… is from pages 6-7 of Robert Higgs’s indispensable – and now more relevant than ever – 1987 book, Crisis and Leviathan (footnote deleted):
Reading between the lines of many historical works, one encounters the Modernization Hypothesis. It maintains that a modern urban-industrial economy simply must have an active, extensive government; that laissez-faire in the late twentieth century is unimaginable. Declamations about the absurdity of horse-and-buggy government in the Space Age or the impossibility of turning back the clock of history give rhetorical thrust to the idea. Exactly why a modern economy must have Big Government usually remains obscure….
Yet one cannot correctly infer that, merely because of growing complexities, economic affairs have required more governmental direction for their effective coordination. Many economists, from Adam Smith in the eighteenth century to Friedrich Hayek in the twentieth, have argued that an open market is the most effective system of socioeconomic coordination, the only one that systematically receives and responds to the ever-changing signals transmitted by millions of consumers and producers. This argument turns the Modernization Hypothesis on its head: while the government might be able to coordinate economic activities in a simple economy, it could never successfully do so in a complex one.
