The Market System: What It Is, How It Works, and What to Make of It by Charles Lindblom. Yale Univ. Press, 296 pp., $26.00.
August 27, 2001        

A four-letter word beginning with “f” has tragically corrupted the minds of countless innocent Americans. I mean “free,” in the expressions “free market” and “free enterprise.” It is a glorious word, of course, but its association with these morally neutral abstractions generally serves to obscure their often harsh and irrational consequences. In our day, these two catch phrases, illicitly trading on the prestige of “free,” are the first resort of scoundrels.

It’s scoundrel time now, as Republican bureaucrats and legislators race to repeal or nullify longstanding tax, regulatory, labor, environmental, and social welfare policies in the name of market freedoms, for the near-exclusive benefit of the rich. Charles Lindblom, Sterling Professor Emeritus of Economics and Political Science at Yale, author of the classic Politics and Markets and (with the equally eminent Robert Dahl) Politics, Economics, and Welfare, has clearly noticed these depredations. The Market System is not, however, a topical book. It is an elegant précis of Lindblom’s life work; a conceptual inventory, as sparing of detail as Robert Kuttner’s Everything for Sale was full. The two books are alike, though, in sense and spirit. In fact, I venture to think the latter is a book Lindblom (now 83) might well have written if he were four decades younger, less theoretically-minded, and not such a fearfully respected and respectable academic.

Throughout most of The Market System, Lindblom’s dispassion is almost clinical. “I do not try to convince you,” he announces, “that you should, taking everything into account, admire or deplore the market system.” Even so, he convinces us to do both. “[The market system] can coordinate human behavior or activity with a range and a precision beyond that of any other system, institution, or social process. But it is a harsh and often cruel coordinator. It is both an ally and enemy of personal freedom – ally because it opens up a range of choice for each participant, but enemy because it closes off some major choices that a free people could otherwise make. It destroys many mammoth historical inequalities and then introduces inequalities of its own. It achieves extraordinary efficiency because it permits participants to make precise and calculated choices. But it is grossly inefficient because of the choices it has closed off. Historically, it has supported democracy – there are no democratic nation-states except in market societies – but it has sabotaged important democratic features of ostensibly democratic states.”

Hardly anyone in twenty-first-century America needs to be convinced of the market system’s virtues, and Lindblom does not work up much expository momentum demonstrating them. As with people, the system’s vices are more interesting. But even in the second half of the book, largely devoted to examining the market’s real or alleged shortcomings, he is a stickler for historical balance and conceptual precision. For example, he suggests persuasively that urbanization, industrialization, and bureaucratization are to some extent independent of market relations and must share the blame for instrumental rationality and the degradation of work. Twentieth-century communism, if good for nothing else, at least made clear how much more than merely reforming the market system will be necessary in order to conserve the best of our premodern heritage.

Similarly, when discussing markets and morality, Lindblom makes a useful distinction between universal ethics and role ethics. The market system, the legal system, the state, the family, and other bounded areas of social life have special codes that modify or suspend the requirements of a universal ethic. Forgiveness is a virtue, though not necessarily for a judge. Charity is incumbent on everyone, including corporate managers, yet “in many appropriate circumstances a dismissal of workers no longer needed deserves approval.” (Hmmn … )

The Market System’s most interesting chapters address several perennial claims, now virtually articles of faith: markets are uniquely efficient and fair; markets promote individual liberty; markets are a necessary condition of democracy. These claims are all at least plausible, as Lindblom fully acknowledges. Are they true?

Efficiency is “the relation of valued output to valued input.” Lindblom’s lengthy and lucid discussion of this concept convinced me (and half-convinces him) that it is useful mainly for rhetorical purposes. “Whether an allocation is efficient depends on who is doing the evaluations, or on whose evaluations count. Consequently, there is no one allocation that is efficient – it all depends.” All transactions have externalities (he calls them “spillovers”), very few of them compensated or even recognized. And the market system relies extensively on supportive public policies, not all of them democratically determined (to put it mildly).

What about the price mechanism – doesn’t that guarantee efficiency? Subject to the usual qualifications (information costs, unequal market power, etc.), yes. But here Lindblom introduces the notion of “prior determinations”: economist-speak for the fact that people’s endowments – financial, educational, and other – differ drastically, that this greatly affects market outcomes, that these differences are in crucial respects politically determined (e.g., by the law of inheritance), and hence the claim that market outcomes are maximally fair and efficient is poppycock. They are no more fair than luck is fair. As usual, Lindblom puts it rather more circumspectly. “[In virtue of prior determinations,] market systems, wisely or foolishly, largely give up the possibility of an efficient resource allocation and pattern of production. They settle instead on inefficient allocations improved to the limited degree that voluntary transactions make improvement possible.”

The relation of markets to freedom and democracy is complicated. Lindblom’s treatment of it is finely balanced. Corporations are central to the market system, yet are internally unfree. Is this a contradiction? Yes and no: managerial authority is regularly abused, but even employee-owners would have to discipline themselves rigorously in response to market pressures. Can occupational choice, consumer choice, and other freedoms exist without a market system? In principle, yes: in a competently planned society, workers would presumably be hired rather than assigned and goods would be sold rather than rationed. But in practice, no: beyond a certain size, competent central planning is impossible.

Near the end of the book, however, Lindblom’s dispassion comes close to melting down in the course of twenty quietly smoldering pages. What provokes him is elite manipulation of “mass” (as he calls the rest of us) – that is, advertising, public relations, and soundbite politics. He actually becomes eloquent:

A reasonable suspicion – to understate it – is that the messages of market elites constitute a twofold assault on the mind, the effects of which are all the more grave because government elites join in the assault. The first assault might be called distraction. … Market elite persuasion of mass is so persistent and relentless, so widespread, and so inventive in its appeals that one must ask how much room it leaves in the mind for thinking about other things – or thinking at all rather than simply reacting. …

The second assault is obfuscation. Politics, it is now often said, is huckstering. As for communication from the market elite on products, its mixture of emptiness, confusion, and deceit may have descended to a level below which there is not much room to drop further. …

If we simply look about us at both sales promotion and the political appeals of market elite to mass, especially those now in the hands of specialists in public relations, we cannot escape some fears that they are systematically undermining that respect for truth or honesty long argued to be a requirement of civilized society.

All this distraction and obfuscation, bad enough in itself, has the further effect of preventing popular challenges to elites. Lindblom calls this effect “circularity.” Ideological conformity is so carefully nurtured by business and government, and critical thinking so successfully discouraged, that as a practical matter, “even in the democracies, masses are persuaded to ask from elites only what elites wish to give them.”

What, then, of the historic connection between markets and democracy? “The democracy to which [the market system] is tied is a minimal or low-grade democracy rather than a highly developed one, blighted as it is by its citizens’ incapacity to think. That this minimal democracy exists at all seems to owe a great deal to merchant and entrepreneurial political energies that curbed the powers of the authoritarian state before undertaking an assault on the mind that obstructs a fuller democracy. In all this we find no convincing evidence or argument that, except in the mind, the market system is necessary to democracy.”

These conclusions are a little eyebrow-raising, coming from the former president of the American Political Science Association and the Association for Comparative Economic Studies. Perhaps the rest of the profession – not to mention the editorialists of The Wall Street Journal – will take note.