Lisa Herzog's Inventing the Market: Smith, Hegel, and Political Theory is a book on a mission. Its aim is to persuade (liberal) political philosophers that they need to take ‘the market’ seriously and indeed are uniquely equipped to provide a much-needed philosophical and especially normative analysis of the market if only they would also take intellectual history seriously. Inventing the Market seeks to deliver on this mission by presenting a comparative interpretation of the models of market society in the works of Adam Smith (1723–1790) and Georg Wilhelm Friedrich Hegel (1770–1831), philosophers who ‘invented’ the views of the market that still form the parameters of debate for political philosophers today. After two separate chapters on Smith and Hegel, Herzog explores the relevance of Smith and Hegel for current debates in political philosophy on identity and community, desert and justice, and dimensions of freedom. She draws together the main conclusions of her study by framing them in terms of the issue of ‘the market in history’.
A great merit of Inventing the Market is that it avoids polarizing issues between Smith and Hegel. It deftly traces points of similarity and continuity, as well as examining points of difference. In spite of the many insights offered in Inventing the Market, however, there is a question whether such a comparison of Smith and Hegel delivers on the book's mission to promote understanding of the market amongst political philosophers and show how intellectual history contributes to normative analysis of the market.
1. CONTINUITY AND CONTRAST
Herzog sees systematic similarities between Smith and Hegel in spite of their different metaphysical positions. Smith's optimistic deism and Hegel's metaphysics of Geist are seen as detachable from fundamental similarities in their commitment to sociality, rights and freedoms. The defining contrast for Herzog lies in their views of the market: Smith takes a benign view of the market as an orderly mechanism that solves problems whereas Hegel takes a critical view of the market as a chaotic force that creates problems. It is this contrast, Herzog argues, that explains their different analyses of the political sphere and the state.
Smith's account of the market is located within an optimistic deism according to which Nature's ‘wise contrivances’ form the foundations of a harmonious society, although these natural processes need to be contained or amended in those specific cases where they go awry, thus opening up a space for limited state action. As the relation between market and the state is governed by the limits of nature's wisdom, Herzog suggests that without Smith's optimistic deism, the political programme of the Wealth of Nations ultimately lies in its vision of a society that is free, just and opulent. It is in these ideals, she argues, rather than in its specific institutional details, that Smith's heritage is most relevant for us today. Hegel's civil society is seen as broadly similar to Smith's commercial society in comprising the market economy plus the legal infrastructure of rights and freedoms, but Hegel's free market is a chaotic Dionysian world. Entire branches of industry can be elevated or wiped out by unpredictable shifts in wants with the result that some people achieve vast riches whilst others are thrown into poverty and are reduced to the ‘rabble’. This disorder opens up the need for social institutions (police and corporations) plus an idealized role for the state as a political unity to provide a counter-force to economic disorder.
The ultimate benefit of the free market for Hegel is to be found in its realization of individual subjective freedom, a freedom that requires an idealized role for the state in promoting ‘collective freedom’, whereas for Smith the benefits of the free market are to be found in terms of both individual freedom and an orderly growth of opulence for all members of society that requires little in the way of state involvement. The fundamental contrast Herzog offers from her study of Smith and Hegel is that between a benign market with little state involvement and a disorderly market requiring major state involvement. This contrast is developed in three chapters on identity and community, justice in the market, and freedom.
In the chapter on identity and community Herzog argues against any simple dichotomy according to which Smith's notion of the self is atomistic and Hegel's notion is contextual. She stresses the similarities between Smith's and Hegel's accounts of the essential sociality of human beings. Smith's account of sympathy and the gaze of others shows how the self-consciousness of human beings is in contradiction with the notion of an atomistic self; and Hegel's notion of Geist expresses the organic unity between individual and community. Like Smith, Hegel emphasizes the role of education (Bildung) in the process of socialization. In relation to the market, however, Smith's economic analysis presupposes individuals as sovereign traders of capital (including human capital) who ideally are mobile in responding to changing price signals, thus presupposing a more atomistic conception of the self. In contrast, for Hegel the choice of profession is constitutive for a person's sense of identity; philosophically, it is the very particularity of a person's profession that is essential for the formal universality of the abstract freedom of the market. Herzog concludes from this that the lesson for the ‘liberal–communitarian’ debate is that there are different degrees and kinds of embeddedness in different social, economic and institutional spheres.
In the chapter on justice in the market Herzog argues that Hegel's position is close to the right-libertarian one in denying that the pattern of market outcomes can be either just or unjust; as they result from the interplay of free wills, caprice and accident, market outcomes do not embody what Nozick called ‘patterned’ principles of justice or desert (or their opposite). She argues that Smith's commercial system, on the other hand, is marked by the notion that ‘virtue pays’, at least for most people, most of the time. Virtues associated with ordinary prudence, viz. industry, frugality and honesty (sometimes termed the ‘bourgeois virtues’), tend to be, even ought to be, rewarded in market transactions. If markets, including labour markets, are freely competitive, this is what tends to happen; and such outcomes are approved by the impartial spectator. Herzog concludes from this that political philosophers who think about social justice should address the normative qualities of markets, particularly the issue of individual desert in relation to market outcomes.
In line with her earlier analysis, in the chapter on freedom Herzog dissolves any simple dichotomy between Smith (negative liberty) and Hegel (positive liberty) although she recognizes that there might be a kernel of truth in it. Herzog draws parallels between Smith's impartial spectator and Hegel's Geist, both of which achieve a universalizing of individual experience and the recognition of the validity of others’ perspectives. Smith and Hegel both value equality of rights and the negative freedoms (property, contract) of commercial society, and both are concerned with the risks as well as the opportunities for the individual exercise of positive freedom (autonomy) in such a society. Smith and Hegel have different responses, however, to the question of the stability of a social system based on economic freedom. Smith takes the optimistic view that economic freedoms are self-reinforcing and overall productive of positive freedoms (although he proposes measures to counteract the harmful psychological effects of the division of labour), whereas Hegel sees them as potentially self-undermining and in need of protection by the state whose aim is the common good. The main difference between Smith and Hegel on freedom derives from their different views of the market rather than irreconcilable differences over the nature of freedom itself. Herzog concludes that political philosophers should follow Smith's and Hegel's acceptance of the plurality of aspects of freedom, and their appropriate balance, rather than search for a single abstract concept of freedom.
2. ‘THE MARKET’ IN HISTORY
The concluding chapter on ‘the market’ in history draws out the interpretative and normative significance of the comparison of Smith and Hegel. The picture that emerges is a familiar one that contrasts an orderly market requiring little state intervention with a disorderly market requiring major state intervention. Herzog notes the resonance of this contrast in public discourses as follows:
Many contemporary public discourses are structured around these two models; almost as if Smith's or Hegel's metaphysical background assumptions were still shared. Many political commentators on the political right hold a picture of the market that is a caricature of the Smithian picture of the market as a solution to all problems, while many of those on the (non-communist) left seem to be unconscious Hegelians, with a blind trust in a benevolent state. (158)
Herzog's complaint is that this current approach is misguided because it is a caricature of the fundamental contrast between the two models, not that the fundamental contrast itself is a limited or inappropriate way of understanding issues about the market. Her remedy is that we should understand that these models are only ‘models’, and that if we were to have a better historical understanding of them as specific historical products, this more informed understanding would enable us to learn from them:
What matters . . . is to recognize that all ways of looking at the economic realm are informed by theories and heuristics. Smith's and Hegel's models have entered our consciousness at a deep, often implicit level. As such, they have become part of the way in which we look at the social world, and the intuitive judgments we make about it. We often take them to be reality, tout court . . . . Often, we do not recognize that our mental frameworks with which we look at the world are, after all, only models – theoretical accounts, often accompanied by some memorable metaphors, that have been developed at certain points in time, by certain thinkers . . . . And these models and theories have a historical context themselves. This does not mean that they could not teach us something for today's problems. But it means that we need to be aware of their historical context in order to understand them correctly . . . . (159)
To understand these models in historical context is thus to understand them better, not simply as contrasting positions but as complex models that have entered our consciousness at a deep level. Herzog holds that our thinking is still positioned within these models because they form part of ‘the intellectual inheritance we have received’ (162), and that understanding these models historically would enable us to have a better understanding of current ideas about the market. Furthermore, she likens seeing these models historically to seeing that they are pictures of our economic world (e.g. 158), pictures that can be changed with the possibility that they in turn can lead to ameliorative changes in the economic world itself. Herzog's mission is thus to persuade political philosophers to devise alternative pictures of how markets operate, not to leave this to economists and their formal modelling, and hence help to generate more benign and emancipatory market realities.
3. MISSION ACCOMPLISHED?
Inventing the Market is a hugely impressive work displaying considerable subtlety in its scholarship and argument, with a range that is hardly registered in the brief summary I have given above. If the mission of Inventing the Market is understood in terms of providing a nuanced interpretation of two strands in western European intellectual history that map onto the familiar dichotomy of ‘orderly markets/limited state – disorderly markets/extensive state’, then it can be regarded as highly successful, even though Smith and Hegel scholars will no doubt dispute aspects of the interpretation. Yet, in this reviewer's opinion, the reversion to the familiar dichotomy itself comes as something of an anti-climax at the end of a detailed study, especially in view of the torrent of Smith scholarship in recent years that has already exploded the old caricature of Smith as a single-minded proponent of laissez-faire. This raises some larger questions about how Herzog positions her argument in relation to current debates and disciplinary commitments.
In spite of the apparent interdisciplinarity of its stated mission, Inventing the Market engages mainly with political philosophers of a broadly liberal tradition (cf. 4, n. 10) and this colours the conception of ‘the market’ that is advanced. Herzog is disdainful of economics as a discipline (also econometrics) and is not interested in recent developments that attempt to broaden its scope (for example, she construes ‘preferences’ narrowly in terms of self-interest, cf. 111–112). Economist–philosophers are paid scant attention, and there is barely any recognition of debates within the history of economics as to how past texts about economics and the economy might be understood. Furthermore, in spite of her opposition to ‘neoclassical economics’, Herzog's view of ‘the market’ is largely based on exchange. On the first page ‘the market’ is defined as ‘the complex system in which people buy and sell, offering money, goods, labour, time, and abilities’; and the ‘economic sphere’ of market societies is characterized by ‘individual property rights, the pursuit of self-interest, highly divided labour, and complex mutual interdependencies’. Economic agency is thus constituted by individual persons who are holders of property rights and pursue their self-interest. Such a conception of the market is the one most likely to exclude social institutions and reduce the complexity and variety of the economic realm to simple exchange relations between persons. This is the view of the market that is most characteristic of the classical liberal tradition in political philosophy, which then understands it in terms of a framework of abstract rights and freedoms of individual persons. It is also the view most closely associated with neoclassical economics. Insisting that the market is ‘embedded’ in social relations, as Herzog does, hardly mitigates this classical liberal interpretation because it takes an externalist view of social relations and institutions rather than integrating them within the conception of markets.
In spite of emphasizing the importance of actual markets and ‘the market in history’, Herzog's conception of ‘the market’ thus pushes her towards an idealized conception of markets as a sphere where abstract individuals make private exchanges. The differences between Smith and Hegel thus amount to differences over the sphere of exchange, tending either to order or disorder, rather than in substantively different models of economic activity. A problem with this idealized conception of ‘the market’ for political philosophy is that politics then tends either to be somewhat displaced (as in Smith) or to be conceived as an antidote to the disorder of private exchanges (as in Hegel). There is lacking, for example, any analysis of the creation of agglomerations of economic power and the intrinsic role of the state in commercial (capitalist) society, or the transformative social effects of economic and technological change, features that require both economic and political analysis. Furthermore, this idealized conception of market society as an exchange economy leads Herzog towards an ahistorical understanding of market societies. In spite of her insistence on ‘the market in history’, her conception of the market is fundamentally ahistorical and leads her to think that Smith and Hegel conceptualize a social world that is essentially the same as our own. Although she cautions against thinking that ‘a timeless, ahistorical theory of “the market”’ is possible (157), her conception of ‘the market’ as the sphere of private exchange prompts just such an understanding.
If all ways of looking at the economic realm are informed by theories and heuristics, as Herzog argues, that applies also to how the economics of Smith and Hegel are understood. A classical liberal emphasis on the realm of private exchange is just one way of understanding past works on the economy, just as it is but one approach to formulating an economic model of markets. Furthermore, this also applies to how we theorize the activity of intellectual history itself. As with any other domain, how and why we read past works depends to a large degree on the theories and heuristics we bring with us. This suggests that perhaps there is no one single way to ‘understand them correctly’, even when taking into account their historical context (and understanding historical context is also subject to the same proviso). If economic models are ‘pictures’, then so are interpretations of past works.
Herzog argues that pursuing intellectual history in the way she prescribes is ‘liberating’ (159). In what sense is such a study of intellectual history (individually?) ‘liberating’? Is it liberating in the sense of potentially enabling a more emancipatory form of life? Herzog argues that ‘how to connect to this intellectual heritage is to some degree a matter of choice – it is one of the ways in which self-conscious human beings are free’ (157–158; original emphasis). But Herzog's study of Smith and Hegel liberates us only in the sense that we engage with a given intellectual heritage within which we are inescapably positioned. It does not give us the theoretical resources to move beyond that and question the heritage itself or even question whether the notion of an intellectual ‘heritage’ (also ‘inheritance’) is appropriate in the first place. Even to propose that intellectual history is ‘liberating’ is to endorse a particular model of intellectual history, one that resonates with a particular strand of political philosophy.
The question of a given intellectual inheritance becomes even more pressing in view of Herzog's normative objective of exhorting political philosophers to provide alternative pictures of the market. Herzog is troubled by what she sees as the dominance of modern markets, including financial markets, and she looks to political philosophy to take on a reforming role that she thinks has been left vacant by economics. Yet, according to her interpretation of Smith and Hegel there is only one intellectual heritage about the market, the classical liberal one which constitutes it as a sphere of private exchange, so that to engage in debate with Smith and Hegel about markets is to debate only the proper scope and orderliness of this limited sphere. This repainting of the picture of markets involves repainting only a small part of the canvas.
Inventing the Market should be of interest to anyone concerned with intellectual history and current debates in political philosophy, and there is much to learn from it. My reservation is that the framework of interpretation it employs reinforces a familiar dichotomy about the market and the state and closes off more searching answers to the question of how intellectual history might contribute to political philosophy and analysis of market societies.
