[This heretofore unpublished paper was delivered at the Midwest Sociological Society meeting in Chicago, April 1987.  It is significant in particular for the bearing it has on Murphey’s three later books, The Emerging Crisis of Economic Displacement, A Shared Market Economy and The Great Economic Debacle -- and Beyond.]  

 

The Concept of a Social Market Economy: Antecedents and Possibilities

 

Dwight D. Murphey

 

            The past decade in the United States has marked a period of extraordinary ideological indeterminacy.  It is hardly possible to claim an “end to ideology,” since people must inescapably rely upon large systems of perception and of values to interpret and give meaning to what is otherwise an inexplicably complex social reality.  But there has been an exhaustion and fragmentation of each of the major systems of social philosophy.  The result is that the situation is more existentially open, for good or for bad, than perhaps it has ever been before.

            To understand where we are, it will be important to trace briefly (and with apologies for its extreme over-simplification) the main outline of ideological development during the past two centuries.  That will help us understand, too, just why it is that one of the very distinct possibilities for future development in the area of social philosophy is the concept of a “social market economy.”  This is one of the options now open, and toward which several points of view have been converging.  In keeping with liberalism in the classic sense, it envisions a democratic political order founded upon a competitive market economy and upon the limitation of the power of government and of other collectives.  But it goes further, becoming more rounded and fully satisfactory by taking into account the grounds for the varied objections that have been raised against such an order by the many critics of capitalism and the bourgeoisie. 

Review of modern ideological development:

            Two of the major social philosophies that are extant today—Burkean conservatism and classical liberalism—were in sharp conflict in the eighteenth and early nineteenth centuries.

            1.  Burkean conservatism.  For almost twenty-five hundred years, Western civilization was governed by a mixture of ingredients that typified, although in very different outward form, both the mos maiorum of the Roman Republic and the Middle Ages.  These included social hierarchy, a landed economic base, a closed system of ideas insulated from outside influences, an encompassing religious center, a powerful centripetal ethical and community consensus, and (in Rome and the late Middle Ages) a strong state.

            It was when these components were most under attack that they were articulated into a coherent social philosophy by Edmund Burke, Samuel Johnson and others in the eighteenth century.  This conservative philosophy stood out strongly against both the on-rushing individualistic liberalism that first challenged it and, somewhat later, the socialism of the Left.  At the same time, it shared some of the elements of each.

            It has shared with the Left a deep alienation against commercial civilization and the bourgeoisie, a desire for a spiritual transcendence of the prosaic qualities of everyday life, and a willingness to see the interests of the individual as primarily identified with those of the whole.  Because of this, the points it makes about capitalism and the bourgeoisie are in many ways similar to those made by the Left.

            This conservatism has at the same time shared with classical liberalism an opposition to the leveling thrust of modern egalitarianism.  Nor does it join the Left in the worldview that the central problem in society is the struggle of the have-nots against the haves.

            Burkean conservatism has undergone a major intellectual revival in the United States and elsewhere since World War II.  Especially since 1960, the bulk of articulate intellectual work on the Right in the United States has been done by this type of conservative.  Necessarily, to adapt to modern conditions, this conservatism has made many compromises.  It no longer has an hereditary aristocracy that it can champion; in its opposition to socialism, it has come to embrace much of the outlook of free-market capitalism; and when it reveres tradition and organic change, the tradition that is at hand is not medievalist, but one formed for the most part by the classical liberal values of the American past.

            It is this mixture that makes Burkean conservatism a possible source for a philosophy of a “social market economy.”  Indeed, this potential has been manifested directly in the writing of Wilhelm Roepke, one of the intellectual fathers of the post-World War II soziale Marktwirtshaft (social market economy) in Germany that was implemented first by Ludwig Erhard and later by Karl Schiller.

            2.  Classical liberalism.  The individualistic liberalism that challenged Burkean conservatism and that we speak of as “classical liberalism” was in the eighteenth and early nineteenth centuries a fighting faith.  Far more than a narrow theory of capitalist economics per se, it was a reforming philosophy with broad intellectual, spiritual, political, cultural, ethical and jurisprudential implications.  It represented the open society: the economic freedom of a market economy based on private property; the limitation of state power and its governance through the Rule of Law, of which constitutionalism was a major manifestation; the removal of towering religion through secularization, religious pluralism and the separation of Church and State; economic and social mobility, with the constant undercutting of settled aristocracy; an ethic of personal and familial responsibility and self-reliance; and a democratic political order consistent with that ethic.

            So powerful was this philosophy that it has formed a continuing underlay for much of the American ethos.  It is impossible to understand American history, including the attitudes of many millions of Americans today, without a potent awareness of its system of perceptions and values.

            Yet, it is equally important to understand what happened to classical liberalism in the early nineteenth century.  It was caught in a vice formed by two powerful forces.

            On the one hand, it suffered from the effects of a massive “brain drain.”  Spurred on by the Romantic reaction to the Enlightenment that followed the disillusionment with the French Revolution, the West’s main intellectual culture moved sharply into alienation from the “bourgeoisie” and (classical) liberalism.  “Liberalism” became an epithet on the lips of both Right and Left.  The great majority of thinkers and writers within the burgeoning intellectual subculture came to detest capitalism, the commercial middle class, and the accompanying complex of ideas and values.

            On the other hand, the middle class had very little interest in ideas.  Preoccupied with the daily round of busy practicality, the predominant commercial culture continued the historic intellectual default of the “bourgeoisie.”  John Stuart Mill cried out against “shopkeepers who dream only of shop.”  During the ensuing century and a half, the main culture has done little to spawn an intellectual culture supportive of its basic values.

            The result of these two forces was that beginning in the early nineteenth century classical liberalism lost, in the main, its intellectual thrust—and with it, its idealist reformism.  The few hundred intellectuals who remained to champion it were placed on the defensive.  As the Left launched attack after attack, these intellectuals more and more took on the cast of apologists and doctrinaire purists.  In large part, although not entirely, the theory of capitalism and of the whole complex of associated ideas ceased to grow and to be refined in the many ways that it needed to be if this liberalism were to address satisfactorily the many needs of modern civilization.

            This limitation and narrowness has continued to plague classical liberalism, now considered one of the forms of American “conservatism.”  Although this is a defect, it suggests a situation fraught with potential: it means that the best representatives of classical liberalism today should be anxious to extend its thinking and sensitivity into the many areas that the philosophy’s erstwhile defensive posture has not allowed it to broach.  Only such a revitalization will be consistent with classical liberalism’s original thrust.

              The question for such thinkers will necessarily be: What are the principles, values and institutions that classical liberalism ought to embrace if it is to formulate a system that is fully workable and responsive?  A systems theory, so to speak, of freedom should result in a philosophy that will in no sense be untrue to classical liberal values.  It should produce a liberalism that is once again idealistic, reformist, self-critical and truly vital.  The concept of a “social market economy” will no doubt be extremely relevant to this quest.

            3.  The Left.  Driven primarily by the intellectuals’ rivalry with and antagonism toward the active man of commerce and industry, the Left came into being in the nineteenth century in a wide variety of forms.  Its members shared the common worldview that capitalism traps and exploits millions of people, and that the historic task is to liberate those millions.  They differed among themselves, however, about the specific form that a socialist society should take, the methods to be used in effecting the change, and the theoretical framework for understanding the forces at work.

            Many of the forms of nineteenth century socialist thought either opposed calling into play a large central state or viewed such a state as just a temporary instrument. 

These formulations were, however, overshadowed when in 1917 the Bolshevik Revolution brought the Soviet system into existence.  For several years thereafter the imagination of the world intellectual culture was held in thrall by the Soviet example.

            A series of “shocks” occurred, however, to shatter this faith.  These included the Stalin purge trials; the persecution of Trotsky; the Hitler-Stalin Pact followed immediately by the joint invasion and partition of Poland; the Soviet attacks upon Estonia, Latvia, Lithuania and Finland; the Lysenko affair; the revelations by Khrushchev at the 20th Party Congress in 1956; the crushing of the Polish October and of the Hungarian Revolution; the split with Tito and later with China; and so on.

            The resulting loss of a central faith by the many intellectuals who stopped looking to Moscow has resulted, since World War II, in a search for alternatives.  Those who are most radical have stayed as alienated from capitalism as ever, and have cast about for a renewal of various of the forms of socialism proposed in the nineteenth century.  The important thing for our present discussion is that social democratic thinking in Europe has been torn between such a radicalism, on the one hand, and a gravitation toward a middle ground that accepts many of the premises of capitalism, on the other.

            It is to this latter that the concept of a “social market economy” is appealing.  The Labour Party no sooner started to implement its program in England after World War II than a revulsion began, precisely among many socialists themselves, against a program of nationalization.  In Germany, the Bad Godesberg program adopted by the Social Democrats in 1959 marked a tremendously significant movement toward an acceptance of private property and a market.  The phrase “social market economy” came to be used in connection with socialist thinking itself.  Since that time, the movement in that direction has been mixed, with the European Left seriously divided.

            4.  Modern American liberalism.  A serious student of “modern liberalism” in the United States will find it necessary to differentiate between (a) its thought, (b) its political expression and program, and (c) the form it takes in the media.  This differentiation is made necessary by the fact that, despite its appropriation of the name “liberalism” in the early twentieth century, its thought has been consistently socialist, even though mixed with a large measure of dissimulation.  Its political program, formed out of a hybrid coalition politics, has always fallen short of that; and it seems safe to say that its media presentation has never admitted to socialist underpinnings.

            In the United States today, “media liberalism” dominates our public discourse.  The aggressiveness with which it pursues its many biases, fads and crusades obscures the fact that modern liberal thought, as such, has for many years felt itself exhausted.  As with social democracy in Europe, it has lost its central faith.  The shattering of this faith, which had long amounted to a supreme confidence in the efficacy of federal governmental programs to address any problem, was no doubt speeded along by the severe attacks made upon the liberal state by the New Left, to whom that state amounted to a gigantic “military-political-industrial complex.”

            One of the consequences of the malaise within liberal thought has been the movement of some prominent liberals to the right, into “neo-conservatism.”  We see such an erstwhile social as Irving Kristol writing a book called Two Cheers for Capitalism.  Here, too, we see a movement, by at least an important segment, toward a concept of a social market economy.           

Elements of a society based on a social market economy:

            We have seen that there are developments within Burkean conservatism, classical liberalism, social democracy and modern liberalism that in each case can lead a significant fraction of its supporters toward one or another concept of a social market economy.  (We should be aware that there are many varieties that can occur within the concept.  There will be much for the proponents of a social market economy to debate among themselves.)

            I will discuss briefly and by no means exhaustively several of the elements that, as a classical liberal, I think should be included in a social market economy.  In the course of that discussion, we will see significant ways by which such a system will be distinguishable from a diluted form of market socialism.  This is important because most of those who are tending toward support for a social market economy will not support it if they have reason to believe that it is simply another Fabian expedient designed to lead to socialism.

            My conception of a social market economy is not identical to the soziale Marktwirtschaft in Germany.   That program contained elements that were distinctively German, such as the desire to retain a sizeable German peasantry.  It has also contained so many elements of collective control over property that it is questionable whether property has remained in any genuine sense “privately owned.”  These controls have no doubt reflected considerable concessions to the Germanic and European socialist background that preceded and surrounded Erhard and Schiller.

            Here are the elements that I think essential to a consensus among the forces I have described:

            1.  Central emphasis on market processes.  A social market economy ought to involve a genuine, not a sham, reliance upon the market.  This means, quite potently, a willingness to accept the allocation of resources, income and status that the contractual nexus of the marketplace brings about.  Exceptions to this must be seen as exceptions, limited to what does not wash away the general primacy of the market.

            The centrality of the market means an acceptance of market decisions and a forswearing of planning, other than such planning as is needed to provide a workable framework for the market.  The acceptance of a social market economy concept implies, in the main, a rejection by its supporters of the many objections raised by the opponents of a market—such as that a market produces chaos, or rampant entrapment and exploitation, or is a “zero sum game” in which every winner has a corresponding loser, or results in the fleecing of a gullible, passive public through “want creation.”

            2.  Private property, broadly distributed.  Since private property is basic to a market, enhances the independence and “private sphere” of the individual, and spreads power, there will be a commitment to private property.  At the same time, there will be a desire to assure widely diffuse ownership.

            The British classical liberal economist Lord Robbins, although strongly opposed to a “democratic leveling instinct,” wrote that “it is easy to conceive of societies in which, either as a heritage of a feudal past or the accident of the forces of the market, wealth becomes so concentrated in a few hands as to be dangerous to the political freedom of the many… Where the danger exists, there the general principles of freedom would make it right to deal with it.  I also think that these same principles make expedient those forms of taxation of property passing at death that tend to the diffusion of property… Far from destroying the institution of property, it tends to sustain it by causing property to be more widely diffused.” (Endnote 1)

            3.  Maintenance of vigorous competition.  The belief in the social justice of the market is largely made possible by a commitment to competition.  Ludwig Erhard spoke of his “belief in the development of competition as the best means of ensuring steadily increasing productivity and a just distribution of the national income, as an indispensable motive force for healthy economic development, and as the one sure key to a truly ‘social market economy.’”  Erhard argued that “cartels are alien to the very nature of a market economy.”  Roepke believed that industry “should be broken up into smaller firms.” (Endnote 2)

            Within classical liberal thought, this is consistent with the school that acknowledges rather than denies a genuine problem of possible concentration, and that considers it a valid function of law and government to prevent concentration.  Again, Robbins is an example of this type of thinker.  He has argued that “I still believe, as against Schumpeter and others, that there is a real monopoly problem in free societies, and that it is unwise to resign ourselves to doing nothing about it.”  (Endnote 3)

            Within modern liberalism, the pro-competitive principle would be in the New Freedom tradition of Brandeis and Wilson.  It would reject the New Nationalist position, which has wanted corporations to become ever larger as a strep toward assimilation into government. 

            4.  Awareness of the imperfections within the market.  In its defensive posture, classical liberalism has been unwilling to admit to, and hence to examine closely the implications of, imperfections within markets.  This has led to an across-the-board denial of the concept of bargaining power disparity.  If its thinkers become alive to such issues, they will be able to address many of the problems that have for a century or more appeared so pressing to their opponents in such areas as labor relations and consumerism.  But their solutions will have the advantage of being more market-oriented.

            5.  Awareness of important values the market cannot serve.  Again in their defensiveness toward the market, classical liberals have been reluctant to acknowledge that there are many values that are important to a satisfactorily rounded civilization that the market is not prepared to serve.  This reluctance has been overcome in some measure by the writing of Milton Friedman, who speaks of “neighborhood effects” and of Lord Robbins, who refers to the same concept as “indiscriminate benefits.”  There will continue to be disagreement about how much governmental activity is justified by this awareness.  But Robbins, for one, has argued that “personally… I think that there is still room in the twentieth century for considerable extensions of this kind of state activity.” (Endnote 4)

            Those committed to a market system will necessarily want to scrutinize each such activity carefully.  Is the value to be served an important one, either for the rich diversity of the society or because it is sought by a significant number of people?  Is its attainment beyond the capacity of the market?  Is there no way that, given an appropriate framework of law or institutions, it can be serviced by the market?

            6.  Awareness of the need for an extensive institutional framework for the market.  A weakness in the classical liberal defense of the market economy has been that its defenders, in their opposition to statism, have been too ready to skimp on the legal and institutional prerequisites of a truly workable system of private property and contract.  In countless ways, a market system can be made more functional by an improved framework.

            Ludwig Erhard saw this when he argued that “one cannot, in all conscience, speak of state intervention when the state is merely safeguarding the basic principles of a free, democratic social system.”  He added that “one of the state’s main responsibilities is—and must be—to establish and maintain the foundations on which the nation’s economy can function.” (Endnote 5)

            7.  Awareness of an ethical, cultural context.  It has been common within classical liberal ethical theory to argue that “anything that is arrived at through freely negotiated contract is all right.”  An ethic based on the sale criterion of voluntarism loses sight, however, of the broad civilizational implications of classical liberalism as originally conceived.  Adam Smith made it clear in his much-overlooked book The Theory of Moral Sentiments that a market system carries extensive moral obligations.  Richard Cobden of the Manchester School expressed shock when someone argued to him that freedom-of-contract sanctioned the financing of a brothel.  Horatio Alger, despite his reputation among those who haven’t read him, stressed in his novels a value-system of high ethical commitment.

            Roepke points out that a market economy “may be regarded and defended only as part of a wider general order encompassing ethics, law, the natural conditions of life and happiness, the state, politics and power.”  He adds: “This implies the existence of a society in which certain fundamentals are respected and color the whole network of social relationships: individual effort and responsibility, absolute norms and values, independence based on ownership, prudence and daring… proper coherence with the community, family feeling, a sense of tradition….” (Endnote 6)

            8.  Regaining community.  Given the economic and social mobility that a market system requires, the redevelopment of a sense of community cannot be based upon a lack of change or of movement.  It will have to be qualitative in a mobile setting.  There will never be the commonality that typifies a totalitarian social religion, such as National Socialism or Marxism-Leninism—and I see that as a major plus.  But a social market economy will need to do all that it can to integrate the otherwise autonomous individual into networks of fellowship.  We should not, of course, overlook the extent to which this happens already through the vast array of voluntary associations in a free society.

            9.  Need for an appropriate intellectual culture.  The alienation of the intellectual has entailed a vastly significant division within modern culture.  Needless to say, a social market economy will be enormously strengthened and enriched in comparison to the capitalism of the past if, out of the convergence of several points of view within the intellectual community, it comes to enjoy the support, participation and self-criticism of a significant part of the intellectual culture. 

            A social order founded solely on the tradesman (the “bourgeoisie”) and the on-going pursuit of mundane and practical values cannot be considered civilizationally complete.  It lacks the cultural and spiritual expression, and the reformist self-criticism, that every society needs.

            John Stuart Mill saw this clearly when, embracing an idea he found in Coleridge, he perceived the need for a “clerisy.”  If it is to be fully developed, a free society requires an intellectual culture appropriate to itself, one that shares its central values but seeks always to uplift, to question and to refine.

            10.  Democratic, rather than autocratic.  Norman Podhoretz, one of the neo-conservatives,  has quote the sociologist Peter Burger to the effect that “in the empirical reality of the contemporary world all democracies cluster in that part of the ideal-typical scale that is much closer to the capitalist than the socialist pole.” (Endnote 7)

            The Left’s championing of the have-nots has obscured the fact that it is a classical liberal society, with its essential faith in the private sector, that is most assuredly committed to democracy.  The Left does not perceive it this way, since it believes that its collective action is precisely on behalf of the most meaningful long-run amelioration of the condition of average humanity.

            Ultimately, however, the question of democracy comes down to whether the intellectual culture is prepared to abide (subject only to its influence and not primarily its coercion) the many choices that average humanity will make regarding such things as goods, lifestyle, taste and entertainment.  Although a social market economy will involve a more active participation by the intellectual than capitalism has in the past, those who support it will need to be conscious of the fact that a choice for democracy is a choice away from dictation of the content of life by intellectuals.  A market system differs from a “planned” system in its fundamental acceptance of the choices of ordinary humanity.  Those to whom this is distasteful should choose instead to embrace one form or another of socialism.  An intellectual “clerisy” is harmonized with democracy within a free society only if the intellectuals adopt a certain humility.

            This suggests, too, the need for a major redirection of modern social science.  If a large private sphere is to be acknowledged, statistical studies must cease to be instruments for “deprivatization.”  There should be a distinct abjuring of the process of aggregating together many individual difficulties to transform them into “social” problems with an eye toward governmental or other collective solution.  The social science supportive of a social market economy will confine its interest in such problems to what will better enhance the framework for private interaction.

            11.  A safety net.  Three of the philosophies that presently have elements that are open to a social market economy—i.e., Burkean conservatism, social democracy and modern liberalism—will have little difficulty accepting the notion of at least a “conservative welfare state,” as Irving Kristol has referred to it, that would place a “floor” or “safety net” under people while doing so in a way that would nevertheless use market mechanisms, give individual choice, and seek to preserve incentives to self-reliance.

            It is considerably more difficult for classical liberal theorists (although not necessarily for conservative politicians).  And yet, there is quite a lot that can be done in the development of the institutional framework of a free society that can, through the further development of insurance, satisfy most, if not all, of the needs that people have to pool risk.  Some compulsory participation, in at least alternative market mechanisms, and tax support will be needed.  A safety net can be a conservative element in society, removing some of the principal objections to a market system; it can be, in effect, an aid-in-service-to-the-market; and as the wealth of the society increases it should be something that will become less and less necessary.

            Where the proponents of a social market economy ought to differ most sharply from the Left’s political and ideological opportunism (although not necessarily from its theory) is in refusing to encourage the existence of a permanent sub-class of the declasse.  A “conservative welfare state” would involve a constant stress on responsibility.  This will make it important to continue the process of the assimilation of all minorities into the mainstream.

            12.  The role of intermediate collectives.  For a century or more, there has been considerable stress within social democratic thought on consumer and producer cooperatives, mutual associations, worker-owned-and-controlled enterprises, and the like.  Those who come to a social market economy concept from the Left will consider such instruments of a “decentralized collectivism” especially valuable.

            Whether a consensus about the role of such collectives can be reached that will allow all four ideologies to support a common vision of a social market economy will depend upon several factors.  First, they will not be acceptable to classical liberals and Burkean conservatives if it seems plausible to suppose that they are simply a transitional step toward, or organizational building-blocks for, a centrally planned socialist system.  Accordingly, the schemes for “industrial democracy” that were so popular around the time of World War I, or that have been put forward recently by such a writer as Severyn Bruyn who proposes the networking of collectives into a planned economy, are far removed from what would fit into a social market economy. 

            Second, their existence would need to be coterminous with, and not exclusive of, the existence of privately-owned enterprises that would hire people, since it is precisely this form of enterprise that supporters of capitalism see as a vitally important guarantee of personal autonomy and creative initiative.  To the extent that the support for cooperatives and worker-control embodies the socialist hostility to the “wage relation,” the collectives are incompatible with a market system.  To the extent, however, that the collectives are simply competing forms of enterprise, they are not only consistent with a market economy, but can enrich it.

            The general adoption of a principle of “co-determination,” under which the control of enterprises is shared by management, labor and government, would be incompatible with a market economy for the reason I have just given, that it would supplant privately-owned and managed firms.

            Third, it would be important that the collectives exist on an equal basis with other forms of enterprise, without the legal favoritism or tax advantages that their proponents have so often advocated.  A social market economy that would stack the deck in favor of collectives would almost certainly be a mere transitional vehicle toward socialism.

            Fourth, the same anti-trust type of concern about size would need to be applied to such collectives as to other enterprise, since cooperatives can easily swallow the market, eliminating competition.

            13.  Points of difference with democratic socialism.  We have noted several of the elements that would differentiate a social market economy from democratic socialism.  If it is to be conceptually clear, the idea of a social market economy cannot be “all things to all people.”  Where the conflicting elements of modern ideology are irremediably in conflict, its proponents will have to choose.  If they do not, the concept will suffer from inherent contradictions and ambiguities.

 

NOTES 

1.  Lord Robbins, Politics and Economics: Papers in Political Economy (New York: St. Martin’s Press, Inc., 1963), pp. 47. 85.

 

2.  Ludwig Erhard, The Economics of Success (London: Thames and Hudson, 1963), pp. 64, 171; Ralph E. Ancil, “Wilhelm Roepke’s Third Way,” The Intercollegiate Review, Vol. 22, Fall 1986, p. 36.   

 

3.  Robbins, Politics and Economics, p. 43.

 

4.  Robbins, Politics and Economics, p. 42.

 

5.  Erhard, The Economics of Success, pp. 174, 175.

 

6.  Wilhelm Roepke, A Humane Economy: The Social Framework of the Free Market (Chicago: Henry Regnery Company, 1960), pp. 90, 98.

 

7.  Norman Podhoretz, “The New Defenders of Capitalism,” Harvard Business Review, March-April 1981, p. 99.