On the Efficiency and Morality of Free Markets

President Ronald Reagan with Prime Minister Margaret Thatcher at Camp David. 1984.

With ever-more people on the political right rejecting the economics of Adam Smith, F.A. Hayek, and Milton Friedman, it’s refreshing in 2024 to learn that the Heritage Foundation’s Kevin Roberts and Derrick Morgan insist that the conservative movement “cannot abandon free markets” and that “the moral and practical case for free enterprise is as necessary today as it was when Ronald Reagan and Margaret Thatcher used it to rescue their nations’ economies and win the Cold War.”

Hear, hear! Indeed so.

But Roberts’s and Morgan’s case is weakened by a misunderstanding, one that’s unfortunately commonplace, of the economics and classical-liberal philosophy that serve as the strongest buttresses for the case for free markets. Consider this passage:

Our aim — today as much as it was in 1980 — is not economic efficiency for its own sake, but as a powerful means to further human flourishing, what Aristotle called eudaimonia and the Founders called “the pursuit of happiness.” Conservatism seeks the good, the beautiful, and the true — not just the efficient.

The implication seems to be that at least some defenders — mostly economists — of free markets are interested in “economic efficiency for its own sake,” while thoughtful conservatives understand that well-rounded individuals in healthy societies pursue goals beyond “just the efficient.” Yet in fact, all classical liberals who endorse free markets also endorse, no less than do conservatives, the seeking of the good, the beautiful, and the true. And no serious economist who champions free markets has ever advocated efficiency for its own sake or at the expense of the good, the beautiful, and the true. The reason is simple: “efficiency for its own sake” is meaningless.

Efficiency describes a relationship between means and ends. Efficiency says nothing whatsoever about the contents of the ends. If you want to drive this morning from Philadelphia to New York in the shortest period of time, a well-functioning GPS navigator will show you the appropriate route, one that would likely include a long stretch on I-95. If, in fact, there’s no alternative route that you could drive that would get you to New York more quickly, then the route displayed by your GPS device is efficient given your goal. But if your goal is instead to take in some beautiful scenery along the way, subject to getting to New York before nightfall, then the most-efficient route will be one that keeps you off of I-95 and in your automobile for several hours more than you’d spend if you took the fastest route.

To act efficiently is simply to act in that way that best enables you to achieve your goal, whatever that goal might be. And because you have many goals, to achieve a goal efficiently leaves you with as many as possible resources — money, time, energy — left over to pursue your other goals, whatever they might be. You want to drive from Philadelphia to NYC this morning as quickly as possible so that you have as much time as possible to prepare for a late-afternoon job interview in Manhattan. Had you erred and driven a route other than the shortest, some of the time and energy that you would have had available to prepare for your job interview gets wasted driving. That same amount of time and energy would not, however, have been wasted had your goal instead been to take in lots of beautiful scenery.

There is, in short, no way to identify an efficient course of action independently of the actor’s goals. Yet once acceptable goals are specified, along with alternative, available means of pursuing them, there can be no objection to choosing the efficient course. Legitimate objections might well be made to the goals. Goals might be justly classified as ill-advised or even immoral. But given any set of acceptable goals, it’s foolish to warn against pursuing them efficiently. And it is literally illogical to insist that some degree of efficiency in pursuit of these given goals should be sacrificed in order to achieve some other objective or to better promote some other outcome, for to so insist would be to treat the stipulated set of goals, not as given, but as changeable.

When we liberal economists praise the market for its efficiency, we praise nothing more — or less — than what we believe to be the free market’s singular success (although, of course, not perfection) at enabling people to achieve as many as possible of their peaceful goals. When we protest against government interventions such as protective tariffs, we ultimately do so not because these interventions result in lower real GDP or wages. Rather, we protest because some individuals’ ability to pursue their peaceful goals is artificially restricted in order to artificially enhance other individuals’ ability to pursue goals – which, in effect, means that the government uses its coercive power to conscript some individuals to serve the ends of other individuals. Because there’s no reason to think that such coerced engagements are mutually beneficial – indeed, because there’s every reason to think that such coerced engagements are “negative sum” – the classical-liberal economist concludes that, insofar as the goal of economic policy is maximum possible material welfare for everyone, interventions such as protectionism are inefficient because these interventions prevent the achievement of that goal.

Reasonable people can and do disagree about what are and aren’t acceptable goals. Among the virtues – so says the classical liberal – of the free market is that it minimizes the role of coercion in settling such disputes. Aware of his and everyone else’s intellectual puniness, the classical liberal is never certain enough of the merits of his own particular concrete values to believe that these should be imposed on others. He is content to allow other adults to pursue goals that he finds questionable or unattractive as long as these pursuits involve no violation of anyone else’s equal freedom to pursue their goals.

In this way, it might be said, classical liberalism is morally too ‘thin.’ It imposes no moral code beyond keeping your hands to yourself and your promises to others. It tolerates activities that many wise and good people correctly understand to be self-destructive. But first, we can never really be certain that an activity that appears to be without merit won’t eventually prove to be advantageous for society. Second and more importantly, the hard fact that different people have different substantive conceptions of the Good and the Bad means that the moment we call on government to enforce, or even just to give preference to, of our preferred ‘thick’ moral code, we effectively grant permission to those whose ideas of morality differ from ours to impose on us their own ‘thick’ moral code if and when the government falls into their hands — as we would be wise to assume it eventually will.

Conservatives should be among the first to recognize that the struggle for political power when the state enforces concrete moral codes is destined to lead either to tyranny or to society-shredding violence.

Many conservative readers of the Roberts and Morgan piece would agree with what I write above. But I wonder how many of these readers would also join me in taking issue with another of Roberts’s and Morgan’s claims — specifically, their claim that “the free market … must always be in service to the American family.” The conservative instinct is to immediately concur. But before concurring, ask: What does this statement mean in practice? If it means simply that the market must assist families to pursue whatever peaceful goals families choose, then it’s unobjectionable. The market does indeed offer unparalleled assistance on this front by making ever-greater amounts of economic resources and opportunities available to families.

But I worry that Roberts and Morgan have some other, more concrete meaning in mind. I worry that these authors want the free market to be judged, not by how much it expands the opportunities open to families — a feature of the market that the authors might positively dislike — but by how well or poorly it encourages those particular family structures and practices that today’s conservatives associate with traditional American families. I worry further that, if and when the market is found not to result in the particular family outcomes that conservatives desire, Roberts and Morgan will conclude that the free market does not serve the American family and, thus, the market is flawed and should be obstructed, in order to make way for conservative holders of state power to socially engineer the preferred outcomes. Any such social engineering, of course, would differ only in its particular aims and not at all in its essence from social engineering done by progressives.

The classical liberal, while he might share — as many in fact do — the particular moral code of conservatives such as Roberts and Morgan, understands the danger of empowering the government to impose, or even to encourage, this or any other particular moral code. The liberal would prefer to risk the changes brought on by the free market than the commands that would replace it.

The classical liberal is neither a bloodless promoter of efficiency for efficiency’s sake nor a citizen who’s morally indifferent or apathetic. Quite the contrary. The classical liberal recognizes that morality is utterly indispensable. But he or she believes that beyond preventing coercion and fraud, the government has no business imposing any concrete moral code. The government can be trusted to possess neither the knowledge nor the consistently excellent motivation that would be required for it to successfully impose ‘the’ appropriate moral code. The business of choosing and enforcing moral codes belongs to the people, to free individuals who talk to and reason with each other, who set and follow examples, who learn from their mistakes, and who compromise with one other.

Of course there’s no guarantee that the particular set of concrete moral rules that emerges in the free, liberal society will be the best set, however defined. There’s not even a guarantee that the free, liberal society will never embrace a concrete morality that damns its denizens to degradation and both spiritual and political enslavement. Of course this terrible fate could happen. But, says the classical liberal, humanity’s chances of avoiding the worst moral arrangements and derangements – and of getting along tolerably well with a tolerably good moral code – are without a doubt highest if morality is left to free individuals and not imposed by the state.

The post On the Efficiency and Morality of Free Markets was first published by the American Institute for Economic Research (AIER), and is republished here with permission. Please support their efforts.