The three Bases

What are the basic foundations of the Open Society? And how far can it be distinguished archaeologically? There are in fact three aspects to be considered: economics, law and democracy, all closely linked.

The first is economics where we need to consider how actions are linked together and where decisions are made. In simple societies, and indeed in complex barbarian societies, decisions are made at the centre and goods are allocated by custom or according to the whim of the ruler. The advent of money brings a total change in that goods can be exchanged directly between different individuals on the periphery. I call this process the market place, using the market in the Hayekian meaning of a place where decisions are made. This represents the great leap forward, the major change in the organisation of society.
(The key text here is the remarkable set of papers assembled by Karl Polanyi, entitled Trade and Market in the Early Empires)

The second aspect is the rule of law. The rule of law is a concept that is much misunderstood, but it was perhaps best originally enunciated in the 19th century by Sir Henry Maine in his book, Ancient Law, where he distinguished between status and contract law. In pre-market societies, when disputes arise, they are taken before the chief who listens to both parties and deals with the dispute as seems best to him, frequently basing his decision on the relative status of the disputants. However in complex societies more certainty is needed with a set of fixed laws; in particular a proper law of contract is needed so that when any enterprise is set up, it is bound by the contract. If the enterprise fails the judge will look, not at the ‘fairness’ of the outcome, but at the terms of the original contract.

It is interesting to compare this with the concept of ‘social justice’ which is not justice at all but the very reverse, trying to change the outcome contrary to the terms of the original contract, bringing about uncertainty and indeed unfairness in the eyes of the losers. Human rights too are the opposite of the rule of law, for they depend on the interpretation of vaguely expressed rights by the judge. Even in America where their Constitution of Rights is very active this can lead to unhappy results. Thus in the case of Roe v Wade the whole complex subject of abortion was settled by reference to constitutional rights – which say nothing at all about abortion, and as a result the decision has remained controversial. In Britain and Europe where similar decisions have been made by Parliaments, the decisions, once made, have been broadly accepted.
(The key text here is Hayek’s Constitution of Liberty).

And the third aspect is democracy. In pre-market societies, where the whole basis of social interaction depends on a hierarchical system, democracy is simply too inefficient and too insecure to be ever considered. Indeed, when a barbarian system is imposed on a democracy as in Nazi Germany or Soviet Russia, then the democracy is done away with. But in a flourishing market economy, once a flexible system is established, people want to have more control over their own lives and there is constant pressure to have a more widespread form of government of which democracy is the most popular variety. Indeed, in Athens democracy arose within a generation after the introduction of money. Equally the absence of democracy in Han China argues that there was never a successful market economy.

But what are the criteria by which we can distinguish market economies in the past?

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First draft 2nd May 2005
Revised, 18th April 2006.