Skip Navigation Planning & Markets
Subscribe Submission Requirements Editorial Board Archive Links Search Home

V. Criticisms of the Model

According to this analysis, moral choice in the real world takes on a character that reflects a social order's relative position on the institutional continuum. As societies move along the continuum, they lose characteristics of the model they are moving away from and acquire characteristics of the model they are approaching. A society, whose institutional structure fell midpoint on the continuum, would increase the prevalence of the bourgeois virtues by reducing the absolute number or the scope of its formal laws. Increasing the number of or scope of its laws would result in greater levels of lying and deception.

The literature is quite clear about moral choice in the extreme type models, but critics of my conclusions may argue that it cannot be assumed that there is a linear continuum between these extreme type models, that lying and deception may reach unmanageable proportions only very near the bureau model. If so, most real-world social orders, fitting safely between the extremes, sail in smooth waters while only totalitarian systems need be concerned. This criticism is severely weakened by observing the results of relaxing the private-property-order model just enough to include conditions in the present-day U.S. Bennet and DiLorenzo (1992) have documented, almost to the point of tedium, instances of information distortion, deception, and propaganda by the American federal government. We also see that the requirements for Tullock's reputation effect are already considerably diminished: Americans are restricted from "repeated dealings" by antitrust laws, land use and zoning laws, license requirements, drug prescription laws, and laws against victimless crimes like prostitution, drug trade, gambling etc; Americans are denied the "don't play" option with respect to minorities, homosexuals, the handicapped, AIDS victims, and are severely restricted from exercising it in education because of compulsory attendance laws. Furthermore, organizations are restricted in their ability to confer Shearmur and Klein's "seals of approval" by laws that prevent them from discriminating against "undesirables" on the basis of age, race, handicap status, or sexual preference, e.g., the New Jersey Supreme Court ruling that prevents Boy Scouts of America from excluding gays.

Present conditions in America also frustrate the maintenance of community, the repository of local values and norms. According to Merry's study on gossip (1997), there are four requirements for a functional community, which distill into "isolation," "economic dependency," "community consensus," and "common moral values" (69 -- 70). In present day America, isolation is diminished by public education, compulsory attendance, and anti-discriminatory laws; economic interdependence is decreased by economic planning, bureaucratization of the market, and by welfare entitlements; consensus and sanction by local groups is replaced by government backed standards of interaction, such as those inherent in anti-discriminatory laws; similar values become less similar as people compete to get government favors.

Critics may see the Enron scandal as evidence that market checks on moral choice are ineffective, thereby throwing doubt on the existence of bourgeois virtues and a moral continuum all together. Actually, the Enron scandal can be seen as both evidence that lying and deceit do not bunch around the bureau model, which confirms my continuum argument, and evidence that market checks on moral choice are indeed effective. To grasp this, we must start inside the private property order and work our way out.

In keeping with the distinction made earlier, for-profit corporations within the private property order constitute a consciously designed organization with an internal social order different from that of the spontaneously ordered society of which they are a part. Though corporations have a hierarchical internal structure, they are not plagued by the destructive moral choices of the bureau. "No private enterprise, whatever its size, can ever become bureaucratic as long as it is entirely and solely operated on a profit basis" (Mises, 1985, p. 103). The internal workings of for-profit firms, as Mises (1983) points out, can be monitored by looking at their balance sheets (p. 33), and they can be sanctioned by customers and stockholders exercising their "don't play" option. Enron's demise is a dramatic example of Mises's argument and the effectiveness of the "don't play" option. Many of the moral choices of the bureau were present in the Enron corporation: deception, lying, cover-up, steeling, fraudulent accounting practices etc.; however, long-run necessity for books to balance and a wary fund manager exposed these practices, and market participants' "don't play" option put Enron out of existence.

However, the magnitude of this fraudulent activity and the host of corporate indictments that followed in Enron's wake may give pause as to the day-to-day effectiveness of market checks on moral choice, but these corporate scandals did not occur in a private property order. They occurred in today's American economy, which is decidedly interventionist. Government intervention, as Mises (1985) explains, requires a firm to "pay heed to political prejudices and sensibilities of all kinds in order to avoid being continually harassed by various organs of the state." In so doing, "it soon finds that it is no longer in a position to base its calculations on the solid ground of profit and loss" (p. 103). The result is that firms increasingly take on the characteristics of the bureau. As Mises explains,

These and other considerations foreign to the profit-seeking principle of entrepreneurial management come to play an ever increasing role in the conduct of business, while the part played by precise calculation and cost accounting concomitantly dwindles in significance, and private enterprise begins increasingly to adopt the mode of management of public enterprises, with their elaborate apparatus of formally prescribed rules and regulations. In a word, it becomes bureaucratized (p. 104).

An organization like Enron would continue to exist in the bureau even with its excesses. An "Enron" in a bureau society is necessarily a nonprofit organization and therefore does not have a balance sheet. There are no wary fund managers in the bureau trying to maximize profits and minimize losses. There are only officials in charge of implementing the supreme authority's taxing and spending plan. Furthermore, the "customers" of a bureau "Enron" do not have the "don't play" option. In the unlikely event that "Enron's" excesses were exposed, patrons have no recourse to force the organization to change its behavior.

page 11

Index Continue

USC Seal

Main Page | Subscribe | Submission Requirements | Editorial Board | Archive | Links

ISSN 1548-6036

Copyright 1999-2000
University of Southern California
Los Angeles, California 90089-0626