A problem with laissez-faire political equilibriums

Broadly speaking, there are two ways to come at theories of economic justice and economic viability. There are normative approaches that focus on moral arguments, and there are “scientific” approaches that focus on the flaws within economic systems. I tend to favor the first approach, but at times relying on the latter approach can be very refreshing. The latter approach does not force you to endlessly parse the meaning of freedom, voluntariness, welfare, and so on. It allows you to argue very simply that a certain economic system cannot, by its very design, sustain itself.

Karl Marx’s arguments about capitalism are of course the most famous on the “scientific” side of things. Without going deeply into those, one very important conclusion that springs out of Marx’s analysis of capitalism is that the system generates social conditions that will end up undermining capitalism itself. Marx of course thought that the end result of this would be socialist revolution, something that has not happened in the anglophone world at least. But this is not the only possible social reaction to the consequences of capitalism: one other reaction is to simply use the state to compensate.

That appears to be the way things have gone for much of the world. It is true that capitalist economies generate all sorts of consequences and contradictions that, if unchecked, would seem to kill the system off. Left alone, the system tends to cause economic insecurity for large swaths of the population. Working people can be fired at a whim; they may become disabled and unable to work; they face coercion in the workplace; they may not make enough to live decently; and so on. Given the stresses involved in that sort of economic insecurity, one could imagine that any system set up without strong protections against those insecurities would be unstable. That is, social strife would result along with people agitating for change.

That is basically what has happened over and over again. State after state that has gone through capitalist industrialization has eventually succumbed to pressures to compensate for the instabilities of the economic system. Social safety nets are put into place to deal with sudden unemployment, the disabled, and the elderly. All sorts of workplace regulations are put into place regarding safety, discrimination, and harassment. States create welfare systems to ameliorate want. States stabilize banking systems to protect against crises, construct environmental rules to compensate for externalities, and so on. Surprisingly enough, this basic mode of development — with local modifications — has occurred all over the world. Where there is capitalism, people harness the state to compensate for at least some of the system’s consequences.

From the “scientific” approach, one could conclude that laissez-faire capitalism is not a politically stable equilibrium. We can have moral debates all day about laissez-faire systems, but ultimately it does not really matter if people simply refuse to put up with such systems. Time and time again across regions and cultures, people have refused laissez-faire systems and there is no reason to think that will change anytime soon.