… is from page 267 of Frank Knight ’s 1956 collection, On the History and Method of Economics ; specifically, it’s from Knight’s 1950 Presidential address to the American Economic Association, titled “The Role of Principles in Economics and Politics ” (original emphasis):
The supreme and inestimable merit of the exchange mechanism is that it enables a vast number of people to cooperate in the use of means to achieve ends as far as their interests are mutual, without arguing or in any way agreeing about either the ends or the methods of achieving them. It is the “obvious and simple system of natural liberty.” The principle of freedom, where it is applicable, takes other values out of the field of social action. In contrast, agreement on terms of cooperation through discussion is hard and always threatens to become impossible, even to degenerate into a fight, not merely the failure of cooperation and loss of its advantages. The only agreement called for in market relations is acceptance of the one essentially negative ethical principle, that the units are not to prey upon one another through coercion or fraud.
DBx: Note that for two or more persons to have interests that are mutual is not necessarily, or even normally, for those persons to have interests that are the same. It is, instead, for each of those persons to have interests that can be furthered by his or her helping to further the interests of the other person or persons. The owners and suppliers (including workers) of Whole Foods supermarket and I have interests that are not the same, but that are indeed mutual: each of us helps the others further our own interests by trading with each other.
Note also this implication of Knight’s remark: because the ethical principle at the root of market relations is “that the units are not to prey upon one another through coercion or fraud,” market relations cannot be saved, improved, or otherwise promoted through interventions such as tariffs and industrial policy. In both principle and practice these interventions are coercive. And as anyone who knows even just a bit of sound economics and a smidgen of history understands, in practice these interventions are also fraudulent, for they are sold to the general public with half-truths and deceptions.
Efforts to “save” or to “strengthen” the market with schemes such as protectionism or industrial policy – policies wholly inconsistent with market relations – make no more sense than schemes to save or to strengthen marriages by advocating that spouses cheat on each other. Clever sophists can spin tantalizing tales of how such cheating – actions wholly inconsistent with most people’s understanding of marital relations – might in the end bring spouses closer to each other and bond them firmly in loving and trusting unions. But no one with an adult mind actually falls for such sophistry.
It’s too bad that so many people fall for the similar sophistry of protectionists and advocates of industrial policy.