Crawl Across the Ocean

Tuesday, December 01, 2009

29. Community and Market Economy

Note: This post is the twenty-ninth in a series. Click here for the full listing of the series.

A while back, in reviewing Mancur Olson's 'Logic of Collective Action', I included a long passage that Olson quoted from 'Community and Market Economy' by Hans Ritschl and I noted that Ritschl sounded a lot like Jane Jacobs in Systems of Survival.

So I eventually got around to tracking down a copy of 'Community and Market Economy' for myself. It's a relatively short essay, and Ritschl devotes most of it to differentiating the 'Community' economy from the 'Market' economy. He starts by describing the State economy, which he considers as an actually existing type of economy, and then, by contrasting the State economy with the free market economy, attempts to determine the characteristics of a pure 'communal' economy (which the State economy resembles in some ways).

"Both the state economy and the free market economy presuppose a group of persons whom the economy encompasses and by whom it is carried. But there is a great difference in the form of social cohesion within these groups. The free market rests on an exchange society...

The elements of this exchange society include economic units of the most diverse social structure: family associations ... co-operatives, foundations and clubs ... and associations formed to secure profits. Whatever the principle of cohesion in the internal structure of these units, the social relation among them is that of the market: they trade with each other and against each other.


The principle of social cohesion in the State is not that of society, but that of community.


Anyone is welcome to the exchange society who obeys its regulations. But to the national community belong only the men and women of the same speech, of the same ilk, the same mind. They have in common love of their homeland, of its mountains, woods and rivers, its villages and cities; they have in common the great figures of its past, the same hatred and suspicion of the 'hereditary' enemy; they have in common joy of victory, the sacrifice of their sons, maternal sorrow, the grief of defeat and the bitterness of bondage. 'All for each and each for all' is the motto of community. But the exchange society's motto is 'Chacun pour soi, Dieu pour nous tous' Through the veins of society streams the one, same money; through those of the community the same blood.

Is it necessary to demonstrate once again that any individualistic conception of 'the State' is a gross aberration? It is nothing but a blind ideology of shopkeepers and hawkers, a universalization of exchange thinking...

These quotes all go to Ritschl's point that the fundamental difference between the market economy and the communal, or State economy is the bonds between members of the society and the corresponding motivations of the members. (Note: the bolding is added by me to reflect where Ritschl is commenting on one of the ethics identified by Jane Jacobs in Systems of Survival).

Like Jacobs, and in contrast to Plato, Ritschl believes that people should be members of both the communal and market economies at the same time:

It is of the essence that the member of an exchange society is at the same time a member of the community, that the member of a community is also a member of an exchange society.

Ritschl disagrees with the idea that communal needs are just individual needs that can't be provided for individually for technical reasons:

In essence and substance the economy of the State is a matter of satisfying pure or partaking communal needs. These are not in any way to be considered as needs of the individual which for some reason must be provided for 'collectively'

In the next section Ritschl differentiates between the two types of self-interest that I discussed previously here noting that the narrower meaning of self-interest is what applies in the market economy whereas the wider meaning of self-interest as synonymous with 'rational' applies in both the market economy and the communal economy:

"In the free market economy the economic self-interest of the individual reigns supreme and the almost sole factor governing relations is the profit motive, in which the classical theory of the free market was appropriately and securely anchored."


The classical theory was right in observing on the market none but the home oeconomicus, but this is only a partial view of the economy and the classical theory's association of he concept of the economic process with self-interest has remained disastrous to this day. In it's second formulation, to achieve the greatest utility with given means, the economic principle has frequently become quite independent of self-interest operating as between one person and another.


In the exchange society, then, self-interest alone regulates the relations of the members; by contrast, the state economy is characterized by communal spirit within the community. Egotism is replaced by the spirit of sacrifice, loyalty and the communal spirit. In the exchange society, the individual is guided only by personal advantage; here, he thinks, feels and acts as a member of the community. His own interests take second place.

Ritschl explains how this understanding leads to the justification of coercion by the State, the last quote in this section in particular shows how he understood the situation as being represented by a Prisoner's Dilemma, even though he doesn't use that term since it hadn't been coined yet.

This understanding of the fundamental power of the communal spirit leads to a meaningful explanation of coercion in the state economy. Coercion is a means of assuring the full effectiveness of the communal spirit, which is not equally developed in all members of the community. Coercion forces the individual to act as if he were inspired by communal spirit. Coercion is only the outer clasp and fastening of the community, but if communal spirit be lacking, coercion can replace it only in part.


..."unity is shown by the willing subordination to the will of the community and State. Obedience, submission and submission are held in honour as manly virtues. Willing subordination remains an indispensable virtue also in the democratic State. The minority complies."


Given the unequal measure of people's communal spirit and given the need to ensure the success of the willing sacrifice, the voluntary principle is not enough. The contributions and obligations must be legally determined and laid down. In fundamental contrast to the exchange society and market economy, community and public economy rest on compulsory military service and taxation.

Ritschl comments on how the State economy resembles that of a household more than that of a firm (I made the same point at some length back here)

...the State is, in the last analysis of its nature and content, not a production economy but a consumption economy ... This consumption aspect is expressed meaningfully in speaking of the public household. The economy of the State is comparable not to the firm but to the household.

Finally, Ritschl comments on some of the ways that the State gets involved in the economy to meet individual needs that the market fails to meet for one reason or another, but he notes that this meeting of individual needs is not the fundamental basis of the communal economy. He also distinguishes between market economy wages which are based on the value brought to exchange by an individual and State economy salaries which reflect the status of the person being paid rather than the economic value of their labour.

Given unequal endowment with material goods and intellectual capacity, the market system by itself does not lead to an harmonious and complete satisfaction of all socially important needs and the gap must be filled by the public economy.

..[this is] not, however, the meaning and historical basis of public economy itself.


In the free capitalistic market economy the hiring of outside labour for services and work is again subject to specific compensation: payment by performance, the wage principle.


In the State economy, by contrast, we find the principle of maintenance. The soldier is adequately clothed, housed and fed, and his pay is a sort of pocket money.


For old age, widows and orphans, the State provides by old age pensions ... and thereby assures a proper standard of living for the officials family as well. In the free market all these cases of loss of earnings are covered not by the maintenance principle, but by the insurance principle. But since the market economy does not apply the insurance principle generally or in good time, the State provides by social insurance for collective needs partaking in care of the unemployed, the old and the sick, the disabled and widows and orphans. State coercion thus makes the insurance principle universal.

My reading of the essay picked up on the following traits identified by Ritschl with market economy:

"Come to voluntary agreements"
"Shun force"
"Collaborate easily with strangers and aliens"

And the following traits identified with communal economy:

"Exert prowess"
"Be obedient and disciplined"
"Adhere to tradition"
"Respect hierarchy"
"Be loyal"
"Take vengeance"
"Dispense largesse"
"Be exclusive"
"Treasure honour"

Ritschl didn't cover all the ethics that Jacobs identified in Systems of Survival (although he's not far off on the Guardian system), but those he did identify are a perfect match with what Jacobs came up with in her similar dichotomy between market ethics (market economy) and guardian ethics (communal economy).

Sadly, Ritschl's essay doesn't provide a more theoretical framework which can take us past a simple identification of the two distinct syndromes, but it is another voice in favour of the notion of two distinct, complementary systems that govern ethics/economics - one based on the ethics of 'shopkeepers and hawkers' and one based on communal needs and the state.

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