PHILOSOPHY OF
FREE MARKETS:
SUMMARY
@ECOsummaries
→ 20% discount
1
,Philosophy of Free markets summary
Week 1 – The limits of the market
Introduction (Judith Jarvis Thomson):
In this case, would you pull the switch to safe 5
people and kill 1?
85% → yes
In this case, would you push off the fat man to
sacrifice the 5 people?
Majority → no, since you actively kill someone
Main arguments:
1. Consequentialist arguments: markets enable mutually beneficial trades (win-win), are
efficient, stimulate productivity and economic growth.
2. Deontological arguments: markets respect people’s freedom and avoid morally problematic
infringements on people’s rights and liberties (taxation, redistribution etc.)
Milton Friedman:
‘’if it is voluntary and reasonable well informed, the exchange will not take place unless both parties
do benefit from it’’
➔ Here you see the relationship between consequentialist and deontological arguments are
linked
➔ Deontological: freedom matters and it is the market that respects this, since it enables
people to exchange voluntarily
➔ Consequentialist: they only do this if it benefits them both
Freedom:
- ‘real’ freedom: actual opportunities that people have in life
➔ The fact that markets generate economic growth and wealth implies that they promote this
‘’real’’ freedom. (e.g., freedom to go on a city trip or to become an artist)
Markets are not always great:
- Markets do not always maximize utility
- Markets do not always provide win-win opportunities and can exploit and harm people
- Markets sometimes have very undesirable consequences
- Markets do not always respect the freedom that matters
2
, ➔ Markets raise moral worries and government interventions may be needed
- for the sake of desirable outcomes (consequentialist approach)
- for the sake of rights and liberties (deontological approach)
Consequentialist arguments against markets
- Even the most pro-market economists admit that markets can indeed fail and do not always
maximize utility of has socially optimal outcomes.
1. Negative externalities
- Examples:
- when a market makes both parties better off,
but harms a 3rd party (others or environment)
* (a DJ, You, your neighbours)
* (buying and selling diesel cars/taking flights/buying smartphones, the environment is hurt)
- With negative externalities, utility goes down and there are no real win-win situations.
2. Collective action problems (prisoners dilemmas): situations where private interests do
not align with the public interest. Everyone would be better off if everyone would
cooperate but conflicting interests stand in the way of such cooperation.
- Examples:
- a publicly beach. If nobody cleans → not optimal
→ Cooperation would be desirable, but is undermined by self-interested freeriding.
- This often relates to public goods: e.g. clean air and water, country defence, public roads etc.
- Markets are known for being bad in incentivizing people to invest time and money in public
goods.
- Tragedy of the commons: only short-term profits matter, this will ruin everything for
everyone in the long run.
‘’all men rush towards ruin. If everyone is pursuing his own best interest because of freedom
of the commons, then this freedom will bring ruil to all’’
What can we do against the consequentialist worries about markets?
- Some solutions rely on government intervention, while others involve markets
- Examples:
- Governments: give people fines for littering the public beach
Markets: privatize beaches; have people pay to access the beach
Marketization
Definition: more and more goods are treated as ‘’commodities’’ or ‘’market goods’’.
Meaning, produced, sold, bought and consumed at market prices.
Michael Sandel: ‘’we live in an age of growing marketization. We have drifted from having a
market economy to being a market society’’ (Sandel 2012)
Main moral question: What role should markets play in our society? What should be
marketized and what is off limits?
Michael walzer: according to Walzer, markets as a social sphere, like education or health care.
Each sphere should distribute its own goods (money, degrees, care) on the basis of
its own cirteria (desert, need).
→ tiranny occurs when a single criterion (e.g. money) rules in different spheres.
3
FREE MARKETS:
SUMMARY
@ECOsummaries
→ 20% discount
1
,Philosophy of Free markets summary
Week 1 – The limits of the market
Introduction (Judith Jarvis Thomson):
In this case, would you pull the switch to safe 5
people and kill 1?
85% → yes
In this case, would you push off the fat man to
sacrifice the 5 people?
Majority → no, since you actively kill someone
Main arguments:
1. Consequentialist arguments: markets enable mutually beneficial trades (win-win), are
efficient, stimulate productivity and economic growth.
2. Deontological arguments: markets respect people’s freedom and avoid morally problematic
infringements on people’s rights and liberties (taxation, redistribution etc.)
Milton Friedman:
‘’if it is voluntary and reasonable well informed, the exchange will not take place unless both parties
do benefit from it’’
➔ Here you see the relationship between consequentialist and deontological arguments are
linked
➔ Deontological: freedom matters and it is the market that respects this, since it enables
people to exchange voluntarily
➔ Consequentialist: they only do this if it benefits them both
Freedom:
- ‘real’ freedom: actual opportunities that people have in life
➔ The fact that markets generate economic growth and wealth implies that they promote this
‘’real’’ freedom. (e.g., freedom to go on a city trip or to become an artist)
Markets are not always great:
- Markets do not always maximize utility
- Markets do not always provide win-win opportunities and can exploit and harm people
- Markets sometimes have very undesirable consequences
- Markets do not always respect the freedom that matters
2
, ➔ Markets raise moral worries and government interventions may be needed
- for the sake of desirable outcomes (consequentialist approach)
- for the sake of rights and liberties (deontological approach)
Consequentialist arguments against markets
- Even the most pro-market economists admit that markets can indeed fail and do not always
maximize utility of has socially optimal outcomes.
1. Negative externalities
- Examples:
- when a market makes both parties better off,
but harms a 3rd party (others or environment)
* (a DJ, You, your neighbours)
* (buying and selling diesel cars/taking flights/buying smartphones, the environment is hurt)
- With negative externalities, utility goes down and there are no real win-win situations.
2. Collective action problems (prisoners dilemmas): situations where private interests do
not align with the public interest. Everyone would be better off if everyone would
cooperate but conflicting interests stand in the way of such cooperation.
- Examples:
- a publicly beach. If nobody cleans → not optimal
→ Cooperation would be desirable, but is undermined by self-interested freeriding.
- This often relates to public goods: e.g. clean air and water, country defence, public roads etc.
- Markets are known for being bad in incentivizing people to invest time and money in public
goods.
- Tragedy of the commons: only short-term profits matter, this will ruin everything for
everyone in the long run.
‘’all men rush towards ruin. If everyone is pursuing his own best interest because of freedom
of the commons, then this freedom will bring ruil to all’’
What can we do against the consequentialist worries about markets?
- Some solutions rely on government intervention, while others involve markets
- Examples:
- Governments: give people fines for littering the public beach
Markets: privatize beaches; have people pay to access the beach
Marketization
Definition: more and more goods are treated as ‘’commodities’’ or ‘’market goods’’.
Meaning, produced, sold, bought and consumed at market prices.
Michael Sandel: ‘’we live in an age of growing marketization. We have drifted from having a
market economy to being a market society’’ (Sandel 2012)
Main moral question: What role should markets play in our society? What should be
marketized and what is off limits?
Michael walzer: according to Walzer, markets as a social sphere, like education or health care.
Each sphere should distribute its own goods (money, degrees, care) on the basis of
its own cirteria (desert, need).
→ tiranny occurs when a single criterion (e.g. money) rules in different spheres.
3
