Power and Market: Government and the Economy

For centuries before the science of economics was developed, men searched for criteria of the “just price.” Of all the innumerable, almost infinite possibilities among the myriads of prices daily determined, what pattern should be considered as “just”? Gradually it came to be realized that there is no quantitative criterion of justice that can be objectively determined. Suppose that the price of eggs is 50¢ per dozen, what is the “just price”? It is clear, even to those (like the present writer) who believe in the possibility of a rational ethics, that no possible ethical philosophy or science can yield a quantitative measure or criterion of justice. If Professor X says that the “just” price of eggs is 45¢, and Professor Y says it is 85¢, no philosophical principle can decide between them. Even the most fervent antiutilitarian will have to concede this point. The various contentions all become purely arbitrary whim.

Economics, by tracing the ordered pattern of the voluntary exchange process, has made it clear that the only possible objective criterion for the just price is the market price. For the market price is, at every moment, determined by the voluntary, mutually agreed-upon actions of all the participants in the market. It is the objective resultant of every individual’s subjective valuations and voluntary actions, and is therefore the only existent objective criterion for “quantitative justice” in pricing.

Practically nobody now searches explicitly for the “just price,” and it is generally recognized that any ethical criticisms must be leveled qualitatively against the values of consumers, not against the quantitative price-structure that the market establishes on the basis of these values. The market price is the just price, given the pattern of consumer preferences. Furthermore, this just price is the concrete, actual market price, not equilibrium price, which can never be established in the real world, nor the “competitive price,” which is an imaginary figment.

If the search for the just price has virtually ended in the pages of economic works, why does the quest for a “just tax” continue with unabated vigor? Why do economists, severely scientific in their volumes, suddenly become ad hoc ethicists when the question of taxation is raised? In no other area of his subject does the economist become more grandiosely ethical.

There is no objection at all to discussion of ethical concepts when they are needed, provided that the economist realizes always (a) that economics can establish no ethical principles by itself—that it can only furnish existential laws to the ethicist or citizen as data; and (b) that any importation of ethics must be grounded on a consistent, coherent set of ethical principles, and not simply be slipped in ad hoc in the spirit of “well, everyone must agree to this. ...” Bland assumptions of universal agreement are one of the most irritating bad habits of the economist-turned-ethicist.

This book does not attempt to establish ethical principles. It does, however, refute ethical principles to the extent that they are insinuated, ad hoc and unanalyzed, into economic treatises. An example is the common quest for “canons of justice” in taxation. The prime objection to these “canons” is that the writers have first to establish the justice of taxation itself. If this cannot be proven, and so far it has not been, then it is clearly idle to look for the “just tax.” If taxation itself is unjust, then it is clear that no allocation of its burdens, however ingenious, can be declared just. This book sets forth no doctrines on the justice or injustice of taxation. But we do exhort economists either to forget about the problem of the “just tax” or, at least, to develop a comprehensive ethical system before they tackle this problem again.

Why do not economists abandon the search for the “just tax” as they abandoned the quest for the “just price”? One reason is that doing so may have unwelcome implications for them. The “just price” was abandoned in favor of the market price. Can the “just tax” be abandoned in favor of the market tax? Clearly not, for on the market there is no taxation, and therefore no tax can be established that will duplicate market patterns. As will be seen further below, there is no such thing as a “neutral tax”—a tax that will leave the market free and undisturbed—just as there is no such thing as neutral money. Economists and others may try to approximate neutrality, in the hopes of disturbing the market as little as possible, but they can never fully succeed.