CHAPTER THREE
The Business System: Government, Markets and International Trade
Overview
Introduction
Since about 1980, globalization has surged forward to a degree that is unprecedented in our
world’s history. Globalization has connected nations together so that goods, services,
capital, and knowledge increasingly flow freely between them. These goods are carried by
even faster and cheaper transportation and international institutions like the World Trade
Organization and the World Bank. This fast change in commerce can accelerate the demise
of uncompetitive businesses with relocations of companies and lay-offs of employees.
Workers have found themselves jobless when companies have relocated factories to other
nations with cheaper wages. This causes one to ask numerous questions about the most
effective and moral way to transact business.
This chapter examines the ethical aspects of the market system itself—how it is justified,
and what the strengths and weaknesses of the system are from the point of view of ethics.
It begins by discussing the economic conditions in the U.S. at the close of the 20th century,
when proponents of industrial policy were urging the government to help declining
industries and their workers to adjust to new economic conditions. Others urged caution,
advising the government to “avoid the pitfalls of protectionism.” This dichotomy illustrates
the difference between two opposite ideologies, those who believe in the “free market” and
those who advocate a “planned” economy.
These two ideologies take different positions on some very basic issues: What is human
nature really like? What is the purpose of social institutions? How does society function?
What values should it try to protect?
In general, two important ideological camps, the individualistic and communitarian
viewpoints, characterize modern societies. Individualistic societies promote a limited
government whose primary purpose is to protect property, contract rights, and open
markets. Communitarian societies, in contrast, define the needs of the community first and
then define the rights and duties of community membership to ensure that those needs are
met.
These two camps face the problem of coordinating the economic activities of their members
in two distinct ways. Communitarian systems use a command system, in which a single
authority decides what to produce, who will produce it, and who will get it. Free market
systems are characteristic of individualistic societies. Incorporating ideas from thinkers like
John Locke and Adam Smith, they allow individual firms to make their own decisions about
what to produce and how to do so.
Free market systems have two main components: a private property system and a
voluntary exchange system. The economic system is the system that a society (or group of
societies) uses to provide the goods and services it needs to survive and flourish. To
accomplish these two tasks, economic systems rely on three kinds of social devices:
traditions, command and markets:
1. Tradition based societies are small and rely on traditional communal and family
roles and customs to carry out the two basic economic tasks.
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2. Command economies, where the government authority makes the economic
decisions about what enterprises must produce, which enterprises will produce it,
and who will get it?
3. In a system based primarily on markets, private companies make the main
decisions about what they will produce and who will get it.
It would be undesirable to run an economy completely on the basis of traditions, or
commands, or markets for a variety of reasons.
For example, pure free market systems (that is “free” of government “intrusion”) would
have absolutely no constraints on the property one can own and what one can do with it.
Slavery would be entirely legal, as would prostitution and all drugs including hard drugs.
Today, however, governments of even the most market-oriented economies decree that
there are some things that may not be owned (such as slaves), some things that may not
be done with one’s own property (such as pollution), some exchanges that are illegal
(children’s labor), and some exchanges that are imposed (through taxation).
Today debates continue on whether a nation’s own internal economy should be organized on
“free trade” principles, and whether exchanges between nations should be based on “free
trade” principles.
In analyzing these arguments on free markets and free trade, on government commands
and markets, we in effect analyze what sociologists refer to as ideologies. An ideology is a
system of normative beliefs shared by members of some social group. The ideologies that
we here in the United states hold today incorporate ideas drawn from Adam Smith, John
Locke, David Ricardo and other influential thinkers. It will be a valuable exercise for the
students to identify the ideology he or she holds and to examine and criticize its elements
while reading this chapter.
3.1 Free Markets and Rights: John Locke
John Locke (1632-1704), an English political philosopher, is generally credited with
developing the idea that human beings have a “natural right” to liberty and a “natural right”
to private property. Locke argued that if there were no governments, human beings would
find themselves in a state of nature. In this state of nature, each man would be the political
equal of all others and would be perfectly free of any constraints other than the law of
nature—that is, the moral principles that God gave to humanity and that each man can
discover by the use of his own God-given reason. As he puts it, in a state of nature, all men
would be in:
“A state of perfect freedom to order their actions and dispose of their possessions
and persons as they think fit, within the bounds of the law of nature, without
asking leave, or depending upon the will of any other man. A state also of
equality, wherein all the power and jurisdiction is reciprocal, no one having more
than another… without subordination or subjection [to another]…. But… the
state of nature has a law of nature to govern it, which obliges everyone: and
reason, which is that law, teaches all mankind, who will but consult it, that being
all equal and independent, no one ought to harm another in his life, health,
liberty, or possessions.”
Thus, according to Locke, the law of nature teaches us that we have a natural right to
liberty. But because the state of nature is so dangerous, says Locke, individuals organize
themselves into a political body to protect their lives and property. The power of
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government is limited, however, extending only far enough to protect these very basic
rights.
Locke’s views on property rights have been very influential in America. The Fifth
Amendment to the U.S. Constitution even quotes Locke directly. In this view, government
does not grant or create property rights. Rather, nature does, and government must
therefore respect and protect these rights. Locke’s view that labor creates property rights
has also been influential in the U.S.
Although Locke never explicitly used his theory of natural rights to argue for free markets,
several 20th-century authors have employed his theory for this purpose.19 Friedrich A.
Hayek, Murray Rothbard, Gottfried Dietze, Eric Mack, and many others have claimed that
each person has the right to liberty and property that Locke credited to every human being
and consequently, government must leave individuals free to exchange their labor and their
property as they voluntarily choose. Only a free private enterprise exchange economy, in
which government stays out of the market and in which government protects the property
rights of private individuals, allows for such voluntary exchanges. The existence of the
Lockean rights to liberty and property, then, implies that societies should incorporate
private property institutions and free markets.
It is also important to note that Locke’s views on the right to private property have had a
significant influence on American institutions of property even in today’s computer society.
First, and most important, throughout most of its early history, American law has held to
the theory that individuals have an almost absolute right to do whatever they want with
their property and that government has no right to interfere with or confiscate an
individual’s private property even for the good of society. Second, underlying many
American laws regarding property and ownership is Locke’s view that when a person
expends his or her labor and effort to create or improve a thing, he or she acquires property
rights over that thing.
However, it is only relatively recently, in the late nineteenth and twentieth centuries, that
this Lockean view began to give way in the United States to the more “socialist” view that
government may limit an individual’s private property rights for the good of society. Even
today in the United States, there is a strong presumption that government does not create
property rights, but must respect and enforced the property rights that individuals create
through their own effort through the enforcement of copyrights and patents.
Secondly, underlying many U.S. Laws regarding property and ownership is Lock’s view that,
when a person expends labor and effort to create or improve a thing, that person “by
Nature” acquires property rights over that thing. These views on property, of course, all
assume that “private property” is really a bundle of rights. To say that X is my private
property is to say that I have a right to use it, consume it, sell it, give it away, loan it, rent
it, keep anything of value it produces, change it, destroy it, and, most important, exclude
others from doing any of these things without my consent.
Locke’s critics focus on four weaknesses in his argument:
The assumption that individuals have natural rights: This assumption is unproven and
assumes that the rights to liberty and property should take precedence over all other rights.
If humans do not have the overriding rights to liberty and property, then the fact that free
markets would preserve the rights does not mean a great deal.
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The conflict between natural (negative rights) and positive rights: Why should negative
rights such as liberty take precedence over positive rights? Critics argue, in fact, that we
have no reason to believe that the rights to liberty and property are overriding.
The conflict between Lockean rights and justice: Free markets create unjust inequalities,
and people who have no property or who are unable to work will not be able to live. As a
result, without government intervention, the gap between the richest and poorest will widen
until large disparities of wealth emerge. Unless government intervenes to adjust the
distribution of property that results from free markets, large groups of citizens will remain
at a subsistence level while others grow ever wealthier.
Individualistic assumptions and their conflicts with the ethics of caring: Locke assumes that
people are individuals first, independent of their communities. But humans are born
dependent on others, and without caring relationships, no human could survive. The degree
of liberty a person has depends on what the person can do. The less a person can do, the
less he is free to do. But a person’s abilities depend on what he learns from those who care
for him as well as on what others care to help him to do or allow him to do.
3.2 Free Markets and Utility: Adam Smith
Modifying Locke’s views on free markets, Adam Smith’s (1723-1790) arguments rest on
utilitarian arguments that unregulated markets and private property will produce greater
benefits than any amount of government interference could. According to Smith, when
private individuals are left free to seek their own interests in free markets, they will
inevitably be led to further the public welfare by an “invisible hand:”
By directing [his] industry in such a manner as its produce may be of the
greatest value, [the individual] intends only his own gain, and he is in this, as in
many other cases, led by an invisible hand to promote an end that was no part of
his intention. By pursuing his own interest he frequently promotes that of society
more effectively than when he really intends to promote it.
The invisible hand is market competition. Every producer seeks to ma a living by using
private resources to produce and sell those goods that the producer perceives people want
to buy. With many private businesses each must compete with each other for the same
buyers. To reduce his or her prices, the producer will pare costs to bring the product to
market. To increase profits, each producer will reduce the resources consumed in an
efficient way. The competition produced by a multiplicity of self-interested private sellers
serves to lower prices, conserve resource, and make producers respond to consumer
desires. In this way, the self –interest, private businesses serve society.
Supply and demand, according to this view, will help allocate resources efficiently. When the
supply of a certain commodity is not enough to meet the demand, buyers bid the price of
the commodity upward until it rises above what Smith called the natural price (i.e., the
price that just covers the costs of producing the commodity, including the going rate of
profit obtainable in other markets). Producers of that commodity then reap profits higher
than those available to producers of other commodities. The higher profits induce producers
of those other products to switch their resources into the production of the more profitable
commodity. As a result, the shortage of that commodity disappears and its price sinks back
to its natural level. Conversely, when the supply of a commodity is greater than the
quantity demanded, its price falls, inducing its producers to switch their resources into the
production of other, more profitable commodities. The fluctuating prices of commodities in a
system of competitive markets then forces producers to allocate their resources to those
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industries where they are most in demand and to withdraw resources from industries where
there is a relative oversupply of commodities. The market, in short, allocates resources so
as to most efficiently meet consumer demand, thereby promoting social utility. As such, all
available resources are used and demand always expands to absorb the supply of
commodities made from them (a relationship called Say’s law). The best thing for
government to do is nothing; the market, on its own, will advance the public welfare, giving
people what they want for the lowest possible cost.
In the early twentieth century, economists Ludwig von Mises and Friedrich A.Hayek
supplemented Smith’s market theories by an ingenious argument. They argued that not
only does a system of free markets and private ownership serve to allocate resources
efficiently, but it is in principle, impossible for the government or any human being to
allocate resources with the same efficiency. Human beings cannot allocate resources
efficiently because they can never have enough information nor calculate fast enough to
coordinate in an efficient way the hundreds of thousands of daily exchanges required by a
complex industrial economy.
It is important to note that, although Adam Smith did not discuss the notion of private
property at great length, it is a key assumption of his views. Before individuals can come
together in markets to sell things to each other, they must have some agreement about
what each individual “owns” and what each individual has the right to “sell” to others.
Unless a society has a system of private property that allocates its resources to individuals,
that society cannot have a free market system.
Smith’s utilitarian argument is most commonly criticized for making what some call
unrealistic arguments. First, Smith assumes that no one seller can control the price of a
good. Though this may have been true at one time, today many industries are monopolized
to some extent. Second, Smith assumes that the manufacturer will pay for all the resources
used to produce a product, but when a manufacturer uses water and pollutes it without
cleaning it, for example, someone else must pay to do so. Third, Smith assumes that
humans are motivated only by a natural, self-interested desire for profit. This, say his
critics, is clearly false. Many humans are concerned for others and act to help others,
constraining their own self-interest. Market systems, say Smith’s critics, make humans
selfish and make us think that the profit motive is natural. As for von Mises and Hayek’s
contention that human planners cannot allocate resources efficiently, example of the
French, Dutch, and Swedes have demonstrated that within some sectors of the economy it
is not quite as impossible as imagined. However, it is possible only if it is but one
component within an economy in which exchanges are, for the most part, based on market
forces.
One especially influential critic of Smith was John Maynard Keynes. Keynes argued that
government intervention was necessary because there is a mismatch between aggregate
supply and demand, which inevitably leads to a contraction of supply. Government,
according to Keynes, can influence the propensity to save, which lowers aggregate demand
and creates unemployment. First, government can prevent excess savings through its
influence on interest rates, and it can influence interest rates by regulating the money
supply. The higher the supply of money, the lower the rate at which it is lent. Second,
government can directly affect the amount of money households have available to them by
raising or lowering taxes. Third, government spending can close any gap between aggregate
demand and aggregate supply by taking up the slack in demand from households and
businesses through government expenditures. Keynes’ arguments became less convincing
after the stagflation (simultaneous occurrence of inflation and unemployment) of the 1970s,
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though. It has been replaced by a post-Keynesian school of thought, which argues for even
more governmental intervention in the market.
But in the “Great Recession” of 2008-2009, the governments around the world returned to
Keynesian policies with a vengeance. The United States, for example injected more than
$700 billion into the U.S. economy to try to pull it out of recession. Other countries in
Europe and Asia also injected large amounts of money into their economies.
Social Darwinists had a different take on the utilitarian justification for free markets. They
argued that economic competition produced human progress. If governments were to
interfere in this process, they would also unintentionally be impeding human progress.
Weak firms must be weeded out by competition, they claim. The basic problem underlying
the views of the social Darwinist, however, is the fundamental normative assumption that
survival of the fittest means survival of the best. That is, whatever results from the
workings of nature is necessarily good. Herbert Spencer and others suggested that the
evolution processes were operative in the economic world ensuring that through
competition, the most capitalistic survive and rise to the top. The fallacy, which modern
authors call the naturalistic fallacy, implies, of course, that whatever happens naturally is
always for the best.
3.3 Free Trade and Utility: David Ricardo
Adam Smith’s major work, the Wealth of Nations, in fact, was primarily aimed at showing
the benefits of free trade. There he wrote:
It is the maxim of every prudent master of a family never to attempt to make at
home what it will cost him more to make than to buy. The tailor does not make
his own shoes but buys them from the shoemaker… What is prudence in the
conduct of every family can scarce be folly in that of a great kingdom. If a foreign
country can supply us with a commodity cheaper than we ourselves can make it,
better buy it of them with some part of the produce of our own industry,
employed in a way in which we have some advantage.
Adam Smith’s point here is simple. Like individuals, countries differ in their ability to
produce goods. One country can produce a good more cheaply than another and it is then
said to have an “absolute advantage” in producing that good. These cost differences may
be based on differences in labor costs and skills, climate, technology, equipment, land, or
natural resources.
Suppose that because of these differences, our nation can make one product for less than a
foreign nation can, and suppose the foreign nation can make some other product for less
than we can. Then clearly it would be best for both nations to specialize in making the
product each has an “absolute advantage” in producing, and to trade it for what the other
country has an “absolute advantage” in producing. It was Ricardo’s (1772-1823) genius to
realize that both countries could benefit from specialization and trade even though one can
make everything more cheaply than the other. Specialization increases the total output of
goods countries produce, and through trade all countries can share in this added bounty.
Ricardo also defined another way of looking at advantage for one country to trade with
another, even though one can make everything more cheaply that the other. He defined
“comparative advantage” as a situation where the opportunity costs (costs in terms of
other goods given up) of making a commodity are lower for one country than for another.
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Ricardo’s ingenious argument has been hailed as the single “most important” and “most
meaningful” economic discovery ever made. Some have said it is the most “surprising” and
“counterintuitive” concept in economics. It is, without a doubt, the most important concept
in international trade theory today and is at the heart of the most significant economic
arguments people propose today when they argue in favor of globalization.
Ricardo makes a number of simplifying assumptions that clearly do not hold in the real
world, such as that there are only two countries making only two products with only a fixed
number of workers. But these are merely simplifying assumptions Ricardo made to get his
point across more easily and Ricardo’s conclusion could still be proved without these
assumptions.
There are other assumptions, however, that are not so easy to get around. First, Ricardo
assumes that the resources used to produce goods (labor, equipment, factories, etc.) do not
move from one country to another. Yet today multinational companies can, and easily do,
move their productive capital from one country to another. Second, Ricardo assumes that
each country’s production costs are constant and do not decline as countries expand their
production or as they acquire new technology.
Third, Ricardo assumes that workers can easily and unreservedly move from one industry to
another. Yet when a company closes down because it cannot compete with imports from
another country that has a comparative advantage in those goods, the company’s workers
are laid off, suffer heavy costs, need retraining, and often cannot find comparable jobs.
Finally, and perhaps most importantly, Ricardo ignores international rule setters, such as
the World Trade Organization, as well as the World Bank and the International Monetary
Fund. International trade inevitably leads to disagreements and conflicts, and so countries
must agree to abide by some set of rules and rule-setters.
3.4 Marx and Justice: Criticizing Markets and Free Trade
Karl Marx (1818-1883) offers the most critical view of modern private property and free
market institutions. Marx claims that free-market capitalism necessarily produces extremes
of inequality. Since capitalist systems offer only two sources of income–owning the means
of production and selling one’s labor–workers cannot produce anything without the owner of
the productive forces. But owners do not pay the full value of the workers’ labor; they pay
workers what they need to subsist, keeping the rest for themselves and gradually becoming
wealthier as a result and the workers become relatively poor. He claimed that capitalism
promotes unjust inequality.
In Marx’s view, capitalism and its private property system creates alienation among
workers. Rather than realizing their human nature and satisfying their real human needs,
they are separated from what is actually theirs in four ways:
1. In capitalist societies, the products that the worker produces by his or her labor are
taken away by the capitalist employer and used for purposes that are antagonistic
to the worker’s own interests.
2. Capitalism forces people into work that they find dissatisfying, unfulfilling, and that
is controlled by someone else. They have no control over the products that they
make with their own hands. Their finished product is kept by their employer adding
to the employer’s profit.
3. Capitalism alienates workers by giving them little control over how they must
relate to each other and by forcing them into antagonistic relationships with each
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other.
4. Capitalism alienates workers from themselves by instilling in them false views of
what their real human needs are. Capitalism gets us to think that our fulfillment
lies in making ever more money when in fact this will satisfy not our own needs,
but the needs of capitalism itself.
Though utilitarians claim that people would be lazy without private property, Marx counters
that by this argument the bourgeois owners should long ago have wasted away: they do not
work, while those who do cannot acquire any real property.
The real purpose of government, according to Marx, is to protect the interests of the ruling
class of owners. The forces of production of a society–it’s substructure–always have,
historically, given society its class and its superstructure (or government and popular
ideologies). Those in power promote the ideologies that justify their position of privilege.
This view of history is called historical materialism.
The result of unrestrained free markets and private ownership will be a series of disasters
for working people, leaving them immiserated. Three general tendencies will combine to
bring this about:
First, modern capitalist systems will exhibit an increasing concentration of industrial
power in relatively few hands. As self-interested private owners struggle to increase
the assets they control, little businesses will gradually be taken over by larger firms
that will keep expanding in size. As businesses expand, they eventually have to
move beyond their nation of origin into international markets, replacing national
seclusion and self sufficiency with universal interdependence of nations, what we call
“Globalization”. This greater power and wealth will be concentrated in few hands.
Second, capitalist societies will experience repeated cycles of economic downturns or
crises. Because workers are organized into mass assembly lines, the firm of each
owner can produce large amounts of surplus flooding the markets causing a
depression or a recession.
Third, Marx argues, the position of the worker in capitalist societies will gradually
worsen.‘ This gradual decline will result from the self-interested desire of capitalist
owners to increase their assets at the expense of their workers.
Though many of Marx‘s predictions have turned out to be correct, the immiseration of
workers has not occurred. Still, many claim that unemployment, inflation, alienation, and
false desires do characterize much of modern capitalist society.
Defenders of free markets counter that Marx makes an unprovable assumption that just
means equality or distribution according to need. They claim that justice really means
distribution according to contribution (which requires free markets). Even if private
ownership causes inequalities, defenders of free markets still maintain that the benefits of
the system are greater and more important than the incidental inequalities. With regards to
Marx’s criticism that free capitalistic markets break down communities, critics old that
government should not determine the relationships of citizens. The freedom that underlies
free markets provides the opportunity to freely form plural communities. So, the
persuasiveness of the argument that unregulated markets should be supported because
they are efficient and protect the right to liberty and property depends, in the end, on the
importance attributed to several ethical factors:
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1. How important are the rights to liberty and to property as compared with a just
distribution of income and wealth?
2. How important are the negative rights of liberty and property as compared with the
positive rights of needy workers and of those who own no property?
3. How important is efficiency as compared with the claims of justice?
4. How important are the goods of community and of caring as compared with the
rights of individuals?
In summary, whether the free market argument is persuasive depends ultimately on the
importance one gives to the rights to liberty and property as opposed to a just distribution
of income and wealth.
3.5 Conclusion: The Mixed Economy, the New Property, and the End of Marxism
The debate for and against free markets, free trade, and private property still continues.
Some claim that the collapse of several communist regimes at the end of the twentieth
century showed that capitalism, with its emphasis on free markets has prevailed as the
winner. Others hold that countries, like China and Singapore with government intervention
and collectivist property rights support the view that free markets alone are not the key to
prosperity. The combination of partially free markets and limited property rights is referred
to as the mixed economy.
The mixed economy retains the market and private property system but relies heavily on
government policies to remedy their deficiencies. The government transfers of private
income are used to get rid of the worst aspects of inequality by taxing the wealthy and
distributing it to the disadvantaged in the form of welfare payments or services. Minimum
wage laws, safety laws, union laws, and other forms of labor legislation are used to protect
workers from exploitation. Monopolies are regulated, nationalized, or outlawed.
Government monetary and fiscal policies attempt to ensure full employment. How effective
are these mixed economy policies? Countries, other than the United States, e.g. Sweden,
Norway, France, Ireland and Switzerland have had interesting economic results. For
example, the United States shows greater inequality with the top 10% of all U.S.
households receiving 15 times as much income as the bottom 10%, whereas the ratio in
Sweden and Norway 6 times, France is 8 times, and Ireland and Switzerland it is 9 times.
Looking at the United States GDP during a single decade, the highest per capita growth was
22 percent during the period 1900 and 1910. During the 1940s with the country being run
as a command economy (because of WWII), the GDP climbed to 36% and during the
1960’s, a period when the United States introduced its major social welfare programs, the
GDP growth rate was 30%. So, although these do not include the whole story, a suggestion
can be made that government involvement is not altogether bad.
Property Systems and New Technologies
The area of intellectual property has created a debate between the Lockean property rights
and socialist notions of collective ownership. The area of genetic engineering and
information technologies includes non-physical objects, such as, software programs, a song,
an idea, an invention, a recipe, a digital image or sound, a genetic code, or any form of
information. So, for instance, if a program or song is created and put on a hard disk, others
can copy and use the exact program or song, without limiting your ability to use your
original design.
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In a situation like this, what property system should be used? Should it be the Lockean
property system because a person has labored to create the design? Then, if someone
copies the program or song without my permission, they have violated (illegally) my
property rights. There is a lot of hard work in creating the program or song, that is, up
front effort to create the program or song. Without a property system that gives them the
exclusive right to copy the program or song, the incentive for creating would disappear.
The Marxist view is that property of this sort should be free. The argument is that before
modern times songs, stories, ideas, inventions, and information that people created they
were not considered private property but were considered public property. Even so, the
inventors and artists continued to create their works. Today there are those who believe
that information should be free: Linux, Firefox and OpenOffice is free and can be used by
many people, supporting the argument that intellectual property should be treated as public
or communal property to help others develop new intellectual products. New scientific
discoveries or new engineering developments should not be hoarded and hidden as private
property, but should be made freely available to benefit society. This view is held by many
developing countries. While the intellectual property in the United States is still evolving, it
tends toward the Lockean /utilitarian system.
An important distinction in the United States is made between and idea and the expression
of an idea. The former cannot be owned by the later (in the form of text, words, or
software used to express the idea) may be granted a copyright, indicating that it is owned
by a person or company. The copyright expires 120 years after their creation, or 95 years
after publication, thereafter becomes public property. Another way of creating property
rights in intellectual property is through a patent. Patents expire after 14 years (for patents
of a new design of an existing product or 20 years (for patents of new products), thereafter
it becomes public property.
The End of Marxism?
The debate continues today in the formerly communist world as in the United States over
the best mix of government regulation, private property rights and free markets, and not
over whether a pure market system is better or worse that of a pure command system. It
may be that the mixed economy comes closest to combining the utilitarian benefits of free
markets with the respect for human rights, justice and caring that are the characteristics of
government regulation.
Extra Resources
1. Videos on the ethical theories in chapter two have been produced by INTELECOM
(www.intelecom.org) as part of a series of 26 half-hour shows called “The Examined
Life.” The entire series is available to students for $35 on 4 DVDs at the online
INTELECOM “Student Store.” The relevant show is: No. 23 “What Justifies the State?
(This looks at the views of both John Locke and Karl Marx).
2. “Adam Smith and the Wealth of Nations” is a video about Adam Smith’s ideas and
their relation to the free market.
3. “The Corporation” (2004) is a 145 minute documentary on the corporation with
interviews of:
Mark Kingwell – “History Adam Smith”
Sam Gibara – “CEO Conflicts”
Sam Gibara – “Stakeholder Participation”
Chris Komisarjevsky – “People Expect More from Corporations”
Peter Drucker – “Fire All Socially Responsible Executives”.
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Questions for Class Discussion
1. What is an ideology in general? What are the two main types of ideologies relevant
to business activity in the U.S.?
2. What are the distinctions between “free market” and “command” systems? What
components are necessary for each?
3. How does Locke define the state of nature and the law of nature? How do these ideas
lead to private property rights and the limitation of governmental power?
4. What four problematic assumptions does Locke make that might cast some doubt on
his defense of free market economies?
5. How does Adam Smith defend free markets on utilitarian grounds? What should
government do, according to Smith, to advance the public welfare?
6. Why do monopolistic industries, pollution, and concern for others present difficulties
for Adam Smith’s theory?
7. How did John Maynard Keynes criticize the free market economy? What does he
claim is necessary to maximize the social utility of the economic system? Why does
stagflation present an obstacle to his theory?
8. Define Social Darwinism. How was Spencer’s version of this idea modified to be less
callous? What are the basic problems with the idea?
9. What are Marx‘s four forms of alienation? How does each form help to increase
inequalities of wealth and power?
10. How does Marx reply to the utilitarian argument that without private property there
would be no incentive to work? Is his reply persuasive?
11. What is substructure? Superstructure? How are these ideas relevant to the real
purpose of government?
12. What does Marx mean by immiseration of workers? What three tendencies will help
bring this about? Why did immiseration not actually occur?
13. What is a mixed economy? Why would society want to consider such a system? Does
it work anywhere in the world today?
14. How do new technologies, such as computers and scientific breakthroughs, create
difficulties for systems of property ownership?
Activities and Assignments
1. Divide the class into various “camps”: Smith-Lockean, Keynesian, and Marxist. Then
ask them to respond in kind to The Health Business case. Have the class as a whole
respond to and evaluate each group’s evaluation of the case study.
2. Have students identify some current governmental policies and popular ideologies.
Then ask them to examine the media to look for traces of Marx’s claim that economic
substructure controls the social superstructure.
3. Have students research and debate the repeal of the estate tax (or “death tax”) from
a free market and socialist perspective, identifying the competing values each side
assumes. (You might also ask them to identify how many people they know would
actually have had to pay the estate tax.)
4. Have students compare the text of Locke’s Second Treatise of Government with the
wording of the Declaration of Independence and the U.S. Constitution. Ask them to
examine and explain the similarities that they find.
5. Organize a debate in class about whether the fall of the Soviet Union really means
that Marxism is dead and that capitalism is the end of history. (This works best if
students are given ample time to research and prepare.)
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