The Liberal Fallacy or Yet Another Argument for Basic Income

Liberalism, or neoliberalism, has many flaws but we don't always focus on its biggest flaw.

You can see this flaw most obviously once you accept one of the most important axiom's of liberal economics: if prices are flexible then the market will clear.

But what does that mean?

Well let's begin with a simple example:

Farmers come to the market in order to sell their harvest. Shoppers go to the market in order to buy their food. The price is whatever money is exchanged for the goods. Now, if prices are flexible, then we can expect all the goods to be sold - the market will be 'cleared'. When shoppers compete to buy some rarer item then its price will rise. When sellers compete to offload a less popular item then its price will drop. Eventually everything, even the most unattractive item should be sold as the price approaches zero.

Now the most obvious flaw in this account is that real markets don't work like this:

The day finishes, and some goods are left over, even when there has been heavy discounting at the end of the day. This might be for all sorts of practical reasons - perhaps fewer people came to the market that day etc. But also the seller does not always accept the logic of liberal economics. He might insist on holding to his notion of a fair price - whatever the market conditions. Like the grandfather in Halldór Laxness' The Fish Can Sing, who always sells his fish at the same price: On a day when there is high demand for fish he does not increase his price - he simply sells his 'bargain' fish quickly. On a day when demand is low he may not even sell his fish at all.

So, real markets are not like the pure markets of economics, not just because of the complexities of reality, but also because some people simply refuse to bend to the idea that the market should set the price. For the liberal this is a kind of irrationality: how can the fish have a value outside of the market mechanism? If nobody will pay your 'fair price' how can you imagine that this is its true value?

The liberal is competing with an older view (certainly the medieval view) that things really do have a fair price. And this is probably linked to Aristotle's way of looking at things. Within the Aristotelian tradition all things have their true essence - their meaning or their value - which the wise can discern. But too often we see only the accidental properties of a thing - their semblance or their price. Within this tradition the market can no more measure value than the fool can find truth.

It seems to me that this debate about value has been at the heart of politics and society for some centuries. Liberals are modernists. The notion of an essential value is, for them, a fiction. Only the social mechanism of the market gives things a price. This may be sad and unromantic, they argue, but, for example 'Your house is only really worth what someone is willing to pay.' And unattractive as this is in some respects, as an argument it does have a certain power.

Today we can see these two competing perspectives playing out in the debate between those want to see greater market flexibility in wages, versus those who want to see greater rigidity, for example by the application of minimum wages, living wages or stronger employment rights. The liberal argues that, whatever the apparent disadvantages of zero-hours contracts, self-employment or reduced employment rights, any increased flexibility will improve market efficiency and so does benefit society in the long-run.

Liberalism may be rational but it is certainly unrealistic. Real markets don't clear and real people certainly don't behave 'rationally'. In fact we all turn out to be a strange mixture of the modern and the medieval. When house prices went up by 360% in 11 years we became liberals, enjoying (if we owned a house!) the 'rising housing market.' [Interestingly this kind of jargon reveals exactly our confusion, for markets don't rise or fall - they are just spaces.] But now that bubble seems ready to burst we have all turned medieval. We want the Government to bail us out and defend the 'value' of our house and to ensure that we don't lose out from our own bad investments. Our sense of the fair price for our own home seems wonderfully flexible as long as its direction is upwards.

We are liberals when it suits us. Bubbles make fools of us all.

But this debate between fair-value and market-value is a sideshow; it does not reveal the essential flaw in liberalism. It cannot lead to any helpful answers to the fundamental questions of social justice.

The essential flaw in liberalism is much simpler - there is nothing in the market that will ensure the seller will get enough - enough to live on, enough to thrive, enough to support their citizenship. Market's don't care, they are not moral, they are not fair and they don't need to ensure the survival of those who 'come to the market.'

A flexible labour market certainly benefits employers, especially if they need to compete on price with organisations in countries who have much lower labour costs. Investors certainly prefer the cost of labour to be controlled or reduced employment securities. This reduces their liabilities.

But whatever benefits a flexible labour market offers to employers or investors, it still does not ensure that people will have enough to live on. Like the canny shopper, waiting until the end of market day, to see what price the unsold bananas might fall to, the employer knows that, when the seller is desperate enough, they will be able to buy the labour they need, at almost any price.

The essential flaw in liberalism is that, by its very logic, it will never provide a decent and secure income for citizens. To do so would be to undermine the market itself.

Of course, those who campaign for increased minimum wages or a living wage know all this. But they are forced to deploy the medieval argument - which while is attractive in many ways - is also fraught with many problems. They have been drawn onto the enemy's territory. Their motivation is good, but perhaps their strategy is wrong. They seek to mitigate the market's inevitable injustices, but they thereby accept that the regulation of the price of labour is the proper means of reducing social injustice. This brings with it a host of problems.

By arguing about prices we are arguing on the liberal's territory. Instead, we must, as the Chinese say, lure the tiger from the mountains. We must start with need and justice.

This is how we can strike at the heart of the liberal fallacy. For, if the market cannot deliver fair and secure incomes for all, then perhaps so we must abandon the market for that purpose. Instead we must secure our basic income or our citizen's income socially and politically. We must agree together what is fair, and distribute to each other the necessary resources for our basic or citizen's income.

This is not to abandon the market for all purposes. It is to put the market in its place (in a more humble place - a secondary place). The market cannot ensure that we each have enough. So let us stop trying to make it. Instead we must create real income security together - we set a basic income and ensure that each citizen gets it. We must fix what is fair together and then we can let the labour market help us distribute our gifts and our talents between each other - at prices we are free to set ourselves.

This strategy has two further advantages over the mitigation of the market strategy which is currently being deployed by our allies.

First, it just lets the market do what is does do well - connect people's needs to other people's gifts. Price flexibility (once our basic income is secured) is a boon, not just to employers, but to employees, not just to customers but also to producers. If I love to write poetry, but the going rate for poetry is low, then I can sell myself cheaply, while knowing that I am doing what I really value. If I choose to do something that few others seem to value, like cleaning toilets, I can demand a higher price for my labour. We are free to decide what is important to us - in both buying labour and selling labour. We are no longer at the mercy of the market.

Second, we start to breakdown the illusion that the market can value us. Today we are constantly being told that all sorts of people are worth more than the rest of us and so are deservedly entitled to whatever salaries they award themselves - be they bankers, politicians, footballers or whoever. The price we pay for this exploitation of markets by the powerful is not only economic, it is spiritual. We are only too likely to believe the nonsensical idea that some banker is 'worth more' than some other person - perhaps the toilet cleaner. Constantly we forget what a proper understanding of economics can always teach us - there is no real relationship between value and price: water is cheap; diamonds are expensive; but it is water that we need to live.

Perhaps it is time to put the market in perspective. It is not a demon, it is not a saviour. It is just a useful tool for any society that understands that we are each worth infinitely more than our price in the labour market and that markets don't take care of us - they never will.

Only we can take care of us.