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An Economy Is Neither a Family Nor a Firm; It Is a Catallaxy – Donald J. Boudreaux (05/08/2019)

There are many different ways to distinguish libertarians from progressives, progressives from conservatives, and conservatives from libertarians. Here’s one of my favorite ways. Both progressives and conservatives regard the country to be an entity with purposes. In contrast, libertarians understand that the country (as opposed to its government) has nothing that can meaningfully be called “purposes.”

You as a sentient individual have purposes. (“To graduate from college and to have a fulfilling career.”) Your family can meaningfully be said to have purposes. (“To raise the children well and live debt-free.”) Your business has a purpose. (“To earn as much profit as possible by making and selling better mousetraps.”)

An economy, according to its original Greek meaning, is the material affairs of a household. Economics — “oikonomia” — means “household management.”

Wikipedia reports that Aristotle, in his Nicomachean Ethics, defined “the word ‘economy’ as ‘the art of household management’.” Each household can be run well or poorly; when run well, it is run “economically.” The household’s means — its space, its furniture, its appliances, its inventories of food and drink, its time — are used to promote as many as possible of the household’s ends.

Likewise for you as an individual. You marshal your means to fulfill as many as possible of your ends. So too for a business. Each business uses its capital and inputs to earn profits.

And to marshal means in a manner that fulfills as many as possible ends requires not only planning, but also conscious effort to execute the plan.

In sharp contrast to an individual, a household, and an organization such as a business firm, what is today called an “economy” has no purposes. The economy has no hierarchy of goals that it or its participants pursue. Each American, each American household, and each American firm (for-profit and not-for-profit, and governmental) has a hierarchy of goals that it pursues, and each does so by acting within the American — actually, within the global — economy. But these many attempts to fulfill individual goals are no part of a collective effort to fulfill higher goals.

The American economy has no goals. It is not an economy; it is not a goal-directed entity, such as a household. An economy, properly speaking, is a catallaxy. According to F.A. Hayek, a catallaxy is “not a single economy but a network of many interlaced economies.”

Libertarians recognize this reality. Progressives and conservatives deny it.

The Economy Isn’t a Family

Progressives think of the country as a large family. According to this mindset, each American is rather like one of more than 300 million siblings, all under the direction of Papa (the U.S. president) working with Mama (Congress), who are supervised by wise (if in practice sometimes senile) grandparents (the Supreme Court). Just as within a family each member bears an ethical responsibility to care for fellow members, so, too, within a country each citizen has a similar ethical responsibility to care for fellow citizens.

The family itself earns an income. And while it’s appropriate for some siblings to receive out of this income more resources than are received by other siblings, the distribution of income within the family is not driven by commercial, arm’s length negotiations or by luck. Instead, the distribution of the household’s income is consciously chosen by its elders, and the chosen distribution is meant to enable the family to achieve as many as possible of its goals.

Thinking of the country as a large family, progressives judge the actions of each citizen toward others as they would judge the actions of someone toward his or her siblings.

When Bernie Sanders thunders against income inequality, he seems to be motivated by the same animus that would motivate any of us to look with stern disapproval on a handful of siblings accumulating large stores of toys and candy and refusing to generously share these with other siblings. Refusal to share, after all, works against the family’s purpose of ensuring the maximum well-being of each member.

I suspect that when Sanders and other sincere progressives propose to redistribute income they think of themselves as proposing to do nothing more than to ensure that the American family works according to plan.

The Economy Isn’t a Firm

Conservatives are no less confused. They tend to think of America as a large corporation — America, Inc. — whose goal is to produce and sell as much as possible in order to earn profits as high as possible.

This mindset perhaps explains why conservatives are less agitated than are progressives by income inequality. If America, Inc., is to fulfill its goal of earning high profits, it must operate at peak efficiency. And so to motivate citizen-workers to produce as much as possible, high performers must be allowed to keep most of what they earn. There is no injustice in super-producer Gates having more material resources than ordinary producers Boudreaux and Tucker. Super-producer Gates contributes disproportionately much to America, Inc.’s, bottom line.

This conservative mindset also explains why conservatives are less supportive than are progressives of the welfare state. Just as General Motors would be acting contrary to its plan of maximizing profits if it paid some of its workers to live idly, so, too, does America, Inc., act contrary to its plan of maximizing profits by subsidizing the idleness of some of its citizens.

Conservatives recognize the justice of some welfare payments. Each corporation, after all, typically agrees — for perfectly good business reasons — to help its workers in their retirements and to compensate workers for injuries suffered while on the job. But a large and indiscriminate welfare state, in the conservative view, reduces the country’s operating efficiency.

My hypothesized mindsets of progressives and conservatives are admittedly simplistic. Not only do progressives differ amongst themselves in their conceptions of society, as do conservatives, progressives and conservatives often share with each other similar attitudes and priors.

Yet as a first approximation of an important difference separating both progressives and conservatives from libertarians, I submit that my hypothesized mindsets capture something real. Unlike progressives and conservatives, libertarians judge society and government policy by how well individuals are able to fulfill their goals; libertarians do not suppose that individuals who comprise the large collectives that we call “countries” do or should aim at fulfilling the non-existent higher goals of these large collectives.