The market economy as a social system

Hiroto Tsukada

The Market
Economy
as a Social
System


The Market Economy as a Social System


Hiroto Tsukada

The Market Economy
as a Social System

123


Hiroto Tsukada (emeritus)
Faculty of Economics
Yamaguchi University
Yamaguchi, Japan

ISBN 978-981-13-1836-8
ISBN 978-981-13-1837-5
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(eBook)

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Preface

Reforming society is the social sciences’ raison d’être. What is society? Society can
be considered to be a means by which human beings strive to create better lives.
Humans are driven by the need to fulfill wants, such as the acquisition of people
(for example, heterosexual families), materials (food, clothing, etc.), and human
relations (for example, satisfactory cooperation in production). How to acquire
people can be considered to be a personal issue and is not dealt with here.
Therefore, it can be stated that humans need goods to live; in order to obtain them,
humans cooperate. In other words, human relationships emerge from the need to
engage in cooperative activities to better fulfill needs, which leads to the creation of
society. This type of cooperation is distributive behavior, i.e., the sharing of labor

and the resultant products. Through such methods, humans obtain satisfaction from
the product and the cooperative relationships developed to obtain it. The cumulative
total of this satisfaction represents the degree of satisfaction with a human society,
and its magnitude determines the necessity of social reform.
This book studies the market economy as a social system. Most countries today
have economies that mix features of a market economy with those of a public
economy. Market economies appeared first, and gradually, to complement them, the
public economy emerged. This book focuses on the market economy and its concomitant basic rules and structures. It asks how the market economy and society as
a whole function, what problems exist with its basic rules and structures, and how
these problems can be solved.
Thus, this book deals with the basic structure and problems of the market
economy. The natural place to start, then, is by asking the following question: what
is its basic structure? The fundamental task of a market economy is the production
and distribution of goods, i.e., the distribution of labor and its outcome or product.
Here, we focus on the principles or rules underlying the distribution of productive
factors and products. Later chapters identify fairness and kindness as being
important criteria in these underlying principles; hence, these aspects are the focus
of the discussion there. Fairness and kindness are motives in the social dimension,
and they seem to originate from deeper motives residing in the personal dimension,

v


vi

Preface

namely, self-interest and human fellowship. Fairness is related to self-interest, and
kindness is related to human fellowship. Thus, these elements are also addressed.
The necessity of dealing with these deeper motives is amply demonstrated by the

numerous incidents of unstable economic fluctuation that many countries have
experienced in recent years, which also raise questions regarding the whole
structure of society and our deeper motives for participating in society. One
example of such instability is that experienced by Japan.1 In the late 1990s, after an
economic crisis in 1990–91 and an unprecedentedly long economic downturn in the
following years, serious dissatisfaction emerged regarding human relationships.
The persistent economic depression and low rate of economic growth continuing
through the late 2010s seemed to spur people to seek a new state of society. People
today seem to desire not only economic recovery but also a country in which they
could feel secure despite the changing economic and social environment under
economic globalization and attendant problems for a welfare state, an example of
which is Japan’s decreasing and aging population that threatens the stability of the
pension system in Japan.2
The Asian economic crisis occurred in the late 1990s, and in the late 2000s, most
countries faced simultaneous recession originating from the US “subprime shock.”
This global economic crisis caused widespread, serious dissatisfaction and anxiety.
Despite the recent moderate economic improvements, with global economic change
as the backdrop, such discontent has not completely waned as evidenced by the
“99% vs. 1%” movements in some countries. Such continuing discontent and
anxiety serve as evidence that the problem does not simply stem from short-term
economic fluctuations but rather originates from instability inside society itself,
probably much more on the distribution side, which therefore needs some kind of
restructuring. If we now live in such a period of substantial transition, we need to
tackle the problem from a broader perspective than ever because as the questions
raised until now indicate, the whole structure of our society itself, both the production part and the distribution part, is implicated in creating this situation and
therefore needs to be reconsidered.
To approach this subject, as it seems to be much related to instability in
economies, it is useful, accordingly, to focus on society’s economic structure.
Given that almost every country’s society is centered on the market economy
mechanism, it will be useful to tackle this instability problem above by first asking

the following question: what is the structure of the market mechanism and its
1

Today, there seems to be substantial dissatisfaction with human relationships. Let us take the
example of Japan. Dissatisfactions with cooperative relationships between humans have generally
manifested as interpersonal hostile actions as in the case of bullying among children or in the
antisocial behaviors of groups that even indulged in mass murder in recent decades. To counter
these problems, various social phenomena appeared, often in the form of words such as “fairness,”
“compassion,” and “real wealth.” They are words that have come to be widely discussed under the
concept of “stable” growth since the 1970s in Japan, although they were invisible under high
postwar growth. However, once again, these words seem to threaten to disappear behind the voices
of “global competition,” with two decades of the twenty-first century having passed.
2
Tsukada, 2002, discusses such social pathological phenomena in US, UK, Japan, and Sweden.


Preface

vii

related elements? Thus, this work aims to delineate the structure of the market
mechanism and therefore the related part of our society, its problems, and hopefully, the solutions.
The relationship between efficiency and fairness is worth noting here.
Competition among companies in the market, which is the fundamental driving force
of the market economy system, often accompanies economic fluctuation as mentioned above. And given that we will suffer the outcomes of this serious defect if we
dare to adopt this system, there must be an overwhelming countervailing merit. The
basic function of the market mechanism is usually expected to be the efficient
distribution of labor and the fair distribution of products, the latter of which is an
important question of this book. Efficiency in production is a substantial factor that
can even restructure society itself, such as from a feudal type to a market mechanism

one. But in restructuring society, fairness in production is also important. In the
aforementioned transition from a feudal to a market mechanism economic system,
the most important factor for the revolutionary change was, probably, the unfairness
that people felt within society and particularly class structure. To review our society
from such a perspective will be—even when given the overall dissatisfaction
regarding income distribution worldwide—more useful today.
Addressing social instability today from such a perspective is the subject of this
book. For this goal, we try to grasp the main “framework” or “basic structure” of
economy and society. Here using the words of economy and society together
represents, first, the importance of economy or economic cooperation. Because it
supports our physical existence itself, it is the most important part of society and so
describing these two words together shows the understanding that in dealing with
the large-scale problems described above, we should always consider the economy
to be the core of society. We may use the word “socioeconomy” for economy and
society when necessary.
This book thus places emphasis on “wholeness.” When we encounter such
large-scale problems as the “health,” “fairness,” and “efficiency” of a society, as
described above, we need to hold a broad enough view, a bird’s-eye view, to tackle
them. Given that human society is initially formed by individuals seeking their own
interest in light of the efficiency obtained from cooperative production, to maintain
this cooperation, we need consensus on cooperative manners, e.g., what justice is or
how human fellowship works, particularly in the distribution of products. When
two people find an apple on a tree or when hundreds of people are set to divide the
sum total of their sales, they are often eager to obtain a larger portion regardless of
other people. This can be termed self-interest, which here only means a situation
where people try to obtain as much as possible regardless of other people. However,
this definition does not consider for whom or what purpose a person wishes to
acquire this larger portion, i.e., it does not encompass motivation. They may want to
eat the apple personally or give it to their children or poor neighbors. But here, as a
first approach, it is supposed that irrespective of the circumstances, they think they

need to take the maximum share, believing in the significance and probably the
superiority of their own motivation and utility when compared with those of other
people. This question of “for whom” is a very important question, and in this book,


viii

Preface

is discussed in Chap. 9, with reference to key concepts such as self-interest and
human fellowship. In considering those aspects, the spotlight will be placed on how
these two motives function in both production and distribution environments, where
such key words as justice, fairness, and kindness are dealt with.
Of course I owe much to ancient and contemporary scholars. Here, I would like
to refer to John Rawls. Rawls emphasized that a critical factor underlying the
cooperation in every society lies in the distributive rules of products and income.
Posing this distributive question as a core problem in social rules should be highly
evaluated. He described it from the viewpoint of a confrontation between utilitarianism and social contract theory. His theory appealed to many people and drew a
large number of people into this research field.
One thing to note here is that utilitarianism is a rule of conduct that proposes
certain modes of conduct; however, social contract theory is in its most general
form a way of thinking about how to form a society. Being common at this point,
various forms can be born from it. However, all of them have the same understanding that a society gains its validity and authority by consent, which is a social
contract among the members of that society. Thus depending on the characteristics
of the people, and other conditions at the starting point, the resulting society would
be different, and it could even be utilitarian if the people at the starting point prefer
utilitarianism, the maximum happiness of the people. In this sense, social contract
theory tells us how we choose and how utilitarianism could be what we choose.
Because this book is in a sense an attempt at developing on the theory of justice
by John Rawls, I would like to offer a short account of related discussion on his

theories and my own comments on it.
The first aspect of Rawls to be discussed is his characterization of the people
who make the contract. Rawls grounds his social contract theory by characterizing
the people at the starting point as interested mostly in themselves, meaning that they
behave to obtain as much of the product as possible in distribution after cooperation
in production. This does not mean that these individuals dislike or hate other people
but merely that they seek to gain as much as possible as a priority and then utilize it
for themselves or for other people. The final purposive subject, or object subject,
may be other people; however, they first attempt to obtain the maximum amount
of the product for themselves. We can ask ourselves to imagine a case in which
people’s demand consists of one part to benefit themselves and another for others.
However, empirically, our kindness is unstable and depends on many factors, one
of which is our state of mind regarding others, and therefore, it cannot be said with
certainty that kindness operates as a stable motive. Thus, Rawls’ idea above can be
accepted as a realistic presumption, which leads to a situation in which as everyone
tries to get more than everyone else, conflict breaks out.
The second element of Rawls’ theory to be mentioned here is the creating
process of contract, which is related to the conflict question above. How should
society deal with these inevitable conflicts? If left unaddressed, they could harm the
efficiency and need for cooperation that drove people together in the first place.
Rawls posits the need for society to create a device to escape conflict and reach
unanimous consent: the veil of ignorance, which is defined as veiled rule-making


Preface

ix

that permits people to see who they are but not distinguish themselves from all other
members of society. This idea is very unique to his argument. However, this book

approaches it from a different perspective, and the process of making a social
contract is discussed with a focus on the actual process of ameliorating conflicts so
as to reach broader consensus through historical cases of trial and error, which are
discussed in Chaps. 4 and 9.
The third element is the development of Rawls’ theory. According to my study
on Rawls’ theory, the next questions to be asked are regarding the manner in which
actual rules function in a real society, the kinds of problems that arise from them,
and how they can be solved. This is neither Rawls’ primary nor direct interest that is
hardly discussed in his study, but dealing with it is inevitable if one is to apply his
basic theory to reality. To deal with these questions, we first adopt a bird’s-eye view
of the structure of modern civil society that uses a market mechanism. By thus
preparing the blueprint of the social structure, we then deal with the respective
issues in each of its parts. We pick up supposedly the most important and pressing
problems of politics, land distribution, education burden, fair share of profit, and
balance between self-interest and human fellowship. Such discussions are an
extension and development of the above fundamental question left by Rawls.
Regarding the question of the manner in which people choose or make social
rules nowadays, we, as independent people, usually choose to establish a contract
among us. Therefore, most of us are currently living under some form of social
contract. But how do we choose the form of contract? In answering this question,
related factors should also be considered. Generally, the more the factors involved,
the more difficult such a choice becomes. In the modern era, however, the scale of
modern societies makes reaching consensus very difficult. The fact that people tend
to change their mind over time further complicates the process. However, given that
the choice of rules depends on people’s assumption regarding the conditions surrounding the choice, considering such conditions is important and inevitable when
examining this choice.
What we seem to lack today in our discussions of fairness or justice or when we
seek to address the tension between efficiency and equity or consider these kinds of
big social issues and find better rules is this consideration of the conditions
underlying the choice situation. Essentially, the questions here are what we want

and what tools we have at our disposal to attain those desires. In terms of answering
this question of fundamental social agreement, social contract theory emerged
historically after the abolition of the unequal social structures that existed during the
feudal age. When we look back at human history, it can be observed that the social
rules changed in line with changes in our understanding of what we want and what
we are allowed to want as well as what tools we have and what tools we are allowed
to have. Human beings have much more flexibility in shaping social cooperation
than do other animals, and new ideas for social reformation are born when we
notice new possibilities for ourselves or new desires emerge. Thus, considering
these two factors, possibilities and desires, is very important when discussing how
we choose our social rules.


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Preface

Thus, thinking about the concrete questions mentioned earlier is important. From
this perspective, a weakness with Rawls’ argument emerges. He proposed one type
of person in terms of the “what we want” question and one type of condition for the
“what tool we have” question. However, in retrospect, these remain rather abstract
when compared with what we need today. He focused on the questions of justice
and fairness and tried to describe the people, what they want, and the tools they
have according to modern industrialized society. However, these aspects
nonetheless remained abstract. His argument on the problem setting, the people,
definitions of equal and reasonable, and tools all reflect modern, highly capitalistic
market society. However, in terms of the development of problems of economic
fluctuation or dissent at income disparities in the late twentieth and early
twenty-first century, we notice that we need to deal with the two factors at a much
more concrete level and in specific terms.

Rawls pointed out the importance of the distribution of economic goods and then
proceeded to the question of how to reach social consent over distributive rules.
However, in dealing with this question, the aforementioned two questions, desires
and tools, have not been sufficiently dealt with. In thinking about this question at a
certain abstract level, he may have known the scope of his theory. Of course,
notwithstanding this shortcoming, his work proposed that this distributive question
should be considered as a core problem when deciding upon social rules. Here, we
need to make clear where we are to start in terms of his approach. We need to
elaborate on “what we want” and “what tools we have” at a more concrete level for
us to be able to answer more clearly the big economic and social problems at hand.
To improve our rules, we first need to know where we are. In this task, Rawls’ main
framework was attractive. However, to construct a real foundation, we also need
more detailed frameworks. The veil of ignorance is a solution when discussing the
problem at his abstract level; however, it needs to be developed further to solve
concrete questions.
When considering social structure, we encounter a serious difficulty, namely,
needing to deal with the substantial issues of social image that stretch across space
and time. This is the same as asking the meaning of the basic structure of modern
society or the “market economy system.” Because economy and economics are
related to the entire social structure, reexamining the former inevitably encompasses
considering the latter. Thus, in trying to elucidate a desirable social state by considering efficiency in production along with fairness and human fellowship in
distributing the burden and the product in total, the most fundamental aspect of the
economic and social system must be considered.
This task is difficult, but as social systems are created by human beings, we can
evaluate and consider them on two grounds: purpose and means. What purpose
does it have? Has the purpose changed between past and present? Is the existing
system the optimum means and method for that purpose? These are fundamental
issues that require clarification concerning the future of the present socioeconomic
structure.

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xi

As the market economy advances and production undergoes competition, the
question of the distributive side becomes increasingly important. The task of this
book is thus to systematically elucidate the economic distributive rules, which are the
most basic human relationships. Toward this goal, Part I discusses basic questions
of the distributive rules concerning “what” (Chap. 2), “who” (Chap. 3), “how”
(Chap. 4), and “for whom” (Chap. 5) in modern civil society. The discussion on
“what” aims to present the overall picture of the problem by providing a top-down
view, outlining circumstances under which distributive rules are required. Discussion
on “who,” “how,” and “for whom” aims to examine these issues in more detail.
Second, based on the analytical viewpoint and understanding reached in Part I,
more concrete problems in three fields are considered in Part II as important distributive rules that appear to have garnered the greatest amount of dissatisfaction in
modern society. First, issues around the way (direction) of distributive rules of
natural resources are discussed in terms of land (Chap. 6) and human capabilities or
education (Chap. 7). Second, problems with distributive way (direction) of cooperative outcomes between employer and employees are discussed focusing on
problems in measuring their “contribution degree” and the effect of disparity in
bargaining power (Chap. 8). Third, problems with motives behind societies of
distributive rules (direction) in relation to the socially vulnerable are discussed
(Chap. 9). The first three—land, education, and income distribution—are related to
the question of fairness and the last, to the balance between self-interest and human
fellowship.
To make one more step toward a systematic grasp of distributive rules in line
with the above questions is the task of this book.
The author would be very pleased if this book makes even a modest contribution
to the study of fairness and kindness in distribution that best fits the style of human
motives, self-interest, and human fellowship, today.

Lastly, I would like to thank everyone who helped me nurture and tackle my
question in this book. They are my families in Japan, Miki, Asato and Yuki, and
also my American host families, Mary, Bill and Lee, and my colleagues in and
outside Yamaguchi University, including those in Copenhagen University, Case
Western Reserve University, John Carrol University, Inha University, and particularly Vic George and Peter Taylor-Gooby in my intensive research years in
University of Kent. All of them provided me with valuable opinions, questions, and
suggestions. I also owe much to the sincere questions I received from my students
during my classes in Yamaguchi, Fukuoka, and other universities.
Yamaguchi, Japan
July 2018

Hiroto Tsukada


Contents

1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part I
2

3

1

Civil Society and Distributive Rules

Overview of the Problem: Socioeconomic System and Distributive

Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.2 Subjective Factors: Motives for Social Behavior . . . . . . . . . . .
2.3 Objective Factors: Social Conditions for Behavioral Rules . . .
2.3.1 Deciding Subject—from Individual to Group . . . . . . . .
2.3.2 Deciding Manner: From Compulsion to Consent . . . . .
2.4 Object of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.4.1 Change of Object: From Products to Natural
Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.4.2 Cause of Change: Productivity Change . . . . . . . . . . . .
2.5 Object Subject View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.5.1 Direction: Toward a Certain Extent of Equality . . . . . .
2.5.2 Cause: Determinants of Extent of Equality . . . . . . . . .
2.6 Chapter Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
WHO? Deciding Subject: Critical Development of Rawls’
Theory (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.2 Problem Situation Surrounding the Deciding Subject
of a Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.2.1 Recognition of Similarity . . . . . . . . . . . . . . . . .
3.2.2 Influence of Movement Between Occupations . .
3.2.3 Recognition of Equality of Strength . . . . . . . . .
3.2.4 Difficulty in Forecasting the Future . . . . . . . . . .

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3.3 Examination of Rawls’ Theory: On the Character
of Contracting Subject . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.4 Critical Development of the Character of Contracting
Subject in Rawls’ Theory: To Groups . . . . . . . . . . . . . . . . . . . .
3.5 Chapter Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4

5

HOW? Criteria for Determining Rules: Critical Development
of Rawls’ Theory (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.2 Value Judgment and Object Subject View . . . . . . . . . . . . .
4.3 Equilibrium of Power as the Substance of Fairness . . . . . . .
4.4 Chapter Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FOR WHOM? Object Subject in Distributive Rules . . . . . . . .
5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.2 Two Object Subject Views: Society and the Individual . . . .
5.3 Utilitarianism as a Form of Selfishness . . . . . . . . . . . . . . .
5.4 Modern Significance of Utilitarianism as an Object Subject

View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.4.1 Essence of Utilitarianism . . . . . . . . . . . . . . . . . . . .
5.4.2 Significance of Utilitarianism as an Object Subject
View and Its Transition . . . . . . . . . . . . . . . . . . . . .
5.5 Search for New “Object Subject View” After
Utilitarianism—from Smith to Sen . . . . . . . . . . . . . . . . . . .
5.5.1 Smith, Marx, and Keynes . . . . . . . . . . . . . . . . . . . .
5.5.2 Rawls and Sen . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.6 Chapter Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part II
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The Market Economy System and Three Distributive Rules

Restructuring of Distributive Rules of Natural
Resources (1): Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.1 Introduction—Land Issues in the Distributive Rules of Natural
Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.2 Position of Land Problems in Economic and Social
Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.3 Arguments on Land Distribution Rules—Focus on the
Formation and Development of Civil Society . . . . . . . . . . . . .
6.4 Future Direction of Land Distribution Rules . . . . . . . . . . . . . .
6.5 Chapter Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


Contents

7

8

xv

Restructuring of Distributive Rules of Natural

Resources (2): Education Fees . . . . . . . . . . . . . . . . . . . . . . . . . .
7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.2 Benefit and Payment—Social or Private? . . . . . . . . . . . . . . .
7.2.1 Social Positive Effect: Stronger Bonds? . . . . . . . . . . .
7.2.2 Social Negative Effect: Unfair to the Lower Income
Group? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.2.3 Private Positive Effect: Difficult to Measure
the Effect? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.2.4 Private Negative Effect: Diminishing Birthrate? . . . . .
7.3 Social Benefit—Peace and Education . . . . . . . . . . . . . . . . . .
7.4 Arguments on Education Fees in Japan in Detail . . . . . . . . .
7.4.1 Private Universities and Budgetary Constraints Since
the Meiji Era . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.4.2 Related to the Constitution and the Basic
Act on Education . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.4.3 Related to the Ratification of the International
Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.5 Rapidly Rising Tuition Fees Since the 1970s and the
Underlying Reasons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.6 Who Is to Pay or Who Is to Benefit? . . . . . . . . . . . . . . . . . .
7.7 Chapter Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring of Distributive Rules for Products (1): Profit
and Wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.2 Problem Setting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.2.1 Market Economy and Dominance Relationship . .
8.2.2 Distributive Criteria in the Market
Economy—“Contribution” Criterion
and “Contract” Criterion . . . . . . . . . . . . . . . . . . .
8.3 Market Economy and Degree of Contribution . . . . . . . .

8.3.1 Exchange Ratio of Goods—What Is the Value
of Goods? . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.3.2 Distribution of the Value of Goods and Degree
of Contribution in the Market Economy—Profit,
Income of the Employers, Versus Wages, Income
of the Employees . . . . . . . . . . . . . . . . . . . . . . . .
8.4 Degrees of Contribution by Labor in General
and of Entrepreneurs Together with Current Profit
and Wage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.4.1 Contents of Entrepreneurs’ Labor and Essence
of Their Contribution . . . . . . . . . . . . . . . . . . . . .

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101
101
103
104

. . . 104
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104
105
105
109

. . . 109
. . . 110
. . . 111
. . . 114
. . . 119
. . . 125
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127

127
128
128

. . . . . . 131
. . . . . . 133
. . . . . . 133

. . . . . . 136

. . . . . . 138
. . . . . . 138


xvi

Contents

8.4.2 Measurement of Contribution of Entrepreneur’s
Labor—Examination of Marginal Productivity
Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
8.5 Chapter Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
9

Restructuring of Distributive Rules of Products (2): Social
Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.2 Rawls and Human Fellowship . . . . . . . . . . . . . . . . . . . . .
9.2.1 Human Fellowship and the Necessity of Principles
of Justice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.2.2 Human Fellowship and Structuring of Principles
of Justice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.2.3 Human Fellowship and the Reality of Principles
of Justice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.3 Self-love and Human Fellowship . . . . . . . . . . . . . . . . . . .
9.3.1 Viewpoint of the Balance Between Self-interest
and Human Fellowship . . . . . . . . . . . . . . . . . . . .
9.3.2 Critical Argument of the Perspective
of Sociobiology—Another Argument Regarding
the Balance of Two Motives . . . . . . . . . . . . . . . . .
9.3.3 Policies for the Recovery of the Balance
in Modern Society . . . . . . . . . . . . . . . . . . . . . . . .
9.4 Chapter Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . 161
. . . . . 161
. . . . . 165
. . . . . 167
. . . . . 173
. . . . . 178
. . . . . 181
. . . . . 181

. . . . . 182
. . . . . 186
. . . . . 190

10 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
Afterword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207


List of Figures

Fig.
Fig.
Fig.
Fig.
Fig.
Fig.
Fig.
Fig.

2.1
8.1
8.2
8.3
8.4
8.5
8.6
8.7

Social structure and human circulation . . . . . . . . . . . . . .
Clark’s idea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contribution of the entrepreneur . . . . . . . . . . . . . . . . . . .
Independent producers’ society . . . . . . . . . . . . . . . . . . . .
Corporate society (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate society (2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Production function diagram . . . . . . . . . . . . . . . . . . . . . .

Comparison of entrepreneur’s contribution and realized
profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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8

146
150
150
150
151
152

. . . . . . . 153

xvii


List of Tables

Table 2.1
Table 8.1
Table 9.1

Overview of the factors for constructing a society
and their trend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Arrangement of entrepreneurs’ logic of recognition . . . . . . . . . . 155
Compensation principle and difference principle . . . . . . . . . . . . 179

xix


Chapter 1

Introduction

Abstract This book focuses on the market economy and the overall structure of
modern civil society. Particular attention is paid to the economies and politics of
developed countries. Today, most countries in the world have adopted a market
economy to attain high productivity. However, Government is another major part.
The former provides individuals with goods on which to live, and the latter provides
the framework for their behaviors in the form of rules. In examining these two
major parts of a modern society, we observe the totality of society from a bird’s
eye. This book utilizes economic rules, with a further focus on two major fields in
modern economic activities: natural resource distribution and product distribution.
The former includes questions of (1) how to distribute land and (2) how to allocate the
burden of education or who shall bear it, particularly higher education in this book.
The latter, product distribution, includes the distribution of firm income between
profit and wages, as well as why we are driven to help those less fortunate and what
motives drive us so.

This book focuses on the market economy and the overall structure of modern civil
society. Particular attention is paid to the economies and politics of developed countries. I use here the word “developed” in the sense that they have high economic
productivity and a democratic political system. Today, most countries in the world
have adopted a market economy to attain high productivity. It is a powerful engine for
production and distribution and a major arena where goods are traded and thus supports people’s lives. However, it is only one part of overall society, along with other
aspects that comprise society. Government is another major part. It works through
different principles than does a market economy, which works through individuals’
free will. In contrast, government works through popular consensus. The former
provides individuals with goods on which to live, and the latter provides the framework for their behaviors in the form of rules. These rules or consented decisions
also include the provision of various public goods. Consensus here usually means a
majority decision. When this consensus is made through a democratic process, the
corresponding society is called democratic.

© Springer Nature Singapore Pte Ltd. 2018
H. Tsukada, The Market Economy as a Social System,

/>
1


2

1 Introduction

In examining these two major parts of a modern society, we focus on two viewpoints. The first is to understand or observe the totality of society from a bird’s eye,
overarching view. There are many ways to perceive a society, and this book focuses
on economic rules, with a further focus on two major fields encompassing modern
economic activities: natural resource distribution and product distribution. The former includes questions of (1) how to distribute land and (2) how to allocate the burden
of education or who shall bear it—higher education in particular. The latter, product
distribution, includes the distribution of firm income between profit and wages, as
well as why people are driven to help those less fortunate and what impels them to do
so. This question is important as it relates to our fundamental motive of self-interest
as well as considers how social security provisions have grown to be a big part of
governmental budgets.
In Part I, we consider the structure of our modern society from a bird’s-eye view.
First, an overall snapshot of society is presented. It aims to show our modern
civil society through the analogy of a building three stories high plus two basement
levels. Using this model, we can also “zoom in” to look at an individual’s life course
(Chap. 2).
Having this overview in mind, we next examine each floor. First, we focus on the
second basement floor, the politics field, a discussion that runs for three chapters.
Here, we consider the basic structure of rulemaking, which is a construction of
society itself. The essence of politics is the design of society. We examine how this
design is determined by focusing on who decides it, individual or group, in Chap. 3,
how in Chap. 4, and for whom in Chap. 5. The understanding obtained through
these discussions give us an overview of how and in what direction the social rules,

particularly the economic ones that are the focus of this book are determined.
Based on the above understanding, Part II examines important questions and
problems in economic distribution, including the distribution of productive factors
such as natural resources as well as the distribution of outcomes, i.e., products.
We examine two important productive factors related to natural resources: land and
human abilities. Two questions are asked, namely, how to distribute land (Chap. 6)
and how to distribute education expenses (Chap. 7). We then examine product distribution. Chap. 8 asks how to distribute the outcomes of firms between profits and
wages or between employers and employees, and Chap. 9 examines motives for
social security systems. This last question is asked because the future of a society’s
social security system is partly or highly dependent on how society members feel
about helping each other or the needy. It therefore sheds interesting light on people’s
motives of self-interest and human fellowship.
These questions considered in Part II are some of the most important and pressing
ones today. Furthermore, all of them are actually centered on the issue of fairness
or justice in distributive behaviors. Our behaviors based on human fellowship may
seem to be born indifferently from matters related to fairness or justice, being based
on self-interest. But the performance of the former can actually be affected by the
latter; for example, if we act following a sequence of fairness or justice first and
human fellowship second, wide income differences may be the result, which, in turn,
may leave smaller space for actual redistribution motivated by human fellowship. In


1 Introduction

3

this sense, fairness or justice has a significant position in the social structure, and so,
whether related to punishment or the distribution of burden or benefit, it is arguably
the most important factor in sustaining human relationships. It is involved when
an object, e.g., money or products, is distributed among individuals within a group

whose opinions differ regarding an equitable division. In such a case, we need a rule
to determine a distribution that everyone agrees to or at least obeys. Such is the role
of justice and fairness. The questions in Part II are related to the framework of our
behaviors in distribution and thus affect our modes of production and distribution in
everyday life. These behaviors are pervasive and highly significant in this sense that
their composition could bolster or destroy our will to sustain our society itself.
Attitudes toward justice or fairness seem to be growing harsher by the day in
today’s rapidly globalizing world. To give an example, today, world trade is rapidly
expanding through a global market mechanism; however, ironically, it perturbs the
structure of industries within each country more than before, thus creating unstable
employment conditions. It may also be undermining traditional domestic mutual help
systems because countries compete with each other by lowering tax rates to attract
corporations—behavior that may well decrease government income and thus social
security resources. Such developments serve to increase the pressures that people
face in their everyday lives. Under such circumstances, the difference between the
haves and have-nots seem to be increasing, creating conflicts that may destabilize
society.
To survive in such conditions, we need to perceive the problem clearly: what is
happening, where, and to whom. The problem today seems to be a substantial one,
encompassing the entire social structure of many modern civil societies as well as
the international order. In such a trial, two goals must be sought: broadness and
precision. Studies of this kind seem few. And when we work on this subject, each
piece of study will probably be more or less focused on either broadness or precision
although trying to integrate them as much as possible. The study in this book presents
such an attempt, with more effort being placed on grasping the total structure of the
problem along with discussing some significant, concrete questions. Further on, we
examine the problem’s structure, pose some critical questions, and thus try to obtain
answers. As the first step, we start with an overview of the problem in Chap. 2.

Part I

Civil Society and Distributive Rules


Chapter 2

Overview of the Problem: Socioeconomic
System and Distributive Rules

Abstract This chapter organizes the framework and topics involved in contemplating the factors that regulate the distributive structure, distributive rules, and their
modern direction. The following points are raised to constitute such a framework for
this book. (1) Human beings cooperate in production to ensure survival. An important
condition for cooperation is the existence of rules regarding the distribution of labor
burden and products and people’s consent to these rules. (2) An important factor that
regulates distributive rules lies in the survival instinct of each individual, i.e., their
drive to survive and reproduce. (3) The deciding subject of the distributive rule has
changed from the individual to the group, and the decision criterion has changed
from compulsory to voluntary agreement. (4) In this process, distributive objects
have changed from products to those containing resources. (5) Distributive rules for
resources and outcomes are thus moving toward “some degree of equality.” (6) This
degree of equality is defined by three factors: changes in the object subject view,
changes in deciding what is “fair,” and increasing request for distribution according
to need and mutual security.

2.1 Introduction
What distributive rules to make is a major economic and social problem for any
society. For a society to function, it must have stable structures and rules among
its members concerning how to distribute labor and products. These structures and
rules also require sufficient legitimacy to be accepted, which gives them stability and

durability, which in turn benefits society and further enhances their legitimacy in the
sense that people accept them as being fit for their purposes. In this sense, any human
being in any society lives under the influence of a social distributive structure. First,
we examine the structure of modern societies (Fig. 2.1).
This image illustrates a modern civil society. In the following discussions, this
structure serves as the baseline reference. It shows the structure as well as the circulation of human lives.

© Springer Nature Singapore Pte Ltd. 2018
H. Tsukada, The Market Economy as a Social System,
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7


8

2 Overview of the Problem: Socioeconomic System …

Behaviors

Motives

Employer

Private goods
Supply
employee

SelfMARKET

interest

Firms
Government

Demand

Public goods
EmployEducation

and
Medicine

Old age Old age

ment

Pension

Care

Premium

Premium Premium Premium

Social
Insurance

Tax
Inheritance
Capabilities

Land

Social

Money

Welfare

Tax

Tax

Tax

Job

Childcare

Livelihood

training

support

support

Tax

Tax

Tax

State land

Politics

Fairness
in Distribution of

Efficiency
in Production

Natural resources
(Land, Education)

Fairness
in Distribution of
Products by
Contribution
(Profit, Wage)
Kindness
in Distribution of
Products by
Human fellowship
(Social security)

Fig. 2.1 Social structure and human circulation

Human
fellowship

2.1 Introduction

9

First, in terms of structure, it has two basement floors with three upper stories.
The lower basement floor is politics, where the above structure is discussed and
determined. This society is democratic. The political decision-making process, i.e.,
regarding who, how, and for whom, influences the results of the discussion in society
about politics and so is examined first in Part I (Chaps. 2–5). Part II focuses on
distributive rules and how they affect the production and distribution of goods and
products. The upper basement floor is state land. It is literally the ground of society
and its border is determined through agreements or conflicts between countries.
The upper three stories depict the life cycle of a human in this society. First, a baby
is born, and it inherits certain advantages and/or disadvantages from its parents. This
is indicated by the first part of the stairway outside the upper three stories. The first
differences in fortune among individuals arise from these birth circumstances. Land
is usually included in this fortune, but as it is fundamentally a part of natural resources
that no one created, we need to make rules for how to deal with the possession or
distribution of land at first. Problems of land distribution are discussed in Chap. 6.
The second flight of stairs stands for education. Whether a child is able to receive
education for free or not creates a big difference in lifetime opportunities. Inherited
natural abilities are supposed to belong to each human, and this fact could lead to
the rule of paying the education expenses by each one; however, much education is
publicly funded today. Why is it? This question is discussed in Chap. 7.
After education, people reach the third floor, which represents working lives.
People participate in the production process and receive products in the distribution
process. These activities are either done privately through a market economy mechanism or publicly by the government. People pay money to a seller to obtain goods in
the private sector and pay money in the form of taxes to the government to fund and

be eligible to receive public goods. Public goods in this figure only consist of social
security in the second and first floors and public education in the second flight of
stairs. Of course, other public goods exist, such as roads and various public buildings;
however, they are omitted here. In the production process, efficiency in production
is prioritized and the market economy highly rewards it through competition among
firms. The distribution of product or sales incomes between employer and employee
in private firms in the shape of profit versus wages is examined in Chap. 8.
To address the possibility of being unable to work, being discharged, or having
health problems, people have developed social security systems: social insurance
and social welfare. The former is paid by insurance premiums and sometimes by a
special tax and the latter by tax alone. Regarding the latter, because it serves as a form
of redistribution between the haves and the have-nots, its extent reflects the motives
of society in terms of how they view work, the role of society, and one another. In
this study, I am interested in the aspect of altruism or kindness (human fellowship,
fraternity, compassion, etc.), which is examined in Chap. 9.
Above is the first image of the structure and circulation of goods together with life
events of individuals in modern civil society. In explaining them, we have touched
upon the main intentions of this book: (1) to overview the social and economic
structure today (the whole picture), (2) to examine and clarify the political processes
that determine distributive rules (second basement floor), and (3) to examine several


10

2 Overview of the Problem: Socioeconomic System …

important elements of their distributive rules or factors, such as the distribution of land
and education (inheritance and education) and that of products between employers
and employees (third floor and firms), and supporting motives for the social security
system (second and first floors).

Below in the picture is shown the structure of the principles underlying the behaviors that support each part of the structure. Fairness is applied to the distribution of
natural resources and products. Kindness or human fellowship is also important in
the distribution of products, particularly in the scene of redistribution. Efficiency is
sought in production. Although productivity is itself an important issue, e.g., in the
food production problem in conjunction with population growth and energy problems related to global warming; however, they are not discussed in this book. We
only focus on the problems related to the distributive and cooperative side of our
society.
The right-hand side depicts our motives, namely, self-interest and human fellowship. They are often involved in our everyday life but also create complications. When
we consider such problems or questions about distribution as mentioned above, it
is because we want to achieve our purpose in life to the fullest extent possible. In
turn, our goals or purposes are born from our internal motives, a balance between
self-interest and human fellowship. Therefore, whenever we seek to better understand our behaviors, we need to first clarify our goals and thus our motives. Yet,
as we recall our experiences, we probably notice that it is not easy to clearly perceive our own motives. Such self-blindness emerges in the redistribution of goods,
an important field of our behaviors, and therefore happiness. We are often happy to
eat but are sometimes happy to share our food with others, for example, with needy
people. However, this possible happiness from kindness is not stable in the sense that
it depends on the situation, such as how deprived they are or how affluent we are.
Thus, we may not yet have a clear understanding of it or a simple rule to follow. Differences among individuals also exist, and people often behave differently in similar
situations. It also complicates the question.
This question of balance between self-interest and human fellowship is probably
not inconsequential, nor should it be overlooked. It drives our concern regarding
how much, how often, and in what circumstances we should share our bounty with
others. When we see people in trouble, even if they are strangers begging for money
at the roadside, we often feel distressed. Although we may pass them by most times,
at other times, we may stop to help, particularly when they are poor children or are
heavily disabled. Thus, our behavior may change depending on the situation, which,
in turn, also changes, both in our lifetime and also over longer spans (of centuries)
as society’s modes of interaction and perception change. Our behavior when we
live close to each other in a small village may differ from that when we live in a
small, isolated apartment in a big city. Thus the question of self-interest and human

fellowship needs to be asked continually because it also reflects historical changes,
progress, and evolution. Chapter 9 makes an attempt, probably a modest one, to ask
this question via key words such as the selfish gene, nobility, and human fellowship,
dealing with them from the perspective of social structure, particularly that of the
social security system.