Column on Troubles with Economics

Troubles with Economics

Tibor R. Machan

The social science of economics became distinct when several French
intellectuals and the Scottish moral philosopher Adam Smith isolated the
field for special study. From a long time thereafter certain assumptions
underpinned the discipline, mostly about human behavior. These assumptions
arose from the work of the English philosopher Thomas Hobbes who believed
that all people, not just market agents, are motivated to act so as to
seek power over their environment. The reason Hobbes held this view is
that he considered human behavior just a manifestation of the behavior of
all material things that populate reality. (For him reality had nothing
but material content and was ruled by the laws of classical physics.)

Even the contemporary idea that everyone is a profit or utility
maximizer, taught in most introductory economics courses, derives from
this basic notion, one that is credible even apart from Hobbes’ use of it
because the goal of prosperity is quite normal for most people. Of course,
there are now different schools of economics and they each have modified
the assumption somewhat but the basic idea is still very prominent,
namely, that people have an innate drive to seek wealth or some other form
of satisfaction. This is something they cannot help–it’s part of the
psychology of every human being. The assumption is used to explain what
happens in the market place–if the market is free, unimpeded by
government or criminals, market agents will move ahead, quite predictably,
to seek to enrich themselves and prosperity will result. The role of law
is merely to make sure that these market agents do not intrude on each
other by theft, robbery, and other violations of people’s rights. It is
all a bit like a marathon race–everyone will move forward provided they
aren’t permitted to trip up each other.

The race in the market place, however, is endless. If something stops or
interrupts it, the overall economy is going to suffer. So many economists
who support free markets dislike government intervention, think it mostly
means trouble, rarely helps. But there are a whole lot of other type of
economists, too, like those who have been influenced by Karl Marx or John
Maynard Keynes. These tend to believe in a decisive role of government in
economic affairs. They think the unregulated, free market is cruel,
ruthless, and destructive of many human values. So they favor regulating
market agents even if those agents haven’t harmed anyone–in a sense they
believe in something that is often rejected in the legal system of a free
country, namely, prior restraint. And the support for the authority to
regulate comes from democratic theory, although it resembles, also, the
older economic tradition of mercantilism (wherein the agents of the king
saw themselves as authorized to meddle in the economic lives of their
subjects).

In today’s fiasco there is a lot consternation about whether the free or
the regulated market produced the mess. But there has not been a free
market in place anywhere for many decades and even before then it has had
only a limited scope in the economies of most countries. Politicians
always took it for granted that they may manipulate the market, regiment
market agents, both in small localities where they passed blue laws and
curfews, and in the larger community where they passed protectionist laws
and subsidies for faltering industries.

Many other examples could be listed but the main point is that no free
market has ever existed, not under Lincoln, nor Wilson, nor Hoover,
certainly not FDR, or Eisenhower, Reagan or Bush. And it certainly isn’t
likely to exist under Barack Obama.

When politicians and bureaucrats intrude on the work of market agents
they cause serious distortions but market agents will most often adjust to
these and try to profit from them. They will anticipate such intrusions
and bank on them, invest accordingly, at least in a country where striving
to prosper is something quite acceptable if not outright admirable. And
this leads to even great distortions.

Many market agents do not bother supporting a fully free market but
simply work with the regulated market in which they find themselves. But
because this does involve serious distortions on how a genuine free market
is supposed to operate, their behavior will often come off as excessively
greedy, oblivious to principles of proper market conduct. They tend to go
with the flow, for example, by aligning themselves with various political
interests.

One thing is certain. The idea that the mess we are facing now was
produced by the free market is preposterous and those economists and
politicians who make that claim are almost certainly engaging in
demagoguery. They wish to gain power from the fiasco by discrediting a
system that some may support in theory but which is only spottily included
in the country’s actual economy, one that requires politicians to stay out
of economics just as they must stay out of religion and journalism.

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