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The Importance of Political Economy

Conservatives must distinguish between the science of economics and the art of political economy.


The right can often be guilty of blurring the lines between what has been described as the science of economics and the art of political economy. If economics is the descriptive study of the way people organize resources and goods, then political economy refers to the normative exercise of establishing what ends we want economic policies to help secure. The two can and ought to be mutually supportive: understanding how markets work in practice can improve our use of free enterprise to advance societal interests. Yet certain sects on the right have for some time made economic policy responsible for determining normative questions, and in so doing have impoverished our ability to think about the plurality of political ends we might want to pursue.

Many conservatives in the Anglophonic world are beginning to rediscover this vital distinction between economic policy and political economy, and this has instigated a rich debate about the market and its role in society. Yet there is a risk that conservatives making this distinction are exposed to the charge that they simply do not understand economics, and thus that they cede the right to talk with authority about the economy to those who think the only end worth pursuing is the efficient functioning of markets. It is vital that a conservative political economy demonstrate mastery of the descriptive laws of economics even as it directs economic policy to specific human ends.


For the economist, the market refers to a collection of overlapping systems, procedures, and conventions by which goods and services are exchanged. But for the conservative, markets also constitute one of society’s most important institutions, and perhaps the one that they have most consistently defended over time. Their case for defending markets, though, is not the one frequently attributed to them by the left. Conservatives do not revere free markets because they are ends in themselves, nor do they believe that the value of markets is solely contained in the extent to which they champion the unfettered freedom of the individual. Primarily, conservatives defend markets because they sustain and support political communities.

There are obvious ways in which this is the case. For one, markets create jobs, abundance, and prosperity. They harness the human instinct for betterment and tendency to trade—a necessity in any society in which individuals depend on the activities of strangers for their existence—for productive ends, by coordinating economic activity and supporting specialization, free exchange, and enterprise. In doing so, they facilitate a stable political order: They create conditions in which individuals can freely engage with others to provide for their wants and needs, as well as channelling human activity towards socially beneficial economic enterprises.

The market serves other ends, too, such as generating the tax receipts that fund public services. Of course, public services are not ends in themselves; nor is the state that runs them. But we do recognize that the provision of services that individuals would not otherwise be incentivized to provide themselves—as well as a minimum standard or safety net to prevent people from falling into destitution or severe poverty—is valuable. It is the market and the employment it creates that generates the money to pay for these public provisions.

Furthermore, conservatives believe that markets serve the important role of dispersing political power and mitigating against tyranny. Some believe that the state should determine the economic interactions between individuals and communities by setting prices, and that property ownership should be centralized in the state so that it can distribute resources “efficiently.” Conservatives are deeply skeptical of this perspective, not only because they consider it hubristic—a point we shall come on to—but because they are anxious about the centralization of such power. A free market based on private property and the distribution of ownership is “the natural bulwark of liberty” because it defends against such a centralization.

So far so good. But conservatives also understand the utility of markets to emerge from their role as institutions—that is, forms of order that contain within them a valuable inner logic or knowledge. They are, to paraphrase Adam Ferguson, purposeful institutions shaped by human actions, but not the handiwork of a single human reason or design. Although by his own admission a liberal rather than a conservative, Friedrich Hayek explicated an “epistemic” theory of the market that closely resembles the way conservatives think about institutions more generally, as embodying the collective knowledge or reason of a community.


Conservatives identify in some liberal accounts of the market a shared recognition of the limits to human reason, and a common appreciation of what Hayek called “knowledge of the world” contained in practice and institutions. An efficient economy that delivers on the requirements of society needs information about the supply of and demand for goods, services, and resources in real-time. This information is infinitely complex and disseminated throughout society, and the market’s price mechanism constitutes one of the most effective means of accessing that information. Indeed, it is more effective than the “planning” of central authorities, in which supply, demand, and allocation are managed by government. It is also freer. As Hayek pointed out, bending the real activities of individuals and communities to conform with a central planner’s blueprint for society requires significant (and increasing) interventions by the state into people’s lives.

Conservatives privilege the sustenance, and transmission to future generations, of stable political orders above all else. Free markets can serve this end by furnishing societies with prosperity, diffusing power, and guiding human behavior surreptitiously towards good ends. But the conservative defense of markets is qualified. As Quentin Hogg pithily remarked, free market liberalism is only “very nearly true,” for conservatives recognize that markets have just as much capacity to undermine order as they do to sustain it, and hubristic power can be centralized in private corporations as well as government bureaucracy.

Markets depend entirely for their functioning on the existence of cohesive forms of community, and healthy markets require political order and the provision of rules and laws. Ties of mutual obligation and shared social practices are prerequisites for the market to coordinate our activities towards mutually beneficial ends. Market forces must have guard-rails and limitations. When markets undermine these things, they become pathological. For example, in the absence of government intervention to ensure fair competition and a level playing field, individual actors will consolidate markets and achieve monopolies. Conservatives believe that the state has a role to play in ensuring that markets always serve communities, and that communities are never made to serve markets.

The free operation of markets also raises the question of equality. In any free society, a degree of inequality is to be expected. Individuals themselves—their industry, their talents—are unequal in important ways, even if equal before the law, and conservatives recognize that life is defined by a degree of contingency and chance that humans cannot eliminate completely. Conservatives tolerate a degree of inequality because they are committed to the idea of individuals as responsible moral entities who will necessarily experience life in different ways. Yet conservatism does not contend that inequality is thus necessarily the fault or the desert of the less-well-off.

Conservatives become particularly concerned about inequality when it begins to threaten the cohesiveness of the political community. Excessive inequality might jeopardize the sense that economic rights are tied to responsibilities that undergirds the very legitimacy of markets. States afford expansive rights to economic actors in the form of things like limited liability for companies, while providing them the infrastructure to trade and conduct business. When market actors extract from communities, when they fail to invest in the people and places from which they derive their custom, when they vitiate the capacity of states to secure their citizens, or when they make judgements on our behalf that ought to be made through the political process by elected representatives—then they erode the linkages between rights and responsibilities, and in so doing cease to serve political order.

There is an international dimension to this, too. Markets might not be limited geographically, but political communities, and those elected to govern them, are. Conservatism believes that ensuring a connection between communities and markets is vital if the former is going to support the operations of the latter. Importantly, while government recognizes the inevitability of a significant degree of contingency in human existence, the very purpose of political order is to offer security and protection for people from vicissitudes of life, especially those that derive from external threats. The state is there to shelter citizens from the vicissitudes of the globalized economy just as much as it is there to protect against foreign militaries that threaten their bodies.

The legitimacy of markets depends on the belief that those who benefit from transacting within them take account of or compensate for the indirect costs that might occur to third parties. Not every transaction will have negative externalities—many will have positive ones—but it is vital that actors address them when they arise. Take the environment for an example. Conservatives wish to conserve, and the most elemental thing they believe in conserving is the environment. Our connection to the physical place around us is core to our sense of belonging, and our sense of shared obligations through time: we hold our environment in common, and that imposes duties upon us all. True conservatism is sensitive to the damage that the market can do when men see the environment only as something to extract from.

There are those who will suggest the sorts of arguments I have advanced constitute a flawed understanding of the free market. That free enterprise is an “intrinsic” good, and that to think about further ends to which the market might be a means is a slippery slope towards planning or “stakeholder capitalism.” But I believe this is false. Ensuring that we promote diffuse property ownership to create more capitalists, incentivizing pension funds and insurance companies to invest in infrastructure projects, privileging retail investors over institutional investors—all of these initiatives are compatible with a free market.

They are directed foremost, however, towards supporting and maintaining the national community. And when the operations of the market are not so directed, the interest of communities for which elected politicians are responsible must always come first. To borrow Matthew Arnold’s phraseology, markets constitute “machinery”—instruments that help us to achieve our goals and values. But they cannot tell us what those ends happen to be. For that, there are conservatives, and political economy.