Ethics, efficiency and the market

Ethics, efficiency and the market

JOURNAL OF COMPARATIVE ECONOMICS 12, 108-I 10 (1988) ALLEN BUCHANAN, Ethics, Eficiency and the Market. Totowa: Rowman & Allenheld, 1985. xi + 13...

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JOURNAL

OF COMPARATIVE

ECONOMICS

12, 108-I

10 (1988)

ALLEN BUCHANAN, Ethics, Eficiency and the Market. Totowa: Rowman &

Allenheld, 1985. xi + 135 pp., index. $10.95. Allen Buchanan’s book is a comprehensive review, by a philosopher, of the different arguments for and against the market as such, and for and against private ownership of the means of production. The latter is considered necessarily to imply a market economy. On the other hand the market organization of the economy is also discussed in the case of public ownership of the means of production. Obviously the argument of the book goes to the very heart of comparative economic systems as a discipline; comparative economists cannot be but thankful to the author for having reviewed the issue in what is a rather dispassionate and balanced manner. On the other hand some objections of form and content can be raised, the latter concerning a number of lapses, some of which originate from the particular nature of the author’s background. Sometimes he is rather lengthy and repetitive, as for instance in the discussion of Nozik’s Anarchy, State and Utopia in Chap. 3; sometimes his wish to consider all the various positions makes one wonder where the author really stands, as he is somewhat contradictory in his remarks on the different viewpoints. The discussion in the Introduction on the relationship between efficiency and morality is rather lengthy and confused; in particular the author mixes up the Pareto optimality criterion and utilitarianism in a way that seems to me rather incongruous. Moreover Buchanan gives far too much relevance to the concept of Pareto optimality as a benchmark for assessing the performance of economic systems. Such sentences as “actual markets tend toward Pareto Optimal outcomes only to the extent that transaction costs approximate the zero transaction costs of the ideal market” (p. 19) are completely unwarranted, in the light of economic theory, because there is, to my knowledge, no theorem proving a corresponding proposition. Moreover the author seems to be completely unaware of the consequences of the theorem of second best in this sphere. As a matter of fact the theorem of second best is not even mentioned in the book. The above statement is contradicted later on by Buchanan himself: “a state is either Pareto Optimal or is not. There is no such a thing as being more or less Pareto Optimal” (p. 43). Furthermore, according to the author, if the conditions for the existence of an equilibrium that is also a Pareto Optimum are fulfihed, “Pareto Optimal outcomes are guaranteed” (p. 15; my italics), confusing the static issue of existence of an equilibrium with the dynamic issue of what happens to the system at any 0147-5967188$3.00 Copyright 0 1988 by Academic Pres, Inc. AlI rights of fepmduction in any form reserved.

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given moment. This type of confusion can be observed throughout the book. Never does Buchanan refer to the issue of the stability of equilibrium, or to dynamic disequilibrium processes such as, let us say, the simple Cobweb model. A point where the lack of an adequate economics background can be perceived most clearly is the discussion of the issue of employment and effective demand. According to Buchanan, in The General Theory “Keynes concluded that there is no reason to believe that precisely the correct relationship between savings and investment will be achieved at equilibrium to ensure full employment” (p. 34; my italics). There is also an inexactitude concerning the history of Socialist thought: according to the author, in 1920 “the idea of market socialism, of either the Lange-Taylor or worker management types, had not yet been articulated” (p. 109). This, even if it could correspond in some ways to conventional wisdom, is by no means true: a comprehensive model of self-managed market socialism was already expounded at length and in detail by Herztka in 1890 (see Ward, 1967; Chilosi, 1986). As to the Taylor-Lange model, Buchanan seems to be unaware of the nature of its distributive arrangements, and in particular that in Lange’s model of 1936, as well as in the previous one by Barone, the structure of incomes from work in the socialist economy does not differ in principle from that of the capitalist counterpart, but for the consequences of the fact that “education and training for the different occupations are free” (Lange, 1936-1937, p. 124). In both cases wages are set at market-clearing values. It is the abolition of private property incomes that is supposed to bring about “the socialist goal of a more nearly equal distribution of income” in Lange’s model, a goal which according to Buchanan is impaired when “the chief motivation for good managerial performance in the system turns out to be higher wages” (p. 113). Moreover Buchanan does not seem to have adequately understood Lange’s trial and error procedure: for Buchanan, in fact, Lange’s Central Planning Board “raises the price of a production good if the consumer market reveals a shortage of the consumer goods produced from the production good in question; it lowers the price if the consumer market reveals an oversupply” (p. 105; my italics). While the author considers the Lange model as a variety of market socialism, because even if producer goods are centrally allocated, labor and consumer goods are allocated through the market, sometimes as a term of contrast he refers to planned socialism, where “a central plan is used to coordinate production, allocation, and distribution, in the absence of a significant role for the market.” This seems a rather uninteresting term of comparison, being in fact outside even the scope of Soviet-type socialism, owing to the role of the market in allocating labor and consumer goods in the Soviet economy, though Buchanan seems to be unaware of this fact. In conclusion: Buchanan’s critical survey of the various arguments for and against the market is useful and interesting, and is valuable for everybody interested in the general issue of the comparison of economic systems, but

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perhaps a joint venture, or at any rate a closer cooperation, with an (comparative) economist could have been more advisable. A final criticism is for the printer: in the process of my reading the book many pages have come off in a rather lamentable way, pointing to total inadequacy of binding. REFERENCES ChiIosi, Alberta, ‘Self-Managed Market Socialism with ‘Free Mobility of Labor.’ ” J. Comp. Econom. 10,3:231-254, Sept. 1986. Lange, Oskar, “On the Economic Theory of Socialism,” I and II. Rev. Econom. Stud., 453-7 1, 123-142, 1936-1937. Ward, Benjamin, The Socialist Economy. New York: Random House, 1967 ALBERTO Istituto di Economia e Finanza Facoki di Scienze Politiche 56100 Piss, Italy

CHILOSI