Socialist Market Economy Vs Free Market Economy

In theory, free market believed to be the most efficient economy possible. It regulated itself by demand and supply mechanism through “creative destruction”(Joseph Schumpeter ,1947). However, the reality is that the economies contain the seed of distortion and it is inefficient and may cause harm. Some believe that the matter that disrupting the free market are not possible for the government to remove them.  Kelvin Lancester and Richard Lipsey argued that any attempt to modify or relocate the distortion will make things worse because the problem is actually linked with each other. If government wanted to do it, it must be done with caution. They believed that policies to correct market can make things worse.In Malay proverbs saying“  like mouse fixing the pumpkins” . For you all know “Pumpkins” that touches by the mouse are inedible.

However, we know that by not letting the government interfere with economy, and hope it repair itself is impossible. The debate is becoming crucial in the aftermath of World War II after all of the facility, human capital, the system had been destroyed. Like in the West Germany, the government had to build the economy and the political system from scratch.  We know that the free market also will result to monopoly and cause inequality. We also know that interference of state in the economic system might make the stagnant of the economy. Therefore, what the state should do is find a “middle way”. In this Muler Armack said it is social market economy. In the system, the industry remained in private ownership, free to compete, but government must provide a range of public goods and services, including a social security system with universal health care, pensions, unemployment benefit and measure to outlaw monopolies (and cartel!) .

This theory suggests that it would allow economic growth of free markets, but at the same time produces low inflation, low unemployment, and more equitable distribution of wealth. The history proves that mixture of free market and socialism worked dramatically well. Germany experienced a Wirtschaftswunder (“economic miracle”) in the 1950’s that transformed it from a country that destroyed because of war to major developed nation. 

Even thought the social market economy proved to harvest “miracle pumpkins” The proponents s of free market still there, led by Margaret Thatcher. But some other follow Germany steps such as China when its premier Deng Xiaoping adopted element of free market economics to operate within the centralized economy.  Malaysia is also on the path of becoming social market economy even though it is still far from European models. The method and policy are similar to mixed economic evidence by heavy interference of government, it provides facilities and inviting capital. 

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Classical Liberalism by Jean-Jacques Rousseau

Jean-Jacques Rousseau was born on June 28, 1712 in Geneva, Switzerland. His mother died shortly after his birth. When Rousseau was 10 his father fled from Geneva to avoid imprisonment for a minor offense, leaving young Jean-Jacques to be raised by an aunt and uncle. Rousseau left Geneva at 16, wandering from place to place, finally moving to Paris in 1742. He earned his living during this period, working as everything from footman to assistant to an ambassador.
            Rousseau's profound insight can be found in almost every trace of modern philosophy today. Somewhat complicated and ambiguous, Rousseau's general philosophy tried to grasp an emotional and passionate side of man which he felt was left out of most previous philosophical thinking.
            In his early writing, Rousseau contended that man is essentially good, a "noble savage" when in the "state of nature" (the state of all the other animals, and the condition man was in before the creation of civilization and society), and that good people are made unhappy and corrupted by their experiences in society. He viewed society as "artificial" and "corrupt" and that the furthering of society results in the continuing unhappiness of man.
            Rousseau's essay, "Discourse on the Arts and Sciences" (1750), argued that the advancement of art and science had not been beneficial to mankind. He proposed that the progress of knowledge had made governments more powerful, and crushed individual liberty. He concluded that material progress had actually undermined the possibility of sincere friendship, replacing it with jealousy, fear and suspicion.
            Perhaps Rousseau's most important work is "The social Contract” that describes the relationship of man with society. Contrary to his earlier work, Rousseau claimed that the state of nature is brutish condition without law or morality, and that there are good men only a result of society's presence. In the state of nature, man is prone to be in frequent competition with his fellow men. Because he can be more successful facing threats by joining with other men, he has the impetus to do so. "The Social Contract" is the "compact" agreed to among men that sets the conditions for membership in society.
            Rousseau was one of the first modern writers to seriously attack the institution of private property, and therefore is considered a forebear of modern socialism and Communism. Rousseau also questioned the assumption that the will of the majority is always correct. He argued that the goal of government should be to secure freedom, equality, and justice for all within the state, regardless of the will of the majority.
            One of the primary principles of Rousseau's political philosophy is that politics and morality should not be separated. When a state fails to act in a moral fashion, it ceases to function in the proper manner and ceases to exert genuine authority over the individual. The second important principle is freedom, which the state is created to preserve.
            Rousseau's ideas about education have profoundly influenced modern educational theory. He minimizes the importance of book learning, and recommends that a child's emotions should be educated before his reason. He placed a special emphasis on learning by experience.

            The problematic character of modernity and  liberalism is thrust to our attention today as those

who have thrown off their shackles look to our political experience and political science for guidance at the same time that they question its substance and sufficiency. Now is the time not for self satisfaction, but self-knowledge.

 J.J Rousseau sees the dilemmas of modern politics and political science with vogue.

            A second major influence is Rousseau’s political thought. Not only is he one of the most important figures in the history of political philosophy, later influencing Karl Marx among others, but his works were also championed by the leaders of the French Revolution. And finally, his philosophy was largely instrumental in the late eighteenth century Romantic Naturalism movement in Europe thanks in large part to Julie or the New Heloise and the Reveries of the Solitary Walker.

2.2 ROUSSEAU  LIBERALISM
            Classical liberalism is a political ideology that embraces individual rights, private property and a laissez-faire economy, a government that exists to protect the liberty of each individual from others, and a constitution that protects individual autonomy from governmental power. It first emerged in the 17th and 18th centuries and was founded on ideas of individualism and free market economics with a focus on individual autonomy and, again, private property. The sole legitimate function of government is to defend these individual rights and a particular emphasis is placed on the sovereignty of the individual. Each of the above liberal thinkers offered their unique take on the detailed implementation of such governmental structures, but the consensus seemed to be that individuals are the basis of law and society, and that society and its institutions exist to further the ends of individuals. Classical liberalism makes use of a social contract, under which citizens make the laws and agree to abide by the laws they have made: It is based on the belief that individuals know best what is best for them.
            Rousseau was critical of existing society, claiming that private "property, in itself is the source of a thousand quarrels and conflicts:" Although it is property that brings about war, conflict, and thus the need for a civil state, Rousseau believed that society could be improved if all individuals shared equally in the construction of laws for their common general happiness. Rousseau wanted a social order whose laws were in greatest harmony with the fundamental laws of  nature. This is, Rousseau's social contract was to allow the individual to be is absorbed into the common, general will, without losing his own will: "...a form of association which will defend and protect with the whole common force of the person and goods of each associate, and in which each, while uniting himself with all, may still obey himself alone, and remain as free as before. This is the fundamental problem of which the Social Contract provides the solution."
            The individual loses nothing and gains in return the assurance that he will be protected by the full force of society against the the wills of other individuals and groups. He is now a member of a society of equals and has regained an equality not unlike the one he enjoyed in nature - but in a new form and on a higher level.
            Rousseau goes on to state: "If then we discard from the social compact what is not of its essence, we shall find that it reduces itself to the following terms: 'Each of us puts his person and all his power in common under the supreme direction of the general will, and, in our corporate capacity, we receive each member as an indivisible part of the whole.'" In short, the public person formed by social contract, the sovereign, has a will of its own: 'general will.' What it wills is always the true interest of what every citizen actually wants, whether they realize it or not. When you are forced to obey it, you really are only obeying yourself, the true and free you.
            According to Rousseau's theory of social contract, we leave an anarchical state of nature by voluntarily transferring our personal rights to society generally in return for security of life and property. He argues that people should form a society to which they would completely surrender themselves, and by giving up these rights, we actually create a new entity in the form of a public 'sovereign' that would be directed by a general will. When we join the community, we voluntarily agree to comply with the 'general will' of the community.
            The result of this seems to be that all power, individuals, and hence their rights, are under the control and direction of the entire community. This means that no one can do anything without the consent of all. Everyone is totally dependent on everybody else for all aspects of their lives. In staunch defiance of classical liberal ideals of individuality and such, this universal dependency eliminates the possibility of independent individual achievement. Perhaps inequality is disposed of, but only at the cost of everything individual.

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Classical Liberal by Thomas Hobbes

Thomas Hobbes was born in London in 1588. He received his college education at Oxford University in England, where he studied classics. Hobbes was born to an impoverished clerical family in Malmesbury, Wiltshire. At school, he made a reputation as a linguist and fluent poet and translator. After Oxford he worked for William Cavendish as a secretary, tutor, and general advisor to the family. During his employment, he went on several "Grand Tours" where he met the leading European intellectuals of his time. Hobbes was caught up in the turmoil preceding the Civil War and fled to France in 1640. He remained there until 1651. Because of his writings, especially The Leviathan, Hobbes lived in serious danger of prosecution after the restoration of Charles II. Hobbes's principal interests in his later years were translations. He lived out his old age in the Devonshire's home.

Hobbes travelled to other European countries several times to meet with scientists and to study different forms of government. Hobbes believed that humans were basically selfish creatures who would do anything to better their position. Left to them, he thought, people would act on their evil impulses. Hobbes believed that we are all driven by our own self-interest and in a constant state of war. Hobbes defined the basic right of man’s liberty "to use his own power, as he will himself, for the preservation of his own nature." Laws of nature, on the other hand, are general rules that forbid man "to do that which is destructive of his life or takes away the means of preserving the same." Thus, finding himself naturally in a state of competition or war in which he is constantly in jeopardy of losing his life, man’s primary objective in the preservation of his own life is to seek peace with the other man. He does this by making a contract or covenant with other men, agreeing that he will "lay down this right to all things, and be contented with so much liberty against other men, as he would allow other men against himself." To put it another way, he extends his rights only so far as they do not conflict with the rights of another.

For classical liberals — sometimes called the ‘old’ liberalism — liberty and private property are intimately related. From the eighteenth century right up to today, classical liberals have insisted that an economic system based on private property is uniquely consistent with individual liberty. Although classical liberals agree on the fundamental importance of private property to a free society, the classical liberal tradition itself refracts into a spectrum of views, from near-anarchist to those that attribute a significant role to the state in economic and social policy. Towards the most extreme ‘libertarian’ end of the classical liberal spectrum are views of justified states as legitimate monopolies that may with justice charge for their necessary rights-protection services: taxation is legitimate so long as it is necessary to protect liberty and property rights.

Hobbes’ most important work and one of the most influential philosophical test produced during the seventeenth century was “Leviathan”. It was written partly as the response to the fear of Hobbes experience during the political turmoil of the English civil war. Hobbes’ “Leviathan”  provides is a freedom from the State of Nature, that chaotic situation in which man’s very person is in constant threat of being invaded and harmed by others who have every opportunity to do so. The government removes this opportunity and thus provides its citizens with the freedom from each other. Hobbes composed “Leviathan” while in France, brilliantly articulating the philosophy of political and natural science that he had been developing since the 1630s. Hobbes's masterwork was finally published in 1651, two years after Parliament ordered the beheading of Charles I and took over administration of the English nation in the name of the Commonwealth.

“Leviathan” rigorously argues that civil peace and social unity are best achieved by the establishment of a commonwealth through social contract. Hobbes's ideal commonwealth is ruled by a sovereign power responsible for protecting the security of the commonwealth and granted absolute authority to ensure the common defense. 

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What is Liberals Economics?

Scottish Economist Adam Smith wrote The Wealth Of Nations.He found the classic laissez-faire (let it be) economics. He argued that the real wealth of a nation is not the bullion of gold and silver of the nation, but the amount of goods and services the people produced.

Smith refutes the earlier notion known as mercantilism that measure the mass of gold determine the richness of the country. He gave th example that Spain that had looted gold and silver but grew poorer. Same goes to French (at least Loius XIV)  that put restraint on trade, supervision of the economy , grants a monopoly, subsidies and tariff. These kind of actions according to Smith will not benefit the country and make the country poorer.

Government interference will retard growth .Imagined that if the monopoly right were granted to certain company, people do not have any choice but to buy products from the company and destroy competition. Lack of competition will banish initiative and idea to produce new product and provide innovation.The price also hardly to get lower.As a result, the economy might become stagnate.

Furthermore, if the government imposed tariff on certain company ,among the other company that compete, it might take away incentives for better and cheaper product.This usually happens in domestic own company that was given status “infant industry”. Smith argues that by action of the country,  leaving the economy alone (laisser-faire) this can promote prosperity.

Most of us might ponder, won’t free competition unsupervised by the  government lead to chaos?  Well ,Adam Smith said ‘No’. He said that the market will regulate the economy by itself.  The “nature of market” will punish the inefficient producer and reward the  efficient one.  To understand what Adam Smith means, we might want to see the figure below.

He also argued that a free market with the help of demand and supply will work more efficient than any government official. Liberals hold thought  to the”invisible hand” that will regulate and self correct the economy. According to Thomas Aquinas “ No man should sell a thing to another man for more than it’s worth”. He said that the merchant will only sell items with a “just price” that have decent profit and exclude excessive profiteering.

The “invisible hand”  actually the rational calculation represents human and firm pursuing their self interest.This happens in the absence of government aid.

Joseph Schumpeter an  influential economist in the 19^th century added that the one that losses the competition will be in episodes of “creative destruction”.This also in line with Thomas Jefferson famous quote “ The government is best that that govern least”.

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