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Quotation of the Day…

… is from pages 142-143 of the American jurist James Coolidge Carter’s posthumously published and unfortunately neglected 1907 volume, Law: Its Origin, Growth and Function:

It might be suggested that a few of the wisest and best might be selected to frame rules, but they would inevitably frame such rules as would accord with their individual notions, and to impose them upon others who did not happen to agree to them would be mere tyranny, and defensible only because it seemed necessary.  Moreover, how could any human beings, however good and wise, frame rules which would serve to govern those infinitely numerous and varied acts which make up the ordinary intercourse of social life, and how could the rules be learned?  This is manifestly impossible.

DBx: Being an excellent lawyer, Carter correctly understood that reality is highly – indeed, incomprehensibly – complex in its details.  One danger of economic (and other social-science) models is that, if crafted carelessly or used unwisely, these models (or theories) mask this terrific complexity.  A social scientist who mistakes the relative simplicity of his model of reality for reality itself is prone to support government intervention based on his model because that social scientist sees that he, or others like him, can easily manipulate the model.  But manipulating an economic or social-science model is far easier than manipulating the variables in reality that correspond to – or that are assumed to correspond to – the variables in the model.

Central to the case for free markets – for freedom generally – is the realization that what Hayek called “knowledge of the particular circumstances of time and place” is available only to individuals on the spot.  This knowledge cannot possibly be centralized.  Because taking account of this knowledge and acting on it is necessary (although not sufficient) for intervention to bring about ‘ideal’ outcomes, yet because such centralized use of knowledge is impossible, the outcomes of government interventions will always be worse than can be demonstrated in a model.

It’s child’s play to demonstrate that real-world markets fall short of textbook ‘ideals.’  It’s childish to leap from this demonstration to the conclusion that markets fail by any meaningful standard – that markets ‘fail’ in ways that can be ‘corrected’ by the state’s centralized intervention.  The question is: do markets, over time and on the whole, perform better than alternatives?  The question is never: Can a brilliant theorist describe imaginary worlds that are more ‘ideal’ than are the outcomes generated over time and on the whole by real-world markets?

The above thoughts prompt me to again recommend Richard Epstein’s 1995 volume, Simple Rules for a Complex World.