Does a market economy really need the family? Yes. A well-functioning market economy necessitates cooperation and trust between its members. These values are developed within the family. The productivity of market economies also requires human capital. Families are the most appropriate and natural of all social structures for making the indispensable investments in younger generations to raise productive members of society.
This paper will discuss the family's vital purpose for the market economy
in four sections. The first section will be a short report of statistics
indicating the current disintegration of family in the developed world,
particularly the United States. Next, the role of family in fomenting individuals'
values and principles will be discussed, followed by a discussion of its
exceptional aptness for raising human capital. The fourth section will discuss
the dangers and financial costs that society and its market economy face
as a consequence of the current disintegration of family. Finally, this
paper will conclude with the relevant policy implications of the market
economy's dependence on family and how best to avert its continuing decline.
Family Today
The rapid erosion of family within the developed world is disturbing. Since
the 1970s marriage rates have speedily declined while the number of divorces
each year has substantially increased. Between 1940 and 1998 the percentage
of births occurring out of wedlock increased from five to thirty-five percent.
In addition, the United States, relative to other developed countries, has
the highest rate of single-parent families because of its high illegitimacy
and divorce rate, as well as its low co-habitation rate. An estimated forty-five
percent of the sixty-seven percent of children born to married parents will
endure the trauma of seeing their parents divorce by the time they reach
eighteen years of age. Moreover, scientific evidence suggests that parents
divorcing is more psychologically damaging than if a parent were to pass
away. (Aguirre, 229-231) The stable family has been in decline for decades
now and the situation appears only to be getting worse. These tragic realities
have dire consequences for the market economy as the family is so instrumental
to its functioning well.
The Role of Family: Values
The invisible hand needs a foundation; it is not an autonomous self-reliant
entity. Its foundation is built on trust. Trust is a vital component of
the market economy. It is crucial in establishing cooperation among members
of any society. When Adam Smith argued that individuals should pursue their
own self-interest, he assumed that people were inherently good. (Folbre,
652) This ideal is not reality, however; such benevolence needs to be nurtured
from a young age. The experiences a child encounters in his or her early
years of development are decisive in fostering fundamental values.
Ideas of cooperation, reciprocity, and fairness are cultivated within the
family. Underlining these values is the elemental capacity to trust and
be trust-worthy. Without trust a market economy would disintegrate into
calamitous inefficient and unproductive system. Without the family, trust
struggles to develop and the operations of a market economy face numerous
and costly obstacles.
Furthermore, although some personal care can and sometimes is supplied through
the market, it will never have the capacity to provide love, or instill
understandings of obligation and reciprocity. These values correlate with
the values of trust and trust-worthiness. Love within a family establishes
the notion of giving without expecting anything in return. Obligation is
instrumental in the willingness to do what is right; even if it runs contrary
to one's immediate personal interests. The espousing of reciprocity ensures
that things are not taken or accepted without some idea of giving back.
These values, cultivated within the family, are not only vital to a family's
existence, but to a market economy's functioning as well. (Waterman, 444)
The Role of Family: Human Capital
Families not only instill values, but they create productive members of
society as well. Parents invest in their children, critically providing
food, health care, education and the like. Healthy educated moral individuals
are beneficial to the market economy. They provide the human capital so
necessary to its very existence: "The health - perhaps even the viability
- of the market society depends on a continuing supply of human beings in
who those moral, intellectual, and social qualities necessary for a high-quality
work force and a stable social order have been nurtured." (Waterman,
446) Only the family has the capacity to nurture a child to its full social
and productive potential.
Parents have an interest in investing wholeheartedly in their children because
there is an understanding (of reciprocity) that these children will provide
care in return when their parents reach old age. Care provided by the market
economy does not have this expectation or personal stake and, consequently,
will likely never provide the wholehearted care that brings a child's capacity
to its maximum potential. A report put out by the National Institute of
Child Health and Development found that child care facilities do not provide
enough care for a child to develop well; moreover, 15-20 percent of their
services are, in fact, harmful to children. (Aguirre, 237) The intimacy
within a family, and its substantial benefits to the market economy, cannot
be replicated by any state structure.
Although, parents often have the expectation that their children will care
for them in their later years, it is not the sole reason for their investment.
Parents love their children, their motives are primarily altruistic. Social
theory that lacks pureness of heart, would involve relationships based entirely
on contract and exchange, there would be a prevalence of minimum-compliance-attitudes.
Individuals would break promises in the absence of supervision and every
commitment would require force; inefficiency would abound. Supervision and
force require resources, whether in time or administrations, that are costly
to a market economy. These resources would be better served elsewhere.
The hypothetical example of a child raised scientifically by some instrument
of the state models to the extreme the potentially dire outcomes of the
absence of family. This child, "[f]ed like a hamster by means of a
bottle wired between the bars of its crib, deprived of warm personal contact
with anyone who might treat it as a human being, [] [will] never acquire[]
the trust in others that is a necessary condition both of civility and social
order" and the market economy at large. (Waterman 447) It would have
no understanding of doing what is right for community as a whole. It would
take every opportunity to achieve its own interests, regardless of the harm
it may cause to others. In the absence of trust and trustworthiness, promises
would not be kept. A society made up of such individuals will never function.
Relations would become a war of all against all and they would not understand
the consequences of their actions, that such opportunism destroys cooperation
and, subsequently, society and the market economy as a whole.
The Financial Costs
Without stable and nurturing families children never inculcate the values
necessary to function in nor develop the human capital necessary to contribute
to the market economy. The lack of values that allow markets to function
smoothly or human capital that generates goods and services, productivity,
overall, declines rapidly. In addition to a productivity loss, the disintegration
of family has necessitated costly welfare programs.
Broken families are linked to poverty, crime, distrust, drug abuse, poor
academic performance, and low human capital. The performance of American
students on standardized testing, in particular, has deteriorated in recent
years. "On average, American students read less, have weaker analytical
skills, a declining command of their language, and in general are less well
rounded." (Aguirre, 236) In 1966 the U.S. Department of Health commissioned
a report, which found that family and peers have far more influence on educational
performance than public policy or the state. Children of broken families
not only perform poorly in academics, but they are more likely to abuse
drugs and/or alcohol, engage in violence, suffer from problems of health
and depression, or attempt suicide. The ramifications that these destructive
and unproductive individuals have for the market economy are plain.
Developed countries have come to realize this increasingly degenerative
problem. Billions of dollars have been poured into welfare programs aimed
at remedying the issue. Great Britain has considered proposals for creating
an institute that would assist and advise parents in child-rearing. Classes
for couples, in which the responsibilities and expectations of marriage
are explicated, have also been considered. France has taken to subsidizing
families with two or more children. The United States and Holland have legislated
new laws regarding employee rights to parental leave, facilitating the fulfillment
of work and family obligations. Johnson & Johnson reported its returns
in productivity were four times the actual cost of subsidizing maternal
leave or childcare. This statistic is altogether logical when one considers
the guilt one might feel knowing that they are not fulfilling their child's
needs. The emotional toll in itself would reduce productivity. Therefore,
making it easier for employees to fulfill their obligations to family makes
them more diligent, devoted, and productive. Moreover, such policies have
the effect of reestablishing the honor in raising a family. Yet however
necessary these policies may be, they are nonetheless costly to implement.
The disintegration of family has socially degenerative effects with devastating
economic consequences. The family is instrumental in instilling values of
trust and building human capital, both of which are intrinsic to a well-functioning
market economy. No state apparatus can replace the essential functions it
performs within the market economy. Its loss would not only generate sub-optimal
productivity within the market economy, but, moreover, the financial burden
of alleviating these grim circumstances is vast. Its current reality, nonetheless,
necessitates policies that encourage and support the family, however costly.
Central to this issue is the awareness that the market is composed of human
beings and that while individuals have the capacity for good (trust, cooperation,
human capital, and the like), it does not spontaneously develop. The good
in people must be nurtured and only the family, the most fundamental of
social structures, has the greatest potential to bring individuals' capacity
to fruition.
Aguirre, Maria Sophia (2001), "Family, Economics and the Information
Society: How Are They Affecting Each Other?", International Journal
of Social Economics v28, n3-4 (2001): 225-247.
Bubolz, Margaret M. (2001), "Family as Source, User, and Builder of
Social Capital", Journal of Socio-Economics v30, n2 (2001):
129-131.
Folbre, Nancy (1997), "The Future of the Elephant-Bird", Population
and Development Review v23, n3 (September 1997): 647-654.
Waterman, A. M. C. (2003), "Economics, Love, and Family Values: Nancy
Folbre and Jennifer Roback Morse on the Invisible Heart: Review Essay",
Independent Review v7, n3 (Winter 2003): 443-453.