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Competition Is a Discovery Procedure

Brink Lindsey and Sam Hammond have a fan in one Rodger Griff:

Mr. Griff:

Thanks for your follow-up e-mail.

You wonder how I “can argue that government officials know too little to succeed at industrial policy and at the same time think that private businessmen and investors know enough to succeed in business.” I am, you say, “contradictory.”

But I’m not contradictory. My argument is that no one knows which products, methods of production, and kinds of businesses are better today for the home economy and which will be better tomorrow for this economy. This ignorance cannot be overcome by econometric studies, committee meetings, thinktank position papers, or democratic elections. The only way to discover what are better uses of resources is market competition. Only competition among producers who are free to enter and leave the market – producers who are allowed to gain customers never through force but only through persuasion – will reveal which uses of resources are worthwhile and which aren’t. Such knowledge is simply unknowable in the abstract and beforehand.

I hesitate to use sports analogies, because they too easily mislead. (Economic competition shares some features with sports competitions, but is in many other ways entirely different.) But here’s one analogy that’s perhaps worthwhile:

Proponents of industrial policy are akin to an Olympics official who, before a foot race is run, declares confidently that his research reveals to him that the fastest runner is Jones – and therefore orders that the race not be run. The official then, with much fanfare and self-satisfaction, hands a gold medal to Jones.

Clearly, this academic method of discovering who is the fastest runner is fraudulent. Equally fraudulent at discovering better uses of resources is industrial policy.

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