A column in the New York Times last week floored me with its collection of straw man assumptions and Keynesian apologetics. In writing my response, I realized that I was addressing every claim and expanding on every counter-point. I quoted Menger and Mises, along with some Hayek and Lachmann. I covered topics from price theory to regulatory capture - after all, there was a lot wrong with the column. But since Letters to the Editor are limited in word-count, I whittled my response down and broke it into two separate letters.
The first addresses the straw man that free market supporters believe that “markets are perfectly efficient, humans perfectly rational, incentives perfectly clear and outcomes perfectly appropriate”:
In “The Machine and the Garden” (Op-Ed, July 11), “market fundamentalists” are claimed to believe in the market’s perfect efficiency, humanity’s perfect rationality, perfectly clear incentives, and perfectly appropriate outcomes.
In truth: those of us who advocate for free markets (or, rather, for free people making consensual, peaceful, and mutually beneficial exchanges) believe that there is no such thing as perfect efficiency, rationality, and knowledge. The market, instead, is a process. It trends toward greater efficiency, rationality, and knowledge by allowing individuals to reveal, through their actions, their subjective preferences over scarce resources.
Profit - a gain in physical or psychic satisfaction - is the incentive for most human cooperation and innovation. Failure impels change. The endeavor to profit - while risking failure - by meeting the demands of others is crucial to societal progress.
Markets are imperfect because mankind is imperfect and the future is uncertain. But free exchange best adapts to these shortcomings in order to cater to our myriad demands.
The second letter addresses the dichotomy the authors present (“The economy is less like a rational device and more like an ecosystem.”) and the false conclusion they come to:
In “The Machine and the Garden” (Op-Ed, July 11), the authors see the economy as an ecosystem instead of a machine.
Indeed. Like an ecosystem, a market is an emergent order that cannot be engineered. Every disparate element in an ecosystem - wind, sun, flower, bee - has its own independent set of interactions, motivations, and determinant forces. Unless government is likened to a god, no market or ecosystem can truly be conducted.
Instead, the authors see state policy like a gardener tending his garden: that the economy, meaning people, can be tilled and manipulated to reach the desired ends of the politicians, bureaucrats, and cronies (who presumably know best). Unlike a seed, however, a human being has his own individual desires and likely knows them better than anyone else.
There’s no way to imagine what can be designed by countless people freely demonstrating their subjective preferences over scarce resources; and it would be impossible to implement any scheme properly or efficiently even if planned by intelligent, well-meaning angels.
Every government interference that stands athwart free exchange not only curbs liberty, it disrupts the decision-making process that fosters prosperity.
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