A Private Property Rights Approach on the Social Aspects of a Free Market Economy

By Andreas, Stamate | Economics & Sociology, July 1, 2012 | Go to article overview

A Private Property Rights Approach on the Social Aspects of a Free Market Economy


Andreas, Stamate, Economics & Sociology


ABSTRACT. It is often presumed that a free market economy (by this meaning a system in which can be found exclusive private property rights on the means of production) fails at (always) providing social welfare. This is a no-turning point into discussion and it is also a point where the seeds of government intervention seep in. The criterion used for this type of presumptions is what we generally acknowledge as utilitarianism. However, utilitarianism is only one particular criterion from many others, or only one side of the coin. The present paper is focused on the other side of the coin, namely the private property rights criterion (as developed by Murray Rothbard and Hans Hermann Hoppe). Using this analytical and ethical tool, I will try to develop the social character of a free market economy. From the very beginning the paper will summarize the basic elements of free markets. After this, a short journey into the economic and ethical problems of the social welfare concept will prepare the reader for the section where I state the case for a social market economy from a purely private property rights approach.

JEL Classification: B53, D6, I3, P14

Keywords: free market economy, private property rights, social welfare, ethics

Introduction

The central idea of this paper is that markets fail. They fail in delivering what consumers need, fail in reducing enough prices for different goods and services, fail in stopping anticompetitive practices etc. In a word, they fail. And because they fail, from a social perspective this means that free markets let alone are not the best economic systems for the individuals. They must be somehow regulated by the power of the state. Only this power can ensure equilibrium on the market and can satisfy the needs of the society. Thus government policies can be interpreted as a reaction to the damages that free markets leave behind them, or to those which may occur in the future. This is a rational supposition since they come to substitute a natural state of things, a state where individuals voluntarily cooperate for maximizing their utility. For if all would have been good by having free markets, why should there be any government policies at all?

Although this idea is not a new one, it is nevertheless arguable. It can be found (among many others) mainly in the political philosophy of ordoliberalism (affiliated with the FreiburgSchool1). According to this philosophy, free markets are the best alternatives for allocating resources with only one condition: they must give positive feedback to any state institutions in the name of public good or social welfare. For this reason, the translation of ordoliberalism philosophy into practical political program was baptized as social market economy. Markets must be free, but they also must fulfil society's needs. There is of course, an important issue to discuss here, which for the moment will be resumed to the following question: What elements can possibly exist in the nature of free markets which inflict on fulfilling society's needs?

One may argue that this type of problems can be solved by simply picking up an economic theory which satisfies the interests of the researcher or just offers the most comprehensive answers. But as soon as you pick up the economic theory that you have considered it as the best tool for your analysis, you will discover that it necessarily or implicitly contains some epistemological or methodological suppositions, routed perhaps in the most notorious or, on the contrary, most obscure philosophical theories. For example, when neoclassical economists (Marshall, Samuelson, Baumol etc.) argue that utility functions express a real process with real consumers, they implicitly make the assumption that utility - as a concept - can have cardinal magnitudes. In contrast with neoclassical economics, the marginal "revolutionaries" (Menger, Jevons, Walras) had demonstrated that utility refers to individual preferences which are always subjective (cannot be easily observed by an outside observer) and ordinal (I-st is apples, II-nd is cranberries, III-rd is cinema tickets etc. …

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