibilities for meaningful activity.

Economic interactions can occur in many different contexts, but we focussed in this analysis on the area that is often the most contentious, the impersonal economic interactions that occur in a massively populous society that is also subject to scarcity.

In that context we established that creating basic levels of fulfilment, such as fulfilment arising from freedom from want, the minimisation of degrading work and the maximisation of meaningful activity, should be the first duty of any economic system. That duty is best served if access and control of the things people need to live and make and living is distributed as equally as possible, and if the advantages generated by unearned wealth can accrue to everyone. That argument is further amplified when we note that any division between economics and politics is artificial, so that economic power should be shared as equally as possible if we are to protect equality of voice in the political sphere, and thereby minimise the temptations for anyone to treat the interest of any other moral agents as less important than their own. Worker owned enterprises and communal ownership are therefore the order of the day.

Economic power must be shared, but markets are a powerful tool, though, like all powerful tools, markets can also be dangerous. Like “fire” the market mechanism must be tamed, and made, like the economy as a whole, to serve people rather than people to serve markets. The most marked advantage of the market mechanism is its potential, though usually not realised in practice due primarily to inequalities in purchasing power, to create an objective measure of something that is often very subjective: that is the concept, in a given context, of “value”. Markets must also be complemented with direct public, and democratic, control and planning in some areas, especially where market failures such as the pricing out of the poor from essential goods and services are likely. Planning is likely to be most effective in situations, for example healthcare, where it is easiest for the consensus of a moral society to agree on objective measures of value, and planning should always be informed by data, driven by experiment and use the most powerful modelling techniques available to any society at any given time, and must always be democratically answerable to the consensus of the moral society.

The details of these arrangements will, of course, vary significantly according to context, and will be up to the consensus of moral societies to agree. Nevertheless, what we could broadly call “economic democracy”, meaning distributed economic power and both democratically managed markets and democratically accountable public provision, is the way of organising impersonal, scarcity-bound, economic relationships that is most consistent with Golden Rule style morality.