The Institutional Justice of the Market Process

December, 2020

The 20th century saw a transformation in the vision of economics from one that emphasizes disequilibrium processes to one that emphasizes the analysis of states of equilibrium. This transformation, we argue, has had a significant impact on how economists view the role that governments play in the promotion of distributive justice. Although classical political economists had made a case for the institutional justice of the market process, this argument was overshadowed in the late 19th century and the early 20th century by the early neoclassical economists, who defended the market in terms of the equilibrium pricing of factor payments. Justice, according to the early neoclassical economists, was defined in terms of market outcomes that approximate the marginal valuation of the productive contribution of each factor of production. We argue that the persistence of this equilibrium paradigm today, by eliminating the notions of uncertainty and entrepreneurship from an analysis of the market, has also excluded any analysis of the inherent tendency by which factor payments are equalized across markets by entrepreneurs taking advantage of arbitrage opportunities. The result of this has been the emergence of the notion that income equality is a substitute and not a complement to economic prosperity. Stated differently, economic analysis that ignores institutions and entrepreneurship also precludes an understanding of how the market process generates a tendency toward greater income equality and greater economic prosperity simultaneously

Economics and Ethics within the Austrian School of Economics

June, 2019

Twentieth-century Austrian economists became known as champions of the free-market system yet claimed value-freedom in their economic analysis. However, advocacy of free markets is viewed as inherently ideological, involving ethical assumptions within the economic analysis. In this chapter, we discuss the connection between economics and ethics in the Austrian school of economics. We explore what value-freedom in the Austrian school entails and how twentieth-century Austrian economists were able to hold dual positions as value-free economists and advocates of free markets. We argue that Austrian economists separate ethical assumptions from their economic analysis. They maintain strict adherence to value-free analysis through an emphasis on social cooperation, which allows them to maintain their objectivity with respect to individuals’ ends. This combination allows Austrian economists to maintain their positions as value-free scientists while arguing that a free-market, capitalist system will best achieve peoples’ diverse ends.

Is the Market Wage the Just Wage?

November, 2018

Do markets generate a “just” wage? The answer to this question will depend upon the particular theory of the market that the political economist employs. When comparing actual labor markets with the neoclassical theory of competitive equilibrium as its normative benchmark, Joseph Heath (2018) argues that factor pricing is orthogonal to normative issues such as distributive justice. We argue that Heath’s conclusion, though not invalid, follows from a similar normative benchmark of equilibrium, one that evaluates factor pricing without taking into account the institutional conditions within which factor prices emerge. Though indeed classical political economists and early neoclassical economists failed to deliver an explicit theory of distributive justice, what Heath overlooks is that implicit to their understanding of the market process was an institutional theory of distributive justice.