ABSTRACT
As discussed in Chapter 1, one of the main arguments in favor of markets is the creation of wealth and welfare. Free markets stimulate human beings to exploit their talents and motivate them to economic activities that are favorable to the happiness of all. However, that markets foster the welfare of society has not been proven theoretically. Welfare theory has only proven that perfect markets are efficient in the sense of Pareto optimality (see below). Whether free market operation fosters overall welfare should be decided by empirical research. The ethical theory that takes overall welfare (or utility or happiness) as its standard is utilitarianism. In this chapter we first describe utilitarianism in section 2.1. The basic principle of utilitarianism is “the greatest happiness of the greatest number.” Or, more formally, an act is right if and only if the sum total of utilities produced by that act is greater than the sum total of utilities produced by any other act the agent could have performed in its place (Velasquez 1998: 73). Recent improvements in measuring happiness have increased the popularity of utilitarianism among economists. According to Layard (2003: 50), utilitarian ism is the only ethical standard that provides an overarching principle by which to solve conflicts between principles. Section 2.2 investigates the biblical view on welfare. For the subject of this book, the valuation of material welfare is particularly important. Most attention will therefore be paid to the question of whether economic welfare contributes to human happiness according to the Bible. Finally, we also briefly discuss the concept of stewardship in relationship to environmental sustainability (as a related source of human welfare). Section 2.3 considers the empirical evidence of the influence of the market operation on wealth, sustainability, and happiness. We evaluate the contribution of markets to welfare in three steps. First, we discuss empirical evidence of the thesis that the market generates wealth by reviewing some economic liter ature on the impact of various parameters of market operation on economic growth, such as the rule of law index, the index of economic freedom, and the share of trade. Next, we present various reasons why economic growth does not necessarily lead to a reduction in scarcity. This provides a background for the next section that deals with the relationship between wealth and happi ness. As in section 2.2, we focus on the impact of economic welfare on overall
happiness, but we will also discuss non-material factors that influence human happiness. Section 2.4 puts the normative and positive perspectives together and formu lates a Christian view on the market, economic growth, and welfare.
