The natural law foundation of the market

• Author: Guo Rui, John S. Baker, Jr.
• Position: GUO Rui (??), S.J.D., Harvard Law School, Cambridge, MA, United States; Associate Professor, School of Law, Renmin University of China, Beijing 100872, China. Contact: rguo@ruc.edu.cn - John S. Baker, Jr., Ph.D. in Political Thought, University of London, London, UK; Visiting Professor, The Center for the Constitution, Georgetown University Law...
• Pages: 409-430

FRONTIERS OF LAW IN CHINA

VOL. 15 DECEMBER 2020 NO. 4

DOI 10.3868/s050-009-020-0024-6

FOCUS

NATURAL LAW IN A CHANGING WORLD

THE NATURAL LAW FOUNDATION OF THE MARKET

GUO Rui

*, John S. Baker, Jr.**

Abstract In answering three important questions related to natural law, this paper

offers a coherent explanation of the market. We argue that the market, rather than a

mechanism that simply serves narrow self-interests, finds its legitimacy in the ethical

origins of the market order. The need for law to support and sustain the market,

including by imposing necessary limits on the freedom of the market players, flows from

those ethical origins.

Keywords natural law, market regulation, the principle of subsidiarity

INTRODUCTION .................................................................................................................... 410

I. THE “NATURAL” EXISTENCE OF THE MARKET........................................................ 410

II. THE FORMATION OF THE MARKET ORDER: BEYOND THE UTILITARIAN

UNDERSTANDING AND POSITIVE LAW ................................................................... 414

A. Economics and Moral Philosophy ....................................................................414

B. The Historical Development of Natural Law .................................................... 417

1. Reason and Natural Law................................................................................ 417

2. Can Natural Moral Law and Human Positive Law Be Harmonized?............ 419

3. Natural Law in Common Law....................................................................... 421

4. The Development of Natural Law in America...............................................423

III. THE PRINCIPLE OF SUBSIDIARITY......................................................................... 427

CONCLUSION........................................................................................................................ 430

* GUO Rui (郭锐), S.J.D., Harvard Law School, Cambridge, MA, United States; Associate Professor,

School of Law, Renmin University of China, Beijing 100872, China. Contact: rguo@ruc.edu.cn

** John S. Baker, Jr., Ph.D. in Political Thought, University of London, London, UK; Visiting Professor,

The Center for the Constitution, Georgetown University Law Center, Washington D.C., USA; Professor

Emeritus, Louisiana State University Law Center, Baton Rouge, Louisiana 70803, USA. Contact:

jbaker@lsu.edu

410 FRONTIERS OF LAW IN CHINA [Vol. 15: 409

INTRODUCTION

The paper sets out to offer a theoretical reflection on the moral and legal rules that

sustain the market. We think such rules are best captured in the theory of natural law. We

cover several misunderstandings on natural law that may have caused suspicion about its

foundational role for the market.

Three questions are important: (1) Why does the market need a legal and moral

foundation that is best captured in natural law theory? (2) In what ways have various legal

and moral principles sustained the market? (3) How should the market be regulated so

that it can be preserved and sustained? In exploring these questions, our paper also offers

a theory that is based on the principle of subsidiarity from Catholic Social Justice Theory.

Our approach offers a holistic treatment of the market. In response to attacks on the

market as a mechanism that simply serves narrow self-interests, we locate its legitimacy

in the ethical origins of the market order. From those ethical origins flows the need for

law to support and sustain the market, including by imposing necessary limits on the

freedom of the market players.

Our intention is to start developing a theory that could contribute to a deeper

understanding of the market and regulation. Domestically, it could guide the settling of

long-lasting disputes regarding the balance between regulation and deregulation.

Internationally, it could provide a reasoned basis for various national regulators to

collaborate on regulating the globalized market and assuage the discontent arising from

globalization.

I. THE “NATURAL” EXISTENCE OF THE MARKET

Everyday business transactions occur largely without being noticed. The existence

and operation of market order seem unproblematic and automatic. Everywhere in the

world, people need food and other necessities. Certainly, at the level of local markets, the

interactions of buyers and sellers are “natural.” By “natural,” we mean that markets

emerge from basic human needs that can only be fulfilled by others. Markets spring up

spontaneously without legal intervention, as many neoclassical economists argue.

Among modern economists, there is a division about what it means to say that the

market is “natural.” Classical and 20th-century neoclassical economists have created a

consensus that the market is “natural” in the sense that economic order simply forms

spontaneously through the pursuit of selfish interests by economic actors.1 Progressive

economists and, in recent years, economic sociologists have questioned whether markets

1 Like classical economics, neoclassical economics views supply and demand as the driving forces

behind the production, pricing, and consumption of goods and services. Both see an economic actor’s first

concern as maximizing personal satisfaction, and decisions are made based on calculating utility. The market

hence becomes a place where demands meet supply and moral values play little role.