Page 79 - Global Political Economy_Understanding The International Economic Order

CHA PTER T HREE
ment to freedom (liberty). The split between those liberals who give
priority to one or the other of these fundamental values underlies
dissension in modern democracies over the role of the state in the
economy. Americans apply the term “liberals” to those partisans who
give precedence to equality and therefore urge government interven-
tion in the economy to promote equality. Conservatives, on the other
hand, give precedence to liberty and, at least in principle, oppose gov-
ernment intervention in the economy. From this perspective, both
Franklin D. Roosevelt, with his New Deal policies of state interven-
tion in the economy to promote economic equality, andRonald
Reagan, whose economic policies (Reaganomics) began to roll back
the New Deal in the interest of economic freedom, were “liberals.”
They simply placed a differing degree of emphasis on equality versus
liberty.
An important normative assumption heldby mainstream econo-
mists is that the purpose of economic activity is to increase the wel-
fare of the individual consumer and to maximize global wealth. The
harmony-of-interest doctrine assumes that if the market is left alone
and“prices are right,” resources will be employedefficiently, and
over the long term everyone’s welfare will improve. Such beliefs lead
to the conclusion that the state shouldnot intervene in the economy.
Politicians, economists believe, invariably get prices wrong and
thereby distort the efficient functioning of the market.
Defining economics as a science of efficient resource allocation,
economists tendto have a strong bias in favor of efficiency over eq-
uity. That is, economists generally prefer the efficient allocation of
economic resources to maximize production of wealth rather than
distribution of wealth according to some subjective standard of what
is fair. This emphasis on the driving force of efficiency encourages
economists to believe that, despite frequent setbacks caused by such
developments as war, trade conflicts, and other disruptions, the world
is moving inexorably in the direction of free trade and a global mar-
ket economy. The movement towardintegration of national econo-
mies and increasing global economic interdependence has developed
because markets are more efficient than other forms of economic or-
ganization. 34 The collapse of the Soviet-type commandeconomy
strongly reinforcedthis conviction.
Most neoclassical economists accept implicitly the existing distribu-
tion of wealth andproperty rights. Yet economists have, of course,

34
This argument is set forth in John R. Hicks, A Theory of Economic History (Lon-
don: Oxford University Press, 1969).
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