Social Responsibilities of the Businessman

3. Social Responsibilities and Laissez Faire

Social Responsibilities and Laissez Faire One of the leading tenets of eighteenth-century thought was that the pursuit of self-interest by individuals is not always or necessarily antisocial. This is a principle of the first order of importanceone sometimes neglected in ethical thought. Because ethical problems frequently arise when individual and social interests are in conflict, the assumption is often made that ethical conduct invariably requires suppression of self-interest or sacrifice by the individual . This notion is, of course, false. Throughout great areas of life, self-interest (or, at least, intelligent and far-sighted selfinterest ) is, or can be made to be, consistent with the social interest. This is particularly true in the economic sphere. Indeed, it is one of the great tasks of economic engineering to develop social arrangements under which individual self-interest and the social interest become, so far as possible, mutually compatible. Many intellectual leaders of the eighteenth and nineteenth centuries , in their struggle against mercantilist and feudal restrictions on economic life, went far beyond the doctrine that individual selfinterest and the social interest are not necessarily or always inconsistent . They advanced the idea, especially with reference to economic affairs, that the untrammeled pursuit of self-interest would automatically lead to the best or most economical use of society's productive resources. This was the theory of laissez faire. It has had a profound influence. It is true that the theory of laissez faire rested on certain conditions which we now believe have never been and could not be fully realized in practice. But the advocates of this doctrine believed that these conditions were realizable, at least to a degree, and that the principal aim of social economic policy was to achieve them. It is a tribute to the optimism of the nineteenth century that 14 SOCIAL RESPONSIBILITIES AND LAISSEZ FAIRE 15 so many people seriously thought these conditions might be achieved in sufficient detail to make of laissez faire a workable social system. LAISSEZ FAIRE IN THEORY In theory, the system of laissez faire refers to an exchange economy in which the following institutions would be operative: private property, free labor, free enterprise, free consumer choice, and ubiquitous competition. Income would be distributed functionally in the sense that the income of each individual would be received as compensation for the services of whatever land, labor, or capital he owned. And government would be restricted to such activities as protection of property rights; national defense; establishment of weights, measures, and the monetary unit; education; and provision of a few public works such as roads and aids to navigation.! The general mechanics of the theoretical laissez-faire system are these: The use of the factors of production (land, labor, and capital) is determined as a resultant of the separate and independent decisions and actions of individuals who function freely as suppliers of the factors, as consumers, and as managers of firms. The factors of production are hired by ·the firms which pay the owners for them; the income received in this way by the owners is then used to buy the products of the firms; the money received by the nnns for the sale of their products, in tum, is used to pay for the factors of production employed, etc. Thus a constant stream of money passes (I) from firms to owners of the factors (via the market for the factors of production), and (2) from owners of the factors back to firms (via the market for goods). The influence of each individual upon the prices of gootis and of factors is small enough so that each individual neglects whatever influence he may in fact have. Consequently, each individual assumes that the prevailing system of prices, whatever it may be, is a given fact. He attempts to adjust his consumption, the disposal of his factors, and his managerial decisions in the light of these prices so as to ·maximize his net advantage. In adjusting to any 1 Cf. H. R. Bowen, Toward Social Economy, New York, Rinehart & Company , 1948, pp. 246-49. 16 SOCIAL RESPONSIBILITIES OF THE BUSINESSMAN given system of prices, however, the combined effect of the separate actions of many individuals is likely to bring about changes in the prices. These price changes will in tum lead individuals to alter their actions, which will bring about still further price changes. This apparently endless succession of changes ceases only when a system...