Taking back the economy: the market as a Res Publica

Republicans seek to protect and promote individual freedom. So do libertarians of the right. The difference? Republicans recognise that the market is constructed through political, public action.

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Freedom in the republican tradition requires enjoyment of the fundamental liberties with the security that only a rule of law can provide. You must be publicly protected and resourced in such a way that it is manifest to you and to all that under local (not unnecessarily restrictive) conventions: you can speak your mind, associate with your fellows, enjoy communal resources, locate where you will, move occupation and make use of what is yours, without reason for fearing anyone or deferring to anyone. You have the standing of a liber or free person; you enjoy equal status under the public order and you share equally in control over that order. 

This approach to the public world ascribes importance to a sphere of relatively private relationships and actions, insisting that within that sphere you should not be beholden to anyone for your ability to act as you will. But on any of the established republican views that sphere is a space that is carved out by public custom and law, maintained by public enforcement, and secured by a form of public control in which each has an equal share. The rules of public order constitute the possibility of private life in the way in which the rules of a game like chess constitute the possibility of playing that game. They represent enabling (or enabling-cum-constraining) rules, not rules that merely regulate a pre-existing domain.

This republican image runs into sharp conflict with a more received picture, celebrated by right-wing libertarians, according to which the rules of public order regulate the private sphere rather than serving – now in the fashion of one culture, now in the fashion of another – to make it possible. On this libertarian view the private sphere is only contingently dependent on public regulation, not dependent in the constitutive manner envisaged in the republican. The conflict between the images is important because it shows up in alternative visions of the economy and the relationship between the economy and the state.

Property: the contrast in libertarian and republican views

To bring out the conflict of images, consider the property conventions that establish the titles and rights of ownership. On the libertarian picture owning is a natural relationship — you might think of it as a relationship of possession and use — and the rules of property serve to affirm and protect the natural rights of owners.

On the republican picture, owning is a relationship that presupposes law, if only the inchoate law of informal custom. You do not own something — you do not have the freedom of an owner — just insofar as you can hang onto it, frightening off or driving off potential rivals. You own something only insofar as it is a matter of accepted convention that given the way you came to hold it — given public recognition of the title you have to the property — you enjoy public protection against those who would take it from you. It is yours to hold and enjoy in private; but it is yours in that sense only by grace of public convention.

This view of property, prominent in Rousseau and presupposed in the broader republican tradition, is scarcely questionable in view of the salient diversity in systems of property. These differ in how far they allow for communal and public property as well as private; in the titles they recognize on the private front; and in the rights of usage that they grant to private owners. Think of the variation in how far landowners are taken to own minerals under the surface of their land, or of the diversity in copyright law and intellectual property, or of the differences in how far people are allowed to treat their animals or extend their houses. Or think, of course, of the range of variation in taxation regimes, remembering that public taxation is part and parcel of any property system.

These observations, scarcely richer than platitudes, are important for giving us a perspective on the market and the economy, undermining the libertarian image. That picture represents the market as a res privata, a private thing, suggesting that the role of the state is merely to lay low the hills in the way of the market and smooth the paths for its operation. And so it depicts any other interventions of government in the market as dubious on philosophical, not just empirical, grounds. I suspect that this image accounts for the continuing attachment to austerity among those on the right. They are philosophically opposed to Keynesianism, not just opposed on empirical grounds, and their ideological stance makes empirically based arguments for Keynesianism invisible to them.

The public rules of economic association

What constitutes the economy on the republican approach? The answer is: the sorts of public rules that create private space in general, such as the public rules that create the possibility of private ownership. These rules are public in the sense of being accepted across the society as a matter of common awareness, and being normally spelled out in statutory or customary law. And they vary across societies and periods, reflecting the varying assumptions of parliaments and courts and other public forums. They include the property conventions that we have been discussing but also extend much further. Without aspiring to be exhaustive, we should add to the Rules of property at least the following four categories of market-enabling rules.

Rules of incorporation. These determine the forms in which individuals can combine to form new economic players. They have evolved greatly over the past two hundred years, giving companies and banks and other such entities life without a sunset clause; liability that is limited to a shared treasury; the possibility of owning other such entities; the possibility of changing location and sphere of operation; and so on. While the rules for the formation and operation of commercial entities have generally become more and more permissive, most countries impose some anti-trust restrictions, guarding against monopoly. And countries vary a great deal, of course, in how far they allow corporations political influence, with the United States growing ever more tolerant of the pretense that corporations have the rights of natural persons.

Rules of production. These rules impose restrictions on how far the larger players in an economy, especially in manufacturing industry, are allowed to locate near centers of population, to pollute the ground or water or atmosphere, to contribute to global warming, and to impose negative externalities on other players, individual or corporate. Many of these rules come about via statute while others emerge from the courts in the resolution of common law issues, in particular issues of tort. The Learned Hand rule on such questions of tort would suggest, for example, that producers and other parties ought to take precautions against harming others in any cases where the cost of the precaution is less than the expected cost of the damage: that is, the cost of the damage, discounted by the probability of its occurring.

Rules of contract. These determine a variety of matters that have to be sorted out for the smooth and successful operation of a market. Who are competent parties to make contracts? What conditions, say in the matter of records of the transaction, are required for a binding contract? How far is the contract to be understood on the basis of the exact words used and how far on the basis of presumptions reasonably ascribed to the parties? When is a contract null and void? What damages may a party seek for breach of contract: the loss suffered as a result of reliance on the other or the loss of the benefits that the contract promised? And so on.

Rules of finance. By what agencies is the money supply in the economy to be controlled? And what are the guidelines that those agencies should follow? Most countries rely on central banks for controlling the money supply and impose guidelines related to keeping inflation down and employment up. In pursuing its aims, and subject to statutory constraints, the central bank will vary factors such as the base interest rate at which commercial banks can borrow, the ratio they have to preserve between their reserves and their loans, the extent to which their loans can be bundled together in derivatives, the insurance available to depositors in the event of a bank defaulting, and so on.

As the rules of property establish a system of ownership, so these and other rules combine with them to establish, more broadly, a full-scale market economy. This claim, like the earlier claim about the role of property conventions, borders on the platitudinous. But by giving it prominence we can avoid being seduced into the libertarian view — now, alas, almost an orthodoxy — that the market is a relatively autonomous sphere which depends only contingently on the framework of custom and law, and on the role of the state in supporting that framework. The role of the state in relation to the market — the role of the community, operating through the state — is constitutive and not just regulative, enabling and not just constraining. And it is extensive in even a greater measure than my five sets of rules suggest, since it also includes providing for the infrastructure of education, communication, transport and insurance that any contemporary economy requires.

Taking back the economy: the first step is philosophical

The message, to end on a slogan, is that we should take back the economy in the course of our political thinking. As we theorize normatively about the organization of political life, and about the distribution of socio-economic assets, so we should also theorize about what general shape our economy ought to take and about how our states ought to combine in shaping international economic forces. We should not shrink from such prescriptions on the spurious ground that the economy is a natural reality, subject to its own autonomous laws, and that government intervention always represents a potentially warping influence: the source of what are often described as distortions. (See also in this series the related discussion of John Tomasi’s arguments for ‘free market fairness’ by Martin O’Neill and Thad Williamson.)

The philosophical re-construal of the market that I am recommending is quite consistent with empirically based arguments to the effect that one or another form of government intervention is counter-productive and that it may make very good sense in some areas of activity to let the market operate under its own logic. The point is that on issues of economic policy we should keep an open empirical mind. We should not be seduced into a hands-off presumption of the kind that libertarians support. But neither should we presume that we can rely usefully on the hand of government in every area of economic performance.

We may know as republicans what we ultimately want to secure in political action and organization within our domestic community. I would say that we want to establish people’s equal enjoyment of the basic liberties, secured by a public order that is itself subject to their equally shared control; if you like, we want to promote equal freedom as non-domination in both private and public spheres.  But neo-republican philosophy on its own does not tell us how best to achieve that goal on any front, economic or otherwise. It sponsors a research program on such matters, framing that program as an inquiry into what we can collectively do through government in trying to further the common good.

What, then, have I wanted to do here? Merely to insist that that research program should not be inhibited by libertarian presumptions about the market that are implicit in much contemporary thinking. We should not go along with the naturalization of the market, as we might describe it in more or less Marxist terms. We should resist the presumption that the market is a natural domain with its own natural laws and that the depth of government intervention should be limited on the basis of principle, not empirics.  

This piece is part of the Democratic Wealth series, hosted by OurKingdom in partnership with Politics in Spires.

About the author

Philip Pettit is the Laurence S. Rockefeller University Professor of Politics and Human Values at Princeton University and Distinguished Professor of Philosophy at the Australian National University.