The appeal of individualism in economics

Chang EconomicsUsersGuideHere is another extract from Ha-Joon Chang’s 2014 introduction Economics: The User’s Guide. I have posted a number of quotes from Chang’s popular books over the last few years. For me these works make accessible to a potentially wide audience important points about economics and political economy.

This one outlines what he sees as the “appeal of the individualist vision of the economy and its limits”. In particular, economic freedom may not always be aligned with political freedom, contrary to the claims of many free market economists.

Elsewhere Chang has argued that there is no such thing as a ‘free’ market anyway, as markets under capitalism are institutions structured and sustained by all sorts of rules, both formal and informal, whose emergence and management are frequently subject to political intervention and debate. Although this kind of argument starts becoming one of semantics, I find that it can be helpful to challenge conventional wisdom and elements of discourse and meaning which are widely influential. This reveals them as partially subjective as much as objective, and therefore able to be changed.

Here is Chang on pages 174-176:

“Even though the individualist vision is not the only way to theorize our economy, it has become the dominant one since the 1980s. One reason is that it has powerful political and moral appeals.

It is, above all, a parable of individual freedom. Individuals can get what they want, so long as they are willing to pay the right price for it, whether those are ‘ethical’ products (like organic food or fair trade coffee) or toys that children will forget by the following Christmas (I recall the Cabbage Patch Kids fever of 1983 and the Furby craze of 1998). Individuals can produce whatever will make money for them, using any method of production that maximizes profit, whether footballs made by child workers or microchips made with hi-tech machinery. There is no higher authority – king, pope or the planning minister – to tell individuals what they should want and produce. On this basis, many free-market economists have argued that there is an inseparable link between the freedom of individual consumers to choose and their broader political freedom. Friedrich von Hayek’s seminal critique of socialism, The Road to Serfdom, and Milton Friedman’s passionate advocacy of the free-market system, Free to Choose, are famous examples.

Moreover, the individualist view provides a paradoxical but very powerful moral justification of the market mechanism. We as individuals all make choices only for ourselves, the story goes, but the result is the maximization of social welfare. We don’t need individuals to be ‘good’ to run an efficient economy that benefits all its participants. Or, rather, it is exactly because individuals are not ‘good’ and behave as ruthless maximizers of utility and of profit that our economy is efficient, benefiting everyone. Adam Smith’s famous passage is the classic statement of this position: ‘It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.’

Appealing though they may appear, these justifications have serious problems. As for the political one, there is no clear relationship between a country’s economic freedom and its political freedom. A lot of dictatorships have had very free-market policies, while a lot of democracies, such as the Scandinavian countries, have low economic freedom due to high taxes and plenty of regulations. In fact, many believers in the individualist view would rather sacrifice political freedom to defend economic freedom (this was why Hayek praised the Pinochet dictatorship in Chile). In the case of the moral justification…many theories, including the market failure approach based on the individualist Neoclassical vision, [show] that unrestrained pursuit of self-interests through markets often fails to produce socially desirable economic outcomes.

Given that these limitations were well known even before its ascendancy, the current dominance of the individualist vision has to be at least partly explained by the politics of ideas. The individualist view gets so much more support and approval over alternative visions (especially the class-based ones like the Marxist or the Keynesian ones) from those who have power and money and therefore more influence. It gets such support because it takes the underlying social structure, such as property ownership or worker rights, as given, not questioning the status quo.”

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