A Shared Market Economy: A Classical Liberal Rethinks the Market System
|A ‘Shared Market Economy’: A Classical Liberal Rethinks the Market System
|March 27, 2010
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Dwight Murphey’s A ‘Shared Market Economy’: A Classical Liberal Rethinks the Market System is one of the most important contemporary efforts to re-think the nature of classical liberal social thought. We are fortunate that he has published it as an open source online book, http://www.dwightmurphey-collectedwritings.info/SME-TofC.htm. A life-long classical liberal, from his student days when he studied under Ludwig von Mises, throughout his career teaching business law until his retirement in 2003 and since, Murphey has published a number of books on these themes. Recently he has pondered the strengths and weaknesses of the classical liberal paradigm for understanding society during a time when it seems powerfully rebutted by the events of the past decade or so.
Murphey is captivated by two transformative waves that are working their way through our society: the entry of China and India into the world market economy and their impact on wages, and the not quite so far advanced but growing automation of labor that is also transforming production processes world wide. These developments are radically reshaping the political and economic climates of all societies.
The first has exerted enormous downwards pressure on wages in the developed world even as it has markedly improved living standards in newly industrializing societies. Earlier entrants into the world economy had been relatively small societies. At any point they competed directly with only a small and relatively unskilled part of the labor market in the developed world. Not so today. The result of accelerating wage competition is that across the board labor is getting a progressively smaller share of the wealth created, and capital owners are getting more. This shift is transforming the internal character of Western liberal societies in ways Murphey finds deeply worrisome.
The second wave, further out yet but promising to be even larger, is already having a significant impact. The automation of production will keep wages from rebounding even after the rest of the world has fully entered the new global economy. With robots able to perform ever more jobs and technology getting cheaper over time, the better labor is paid, the more quickly it will be replaced. Murphey makes a strong case that new job opportunities that open up as a result of this process will not pay so well as those jobs eliminated. Wealth will flow even more strongly to capital owners.
Far from being the “win/win” system that free market economists have long and correctly argued capitalism has been, this new economic order will guarantee low wages with massive unemployment or underemployment. The fortunate few, owners of capital, will benefit immensely through no talent of their own, other than perhaps the ability to benefit from connections with one another and with government. We already have a term for this development: “crony capitalism.”
Murphey argues we are already seeing the economic, social, and political impact of this shift. Banks are “too big to fail,” the middle class is shrinking as a percentage of the population, the share of total wealth owned by a small elite is increasing, and CEO incomes are skyrocketing remarkably independently of any demonstrated skill at good management. Connections matter more than competence.
As I read his book I found chapter 14, “A Critique of Important Market Concepts” to be pivotal. There he discusses issues of corporate governance; Henry George’s critique of rent and how it applies to capital today, the changing realities behind equality of contract, and a rethinking of the German economist Friedrich List’s critique of universal free trade. All these issues are complex, but Murphey has done a good job showing they need to be rethought today, and the stakes are high if this is not done.
Contemporary classical liberals are also important in helping Murphey make his case. Particularly important are F. A. Hayek, Samuel Brittan and Wilhelm Roepke. In addition he brings in the work of contemporary moderate left liberals, such as William Greider and Amory Lovins, demonstrating the advantages of breaking free from traditional ideological categories.
Murphey ultimately argues for what he calls a “shared market economy” where income from capital investment is spread throughout society rather than confined to the extremely wealthy. He argues this goal could be achieved piecemeal, without expropriation, taxes, or significant disruption to the economy.
Murphey proposes a new public agency that would not be part of the government in any usual sense, but rather a public trust fund able to purchase index mutual funds. Most capital today is not the creation of anyone living, but the social heritage of a society. As such it should benefit all of society. The trust would enable this outcome. The financing for this agency would come from its being able to take the place of the Federal Reserve for introducing new money into the economy. Such newly introduced money would go to buying shares rather than enriching banks. Murphey argues:
This could put the same amount of new money into the business system as before, providing capital to business in general and having the same effect on the price level. The money would simply enter the system at a different place. The result would be that the enterprises forming the economy would receive their billions of extra dollars, while at the same time the independent agency would come into ownership of billions of dollars a year of index mutual fund shares—all without a penny being taken from anyone through taxation or otherwise.
As a result, all Americans would receive equal income from the national economy as a whole, forging the ultimate “ownership society.” Lest anyone think a guaranteed income is some super left-wing idea, both Hayek and Milton Friedman have made such proposals, but with the money coming from taxes rather than the economy as a whole.
While this idea constitutes the core of Murphey’s proposal, he also discusses a number of other issues, all with an eye on traditional classical liberal and conservative perspectives. These include ways to deal with the cultural shifts taking place, the need to reduce the size of the largest organizations in the economy, especially financial ones, and how to balance the advantages of a world-wide market with the imperatives of maintaining local well-being.
One of the strengths of the book is its critique of the economists’ argument that the “unfettered” market automatically optimizes resource allocation. Another strength is the empirical evidence he brings to bear in discussing the rise of oligarchy in American society. He argues that a kind of trust fund for the population as a whole is far more equitable, just, and politically viable, than a world of the unbelievably wealthy lording it over a vast population haunted by unemployment, their wages kept low for those fortunate enough to find jobs. I would like to have seen more development of this issue, but he makes a strong moral and practical case that it is worth taking very seriously.
While embracing elements of the Left’s critique of capitalism, he emphasizes that his is a market-based response to those criticisms. As he puts it, “a ‘shared market economy’ isn’t identical to their proposals, but contains echoes from social democracy, classical liberalism and cultural conservatism.”
As I read his book I was struck with the convergent evolution of some from the classical liberal “Right” with some from the Progressive “Left” in an interest in institutions that make use of market processes as critical to their success, but based on the model of trusts rather than either traditional business or traditional government. Peter Barnes’ Capitalism 2.0 is another example of this convergent thinking.
I am not well enough informed to be able to give an expert’s reading of the strengths and weaknesses of a national trust for all citizens, although I am certainly favorably disposed towards it. But I am expert enough on the more social and political issues Murphey discusses to agree with him that it is only through creative rethinking of long ossified ideological boundaries by both “Left” and “Right” that offers hope for free societies as they enter into the 21stcentury. In these times of ideological rethinking and confusion, Murphey has written a fascinating reframing of our ideological maps. I think it is one that holds great promise for contributing to a better world in the future and more reason for hope as we work for it. I hope it generates considerable discussion in the years ahead.
Gus diZerega holds a Ph.D. in political science from the University of California at Berkeley, currently teaches in the Department of Government at St. Lawrence University and is a contributing editor to Conversations on Philanthropy.