5. Actions in the ethical field

The field of ethics has been, up to now, cast into oblivion in the strategies to defend and promote libertarianism in general and the free market economy in particular. The reason for this regrettable omission should be sought in the prevalence of the narrow “scientistic” conception in economics. This conception has tried to develop our discipline following the methodology and scientific procedures which belong to physics and other natural sciences. Thus, many neoclassical models which have prevailed in economics to date are based on a reductionist concept of human rationality, which presupposes a closed environment of ends and means or, in other words, of complete information (either in certain or probabilistic terms), in which human beings are supposed to merely make ad hoc decisions in terms of constrained maximization. According to this approach, it seems that it is not necessary for human beings to adapt their behaviour to any moral guidelines, as the correct decision in each case will stem from a mere criterion of optimization of the known ends it is intended to reach (presented, moreover, with the scientific halo which mathematical formalism enjoys today) using means that are also supposedly known and within the reach of the person making the decision. This scientistic conception of economics is the idea developed tirelessly by many libertarians of the neoclassical school. However the defense of the market made by these authors is based almost exclusively on reasons of narrow utilitarian efficiency and, therefore, they tend to give theoretical weapons and arguments to those who, to the contrary, advocate state intervention and even socialism. In fact, if it is presupposed that the information is given and that it is only possible to act following a narrow maximization criterion, it is almost inevitable to take the small additional theoretical step of assuming that such information and operational criterion may be used, with even greater efficiency, by the government or state planning body itself in order to “adequately” organize society in general or any of its specific areas via coercive commands.

As opposed to this reductionist conception of economics, Hayek and his followers of the Austrian School has shown that it is impossible for either the human actor or the scientist or members of any government or planning board to obtain the information which the equilibrium models presuppose to be available. The reason for this impossibility stems from the entrepreneurial creativity of the human being, which is constantly discovering new ends, means and opportunities for gain. Therefore, the reductionist and static concept of “rationality” handled by many theorists, which nips the creative capacity of the human being in the bud, cannot be accepted.(12)

Moreover, the impossibility of the narrow maximization criteria providing an exclusive guide to human action makes it inevitable for the latter to be developed within a framework of guided juridical and moral behaviours which evolve as the representation of human nature in the multiple processes of social interaction which have unfolded in the course of history. These moral and legal institutions cannot be deliberately created by human beings, as they incorporate a volume of information so vast and variable that it greatly exceeds the capacity of foresight, analysis and comprehension of the mind of each individual. However, these juridical, moral, economic and linguistic institutions are precisely the most important ones for the evolution of life in society and, therefore, of civilization. All these teachings, which have been refined by Hayek and other Austrian School theorists, mainly in the course of the debate they have maintained during the present century on the theoretical impossibility of socialism, show that the market and economic freedom must be defended, not only for reasons strictly of “dynamic efficiency”(13) (in other words, because they promote greater creativity and more effective coordination between human behaviours), but also, above all, because capitalism is the only moral economic system, from an ethical point of view.(14)

If ethics has entered into crisis during this century, this has been the result of the deification of reason which is typical of cartesian rationalism and exaggerated scientism and according to which it is assumed that every human being can and should decide ad hoc following his subjective impulses on the basis of constrained maximization criteria, without the need to subject himself to moral behaviours with pre-established guidelines. This erroneous scientistic conception of economics so much criticized by Hayek has become one of the essential foundations of socialism, which can, in fact, be defined as the economic system in which it is intended for the government to coordinate the civil society through commands without the need to submit itself to any dogmatic moral principles, as it is assumed that it has the necessary information to take any decision based on a cost-benefit analysis. Therefore, Mises and Hayek’s theoretical demonstration (15) that it is impossible to act in this way, mainly due to lack of information, has returned the leading role in social cooperation to the ethical principles of traditional morality on which the market economy is based and which had been cast into oblivion by politicians, scientists and a large part of the citizens. Among these principles, we can highlight the right to ownership and pacifically acquired possession of the fruits of one’s own entrepreneurial creativity; individual responsibility, taken as each actor’s assumption of the costs derived from his action; the consideration that forced “solidarity” is immoral, as it loses the ethical component which should never be given up and which comes only from voluntarism and freedom; and, in short, the fact that state coercion applied to achieve specific goals in the social field is immoral, since it contravenes the nature of the human being and the principles of respect for the freedom of individual human action and equality before the law upon which the true rule of law is based.

The ethical and moral defense of the market economy is indispensable in order to ensure the political success of libertarian reforms. It should put an end to the monopoly of the “moral” arguments enjoyed by interventionist politicians (from the left and the right) up to now mainly due to the absence of ethical criteria originating from the narrow utilitarian rationalism. One of the most recent and important contributions to the theory of liberty in this century has been, precisely, to show that the merely consequentialist cost-benefit analysis developed to date by economic science in terms of strict utilitarian efficiency is insufficient to justify, alone, a market economy. Thus, the development of the ethical foundations of the theory of liberty is indispensable for the following basic reasons: a) the failure of “social engineering” and, specifically, the consequentialism mainly derived from the neoclassical-Walrasian paradigm which has dominated economic science to date; b) the theoretical analysis of market processes made by the Austrian School on the basis of the theory of entrepreneurship and the concept of “dynamic efficiency” is also, alone, insufficient to justify a market economy, particularly in respect of the privileged pressure groups which always reap short-term benefits from the coercive intervention of the state and whose time preference in favour of the present subsidies, privileges and advantages they always obtain prevails over the subjective value they may place on the negative consequences that the interventionism of which they are now taking advantage may have in the future (16) ; and c) above all, because, from a strategic point of view, it is basically moral considerations that drive the reformist behaviour of human beings, who are often willing to make important sacrifices in pursuit of what they consider good and just from a moral viewpoint, while it is much more difficult to ensure such behaviour on the basis of narrow criteria of efficiency, which consist only of cold calculations of cost-benefit analysis the scientific potentiality and foundation of which is, moreover, more than doubtful. In view of all the foregoing, we should conclude that no free market reform will be successful in the long run if its promoters do not argue to their fellow citizens, with full knowledge and vigour, that, not only is the market economic more efficient, but also, above all, it is the only economic system consistent with morality. And, simultaneously, that state interventionism and the action of the pressure groups which support it are, in essence, immoral.


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(12) See Jesús Huerta de Soto, “The Ongoing Methodenstreit of the Austrian School”, Journal des Economistes et des Etudes Humaines, volume 8, no. 1, March 1998, pp. 75-113.

(13) The static concept of Paretian efficiency should be abandoned and replaced by a “dynamic” concept based on the creative capacity of entrepreneurship. According to the dynamic criterion we propose, the most important thing is to promote entrepreneurial creativity and constantly move the “maximum production possibilities curve” towards the right (alternative criterion of “dynamic efficiency”), rather than merely to avoid waste and place the system at any point of said curve (Paretian criterion).

(14) This seems to be the opinion of Pope John Paul II who, on wondering whether capitalism is the path to economic and social progress, unambiguously concludes the following: “If by ‘capitalism’ is meant an economic system which reorganizes the fundamental and positive role of business, the market, private property and the resulting responsibility for the means of production, as well as free human creativity in the economic sector, then the answer is certainly in the affirmative, even though it would perhaps be more appropriate to speak of a ‘business economy’, ‘market economy’ or simply ‘free economy'”. See John Paul II, Centessimus Annus, Catholic Truth Society, London 1991, Chapter IV, No. 42, p. 31.

(15) See Jesús Huerta de Soto, “Entrepreneurship and the Economic Analysis of Socialism”, in New Perspectives on Austrian Economics, Gerrit Meijer (ed.), Routledge, London and New York 1995, Chapter 14, pp. 228-253.

(16) See Murray N. Rothbard, The Ethics of Liberty, Humanities Press, Atlantic Highlands, New Jersey 1982, pp. 207-208.