A Restatement Of Economic Liberalism Prologue: Capitalism and the permissive society Introduction :: The Historical Context :: Reasons For Suspicion :: The Rise Of The Word Man :: The Dilemma Of The Economic Liberal :: The New Left Attack :: Poverty And Equality :: 'Alienation' :: Student Dissent :: Contemporary Radicalism :: A turn of the tide?

So much for the climate of opinion in which capitalism now operates. What, however, are the main objections to competition and the profit motive actually put forward by the new generation of radicals? The New Left critics differ from both their Marxist and their Fabian forerunners in being equally distrustful of market forces and of central planning or bureaucracy in any form. This revival of the more utopian and anarchic strain is a welcome change from the paternalism and emphasis on state power which have for so long characterised socialist movements. Indeed, it ought to make a dialogue between the New Left and the market economists possible in a way it was not possible with either the Webbs or the Stalinist Communists. (Professor Lindbeck cites the case of a pseudonymous writer of the Chicago free market school who, by using a flamboyant style sprinkled with four letter words, at first reading gives the impression of being somewhere on the anarchist wing of the New Left.)

Unfortunately, the fatal flaw in the economic outlook of the New Left is the belief that one does not have to choose between a market and a command economy or between varying mixtures of the two; and that there is a third ethically preferable system which would rely on more spontaneous and less selfish motives. A large part of Assar Lind Beck's The Political Economy of the New Left ⁵ is taken up with a sympathetic but relentless analysis of this fallacy; and I find it strange that Paul Samuelson should give the impression in his polemical foreword that the book will make an impartial or hostile observer take New Left economics more seriously. The opposite effect seems to me far more likely.

Lindbeck conveniently summarises the standard problems of any society which have caused generations of economists to doubt that one can have an economy dispensing with both markets and bureaucratic commands. These are the needs:

1. to obtain information about people's preferences;
2. to allocate men, machines, land, building and other resources in accordance with these preferences;
3. to decide which production techniques to use;
4. to create incentives to avoid unnecessarily costly methods, to invest, to develop new technologies and products; and
5. (and perhaps most important) to co-ordinate the desires of millions of individuals, firms and households.

This list is provided not by Friedman or Hayek, but by a Swedish Social Democrat whose book is offered to us by Samuelson as an antidote to the former writers. I would only add that four at least of these requirements do not depend on selfishness but on the need for co-ordinating and signalling devices which would still exist even if we could rely more on people's goodwill. Remarks such as Adam Smith's about addressing ourselves not to the 'humanity' but to the 'self-love' of others and Alfred Marshall's about men's motives 'in the ordinary business of life' give a misleading impression. Even if people were actuated by benevolence, they would still need to know what jobs to do and what methods to use to satisfy other people's desires most efficiently, and a coordinating mechanism would be required. At most we could dispense with the fourth item on the list - incentives. Even then the profits or opportunities for high earnings would still be indispensable as signals, although any excess wealth gained by following them might eventually be given away to charitable organisations.

Galbraith's influence on the New Left has, as Lindbeck has pointed out, strengthened its temptation to ignore the inconvenient problem of co-ordination. Galbraith fails to explain how the few large firms on which he concentrates - let alone millions of householders and individuals - co-ordinate their activities. He concentrates on planning within firms, and many readers overlook the fact that he has said nothing about relations between firms, except by quasi-mystical references to the 'technostructure'⁶

Lindbeck also lays to rest the illusion that computers could take over from markets the functions just listed. This belief is more characteristic of the old technocratic Left than of the New Left; but the latter might be inclined to clutch at it as a straw. Complicated messages about preferences, product qualities and information on production processes cannot be coded onto a computer. This is more than a practical impossibility. Even if consumers could immediately translate into computer language their preferences between an indefinitely large set of alternatives made possible by technology, they do not themselves know how they would react to new kinds of goods or changes in quality or innovation in general, for the simple reason that people do not always know how they themselves will react in hypothetical circumstances. Even when it comes to communicating details of production processes it is difficult to envisage how the specifics of 'knowing how' could be put into a computer. Moreover, all this effort, even if successful, would simply reproduce the data already presented by prices, profits and sales figures.

A dominant feature of New Left thinking, again powerfully stimulated by Galbraith, is a denial that the market does allow people to 'do their own thing'. Consumer wants, it is alleged, are artificially fabricated by advertising and other sales techniques. The art of salesmanship has never been regarded as quite respectable. It has, of course, always been disliked by conservative traditionalists and strictures here are no monopoly of the New Left. E. J. Mishan has argued strongly against advertising from the premises of conventional economic theory; and Charles Carter, the Secretary General of the Royal Economic Society and notable university administrator, has outlined a complex scheme excluding from tax-deductable expenses most marketing expenditure, including sales staff and packaging, as well as promotion and advertising, and imposing a prohibitive tax on such expenditure when it exceeds a certain proportion of turnover.⁷

Such writers do not, however, go to the lengths of the New Left and some of its prophets in asserting that firms can create a demand for whatever goods they choose to produce. As Lindbeck has pointed out, the latter is a new form of 'Say's Law' - so much attacked by Keynes for giving too favourable an impression of the capitalist system - which asserted that supply created its own demand and which thereby denied the possibility of a depression. The new form of the law seems to assert that this is true, not merely for the economy as a whole, but for each individual firm or product.

The belief is quite false. Simply because firms do not limit themselves to supplying demands felt by the human race when it left the Garden of Eden, but actively build up a market for their products, this does not mean that they can impose whatever they like on a defenceless public. The British motor industry has not been able to prevent consumers from buying more imported cars; Cunard has been unable to prevent a fall in demand for passenger shipping lines; the Coal Board has been unable to prevent a switch to other fuels; and there are countless other examples.⁸ Marketing studies suggest that among products regarded as 'technical successes' only perhaps 10-20 per cent survive market and pre-launching studies, while of those that are launched one-third to one-half are withdrawn as failures within one year.⁹

There are two extreme and equally absurd prevalent models of the role of the consumer. There is, on the one hand, the view that people have innate tastes which firms exist to satisfy. Hardly any reputable economist, however, orthodox, has ever explicitly held this view; but there are incautious statements, particularly in American textbooks, which give credence to this allegation of Galbraith's.¹⁰ At the other extreme is the view to which Galbraith himself comes perilously close, that sees consumers as plastic clay on which the advertisers can impose any shape they like. In fact, salesmanship is part of the process of increasing the range of alternatives of which people are aware. Like many other technological and cultural techniques, it develops desires of which people were not aware before and - the point must be conceded - causes some people to be more dissatisfied with their lot than they otherwise would be. This is part of the price of freedom of communication. Nearly all the products of civilisation - arts, sports and recreations,just as much as running water, telephones or labour-saving gadgets - have been invented and sold to people who were not spontaneously asking for any of them, but were glad to have them when they arrived. It is part of the function of a market economy to suggest new possibilities to people which they are then free to accept or reject. It may be that commercial advertising increases demand for consumer goods relative to 'public goods', leisure or a pleasant environment. But politicians, writers and journalists can and do propagandise in the opposite direction; the activities of the New Left are themselves part of the free market in ideas, and by no means the least successful part of it.

None of this means that the situation in regard to advertising or consumer information is incapable of reform. If advertisers really discovered and used forms of subliminal advertising, which exercised a literally hypnotic effect which people were powerless to resist, the case for legal prohibition of these forms would be strong. On the positive side, much more could be done to encourage the provision of information and views on products from points of view other than the producer's. There is a case for state encouragement and financial support of consumer bodies. It is still too difficult to organise or finance anything analogous to the political 'Opposition' in the commercial sphere.

Another objection to markets, which does not fit very easily with a belief in a 'permissive' morality, but which is sometimes heard from the same camp, is that the exercise of choice itself involves costs and inconvenience which some people do not wish to bear. In many aspects of life an attempt to survey the total range of options would be impractical, because the consumer lacks the knowledge to make it, or irrational, because the benefits are too trivial in relation to the time and effort expended; and there may be advantages in voluntarily delegating the choice to others. Investment and unit trusts spare the investor the bother of selecting his own securities; organisations such as the AA and The Good Food Guide select hotels and restaurants and group them into convenient grades. Travel agents offer both package and individual tours for people who cannot be bothered to make their own arrangements. There are excellent 'flower clubs' which, for a fixed annual subscription, arrange a weekly delivery of the flowers that happen to give the best value for money at the time of year. This gives access to both expertise and to economies of bulk purchasing which most individuals could not hope to have acting on their own. Every encouragement should be given to such methods of delegating choice; and we can all exercise our own preferences about which purchases to delegate, and to whom.

It is true that we still have to choose between investment trusts, or between advisers on investment trusts, between hotel guides and so on. A resurrected and expanded Consumer Council or similar body could publish lists of organisations fulfilling minimum standards. The appropriateness of the standards and their application to particular instances will always be open to argument and there will be nothing sacrosanct about the lists; but they would, at least, provide reassurance to those instinctively afraid of being cheated by commercial enterprises. In the social service area, no one need be forced to 'shop around' for private education and health services, however much such private provision is encouraged, so long as state services of the present standard or higher continue to exist side by side.

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5. Assar Lindbeck, The Political Economy of the New Left (Harper & Row, 1971).
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6. J. K. Galbraith, The New Industrial State (Penguin, 1969).
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7. C. Carter, Wealth, (Penguin, 1971) pp. 136 etseq.
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8. For details of these and many other instances, see Galbraith and the Planners, by Professor Frank McFadzean, University of Strathclyde, 1968, and Economic Fact and Fantasy, by Professor G. C. Allen, lEA Occasional Paper No. 14, 1969.
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9. Lindbeck, The Political Economy of the New Left, p. 43.
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10. Cited in Galbraith, Economics, Peace and Laughter (Deutsch, 1971), p. 72.
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