Here’s a letter to someone who recently “stumbled in to Cafe Hayek”; he doesn’t like its menu items and told me so rather rudely:
Deeply disturbed by my “close minded opposition to laws for guaranteeing affordable prices,” you write that “faith in free markets in normal times is never justified but faith in them in dangerous times like the one now shows extreme stupidity.”
I’m sorry, but I cannot help but be amused by the irony of your accusation. You accuse me (and most other proponents of markets) of being motivated by that which does not motivate us but which does motivate those who would suppress markets with command-and-control diktats – namely, faith.
Put aside here the little matter of the historical record overwhelmingly supporting the case for free markets. Focus instead on this objective reality: those of us who endorse markets rest our case on a well-developed theory that explains how markets tend to allocate resources to their most-productive uses, while those who endorse the replacement of markets with political and bureaucratic commands have absolutely nothing comparable.
The economic case for markets is built on economists’ theory of price and of the competitive market process. This theory explains how, when property rights are secure, prices are set and change and how they, along with resulting profits and losses, inform and incite producers to use resources to meet as many as possible consumer demands. This theory explains also how prices inform and incite each consumer to coordinate his or her choices with the choices of hundreds of millions of other consumers.
Does this theory explain every single observed facet of economic reality? Of course not, for no truly explanatory theory could possibly be so comprehensive. Does following this theory guarantee ‘perfection’ (however defined) in real-world markets? Of course not, for the world is too unruly ever to produce any such outcome. But this theory does explain how resources are allocated by markets, and it explains this allocation remarkably well.
In contrast, those who propose to replace markets with government direction have no theory – none – of how resources would be allocated in ways that satisfy as many as possible consumer demands. Such people have only faith – faith that government officials somehow ‘know’ what the ‘correct’ prices are – faith that bureaucrats somehow ‘know’ which goods and services fellow citizens ‘should’ produce more of and which they should produce less of – faith that politicians somehow ‘know’ which things ‘should’ be imported and exported and which things ‘should not’ be imported and exported. And on top of this utterly baseless faith in state-officials’ knowledge and information is the equally unjustified faith that these flesh-and-blood officials, possessing authority to coerce, will behave as angels.
So please, if you wish – as you should – to warn against those who would turn the economy over to faith-based true believers operating without anything remotely resembling a theory of how their interventions would work, don’t warn against those of us who have an actual theory to explain how markets allocate resources; warn instead against those who, wishing to suppress markets, offer no explanation whatsoever of how their designs will work beyond the cry of “Trust us!”
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030