Beyond Supply and Demand
Tenants of a “Humane Economy”
Last summer, I listened to a presentation in Michigan’s Capitol seeking taxpayer dollars for so-called “economic development.” Nearly all of the requested $250 million — approved over my objections in the Michigan Legislature — was intended to acquire 1,300 acres in Mundy Township, which is located outside the City of Flint. This was not the first project to propose using taxpayer funds to purchase property, but the enormous price tag was an outlier.
It turned out the price tag was so high because the targeted property was not merely vacant farmland – it also included residential areas with dozens of homes, a school and a church. These centralized planners needed such a large sum of taxpayer dollars to raze a small community – all in the name of “progress”. To be fair, nobody would be legally forced off their property, but this massive state power play amounted to a ‘move or face the consequences’ scenario. Anyone opting not to sell would face a lose-lose proposition. They could stay and see their property value likely decrease sharply, or have a large manufacturer as their new neighbor.
This project illuminates how the policy objectives behind centralized economic planning quickly go astray. Residents, who supposedly are served by governments, instead are seeing part of their community eliminated. This project crystallizes an aspect of economics which is worth examining more deeply. Is economics nothing more than charts and data, or is there more than meets the eye? This is a topic explored by Wilhem Röpke, a 20th century German free market economist, who made the case for a “humane economy.”[1]
Röpke was not only courageous enough to publicly oppose Hitler on his rise to power, but also he stood up for economic values rooted in timeless truths as the western world drifted toward differing shades of economic collectivism. “Economically ignorant moralism is as objectionable as morally callous economism,” he wrote. “Ethics and economics are two equally different subjects, and while the former needs discerning and expert reason, the latter cannot do without humane values.”[2] To his point, there must be some restraining force that keeps an economic system ordered between the two extremes of despotic collectivism and anarchic individualism.
Before delving into what that countervailing force is, it is necessary to understand the foundation of a properly ordered economic system. Röpke begins by laying out a clear and irrefutable case for free markets – not simply as a preferrable economic system but as the only economic order that rightly conforms to human nature. He begins by contending that “ownership is not only a condition of a market economy, it is of the essence.” This is a strong statement because an essence is what something is by its nature. For example, a piece of lumber has the essence of wood or a creature that barks has the essence of a dog. A free market does not just have private property as a feature – private property is what a free market is in itself.
Röpke further explains the twofold reasons why private property underpins a free economy and, by extension, a free society. First, ownership separates decisions and responsibilities among individuals. Even a small child inherently understands the injustice of their toy being stolen from their hands. This is not a sign of mankind’s inherent selfishness but their sense of property. This sense of boundaries is what guides human interactions from borrowing someone’s golf clubs to entering into a business contract. Secondly, private property serves to protect people from undue government intervention. This principle should sound familiar because it is part of the 5th amendment of the U.S. Constitution, which sets strict limits on government confiscation of private property. An orderly society cannot be maintained if its citizens have a credible fear that their assets are capriciously at risk from those in political power. Röpke correctly describes that private property serves as a shield of protection along both the vertical and horizontal dimensions in society.
Röpke is not alone in espousing private property as an essential aspect of human nature. In 1891, Pope Leo XIII published a momentous encyclical entitled Rerum Novarum. It is a pivotal spiritual document responding to the Industrial Revolution’s drastic changes to economic and social conditions. Particularly striking about this encyclical was the defense of private property and the absolute repudiation of collectivist ideology. Pope Leo XIII stated, “the main tenet of socialism, community of goods, must be utterly rejected,” and he goes on to affirm “the inviolability of private property.”[3] While his reasoning includes a theological understanding, anyone who has a sense of first principles can see the logic in his arguments. The key to understanding the importance of property is not to see it as an end but as a means. It is through ownership that people find a stable source to provide not only for themselves, but also for their family and communities. When the motivation to work and earn a benefit is lost, then the incentive to be productive crumbles. Unfortunately, the experiment of replacing private property with a manmade ideal has been tried, and its failures can be evidenced many times over. Two of the greatest historical examples are Stalin and Mao’s forced collectivization of agriculture, which both resulted in mass starvation and millions of deaths. To deny people the fruits of their labor is to deny them of sustenance – physically and spiritually.
Röpke next explains the necessary role of competition in a free economy, and how it serves a dual purpose of generating and regulating economic activity. Competition generates economic activity by fostering innovation and entrepreneurship. New goods or services which meet a market need will find willing customers. Everything from a new flavor of gum to a next generation phone is a result of competition. That being said, the generating role of competition only works properly if the underlying prices are determined freely. The people buying and selling in a mutually beneficial transaction must be the ones determining the fair market price of a good or service. Free movement of prices enable the market forces of supply and demand to naturally regulate economic activity. When this relationship is distorted, good products may get priced out of the market, and poor products may be produced despite a lack of quality or demand. Government intervention in the form of price controls, direct production, quotas or other undue interference violates a well-ordered economic system and introduces inefficiencies. To put it more simply, the ‘invisible hand’ is always preferable to the ‘iron fist.’
All this said, one must be careful not to oversimplify the role of government in economics by saying it should be absent. It is often completely just and necessary for a government to apply laws pertaining to economic activity. It may not always be easy to know where to draw the line, but as a general rule, government action must be limited, fairly applied and serve a compelling state interest. For example, requiring workforce safety standards or permitting for amusement rides are completely justified within reason. The same cannot be said for other actions like state-sponsored corporate welfare or compelled union membership.
What is clear is that no central planning commission of select bureaucrats will accurately predict how much of a good or service will be needed in a given timeframe. Production is only efficiently regulated when the people consuming the good or service choose where the capital is employed by voting with their pocketbook. The idea that a planning board could efficiently manage production of goods and services is sheer madness, and it has failed spectacularly across times and cultures whenever implemented. The economic inefficiencies result in scarcity, despotism and needless human suffering.
These principles of private property and competition are the foundation of a free market and subsequently, a free society. Röpke wisely notes that liberty is “indivisible” and that one cannot have political and spiritual freedom without economic freedom as well. [4] That being said, as was previously noted, one cannot fail to recognize an economic order is merely a means and not an end. Anyone who thinks they have created a perfect economy by merely protecting private property and promoting competition will end up severely disappointed. It is essential that a “humane economy” has a social basis which adheres to some standard beyond its own passions. Failure to do so results in decadence which can manifest in ways such as legalized prostitution, decriminalizing illicit drug use, removing penalties for petty crimes like theft, and the list goes on.
Free markets permit people to flourish but provide no guarantees. “The market, competition, and the play of supply and demand do not create these ethical reserves, they presuppose them and consume them.”[5] Here Röpke is acknowledging man is not the measure of all things, but rather that is the role of a higher power. For economic activity of man to be just and rightly ordered it must align with first principles which transcend our material world. “Self-discipline, a sense of justice, honesty, fairness, chivalry, moderation, public spirit, respect for human dignity, firm ethical norms – all these are things which people must possess before they go to market and compete with each other.”[6] Some of these ideas are innate in man though the natural law and others are developed through virtue, but they all are woven together through the common thread of self-restraint.
All of this in mind, let us revisit the so-called “economic development” project near Flint discussed at the beginning of this article. Does the proposal pass muster of an economic activity in alignment with a “humane economy?” Is private property properly shielded from government intervention when the public purse is used to coerce people from their homes? Is competition being fostered when the government plans which industries will receive capital and where factories will be located? The answer is a resounding “no” on both fronts, which leaves one to conclude that the fundamental aspects of a free economy are being violated. Furthermore, since the state has not even cleared the most basic principles of prudent and free economics, it most surely failed to weigh the ethical norms which should be a backstop against brazen and unfair actions of a government against its people.
I can only surmise these centralized planners’ ethical concerns – either consciously or unconsciously - were the cause of their legislative committee presentation to display satellite images of the 1,300 acres in question which sanitized the heavily inhabited areas. Despite their attempts to sidestep the issue, when asked about the relatively high local population at the site, they were unfazed. These noble bureaucrats were convinced that the project must be on this proposed site because it afforded a large greenfield space. On the contrary, I would argue their scope was too limited. The city of Flint was one of the most industrialized areas in the entire world not 50 years ago. There is no shortage of space available for razing and redevelopment, the problem these planners wish to avoid is inconvenience and nothing else. It is far easier to create a new industrialized zone rather than dealing with cumbersome environmental regulations at an old one. For a quarter of a billion dollars it is reasonable to believe another site could have been made ready for development.
Witnessing the government actions involved in this Mundy Township project demonstrates the great risks of centralized government planning. While it is true sound economic policy requires adherence to basic free market principles, it must also strive for a “humane economy.” Those with political power have duties beyond economic growth and those blessed with material success have responsibilities beyond maintaining wealth. Those in positions of authority must be considerate of the welfare of others and act toward a common good. Of course, in the real world this is easier said than done. Perhaps Pope Leo XIII provided some light to economic decision making when he said, “The things of earth cannot be understood or valued aright without taking into consideration the life to come, the life that will know no death.”[7] There is of course always hope, and what is needed now more than ever is a return to first principles as an ethical guide to economic decision making in Lansing and beyond.
[1] Röpke, Wilhelm. A Humane Economy: The Social Framework of the Free Market. Wilmington, Deleware, ISI Books, 2019.
[2] Ibid. p.104
[3] Leo XIII. “Rerum Novarum.” The Holy See, 15 May. 1891, https://www.vatican.va/content/leo-xiii/en/encyclicals/documents/hf_l-xiii_enc_15051891_rerum-novarum.html.
[4] Röpke, Wilhelm. A Humane Economy: The Social Framework of the Free Market. Wilmington, Deleware, ISI Books, 2019. p.104.
[5] Ibid. p.125
[6] Ibid. p.125
[7] Leo XIII. “Rerum Novarum.” The Holy See, 15 May. 1891, https://www.vatican.va/content/leo-xiii/en/encyclicals/documents/hf_l-xiii_enc_15051891_rerum-novarum.html.