“Supply and demand are undefeated.” That sounds like something I would say, but it comes from Wall Street Journal’s Matthew Hennessey’s piece in response to JD Vance calling “the market” a tool. Hennessey argued, “Markets… can’t be bullied into compliance with a political agenda… They are governed by the laws of economics the way the physical world is governed by the laws of gravity. … You can’t ignore or wish them away. No amount of political will or spilled ink can overrule them. Supply and demand are undefeated.”
Oren Cass responded, calling the piece Hennessey’s “fun bout of market fundamentalism,” and claiming that economics is nothing like physics. The gravity analogy is “disastrously inapt.”
Readers will not be surprised that I disagree with Cass. I think there are fundamentally useful laws of economics that we can understand, and in today’s newsletter, I want to explore those laws, how we think about them, and what Cass’s critique get wrong about them.
But first, a little more context on these pieces. Despite Cass’s jabs about “fundamentalism,” Hennessey wasn’t worshipping markets as a deity. He was making a different point, “The market isn’t a proper noun, and it also isn’t a tool. The market simply is. Nobody controls it. Nobody worships it, but only a fool ignores it.” The market is an emergent order of (the technical term is) a shit ton of exchanges. The op-ed’s point was simply that you can’t bend market forces to your will without consequences. The claim wasn’t that policy is irrelevant or that the government could never improve things. “Only a fool ignores it.” That’s the key idea.
The real question isn’t whether markets are perfect (no serious economists would say so and Hennessey never claimed they were). The question is whether economic forces operate in predictably enough ways to guide policy decisions. Cass loves to attack “market fundamentalism,” as if economists think markets are infallible or sacred, and he brings this reaction to Hennesey’s piece. But economists don’t assume markets are perfect. We observe that markets have systematic tendencies. Those aren’t “independent of cultural and institutional context, moral custom, and law.” This goes back to Smith. It’s not that all markets everywhere have a beneficial invisible hand. Sometimes markets have very perverse incentives. But within a class of similar markets, we see similar outcomes. And those patterns are what we call “economic laws.”
Hennessey’s gravity analogy captures this: you might wish for different outcomes, but economic forces will tug against policies that ignore basic incentives. The question is whether those forces are reliable enough to predict policy outcomes. Cass says no. The vast evidence says otherwise.
…..
For those who don’t know, Vernon Smith first ran simple “double-auction” markets in the lab back sometime before 1962 (when the paper was published). Student buyers and sellers were each handed private valuations; then they haggled in real time. Within a few trading rounds, the price converged tightly on the textbook supply-and-demand equilibrium, even though nobody could see the full curves. Smith called that pattern “astonishing” proof that decentralized price signals coordinate knowledge in precisely the way Friedrich Hayek had theorized.
Two decades later, he coined the Hayek Hypothesis to summarize one key takeaway from this literature:
The gains from trade can be realized even when information is diffuse, agents are not price-takers, and there is no central auctioneer.
Surveying dozens of lab markets, Smith found the hypothesis “remarkably robust.” Prices gravitated to equilibrium, allocative efficiency regularly exceeded 90%, and gains from trade were captured despite participants groping in the dark. This work went on to earn him the Nobel Prize.
My own work with Omar Al-Ubaydli and Peter Boettke pushes that test outside the lab. We compiled natural field experiments—farmers’ markets, online ad auctions, water-allocation exchanges—where researchers know the true supply and demand schedules ex-ante. The result? The Hayek hypothesis seems as robust in the field as it is in the laboratory. In many settings, experienced traders closed more than 95 % of the theoretically available surplus, and equilibrium prices tracked the competitive prediction surprisingly well.
They demonstrate that markets can coordinate dispersed information and reach efficient outcomes without central planning. Even when traders don’t know the overall supply and demand, prices converge to the competitive equilibrium. Voluntary trade creates value—both sides benefit, which is why trade happens in the first place. This is
These studies are repeatable: run the same induced-value market tomorrow and you’ll watch the same convergence. I’ve done them with thousands of students in my own Econ 101 classes. They show that certain relationships—downward-sloping demand, price-guided coordination, gains-from-trade—behave like empirical regularities strong enough to stake predictions on.
Reason‘s Eric Boehm is correct: “Congress must vote on tariffs.” A slice:
Congress needs to vote on the tariffs. Now.
This is true for both practical and constitutional reasons. The practical one should be obvious enough, given all the tariff-related chaos that Trump has unleashed. The economy needs certainty, and Congress can provide that by approving whatever tariff package can get the necessary votes in both chambers—and by restricting Trump’s ability to keep making changes.
For tariff advocates, the benefit of having a vote in Congress is putting an immediate end to the various lawsuits facing the administration’s trade policies. In both lower court rulings that went against Trump, the judges did not say tariffs are unlawful. They said Trump did not have the authority to impose those tariffs, and that the power to do so rests with Congress.
That brings us to the constitutional argument. Article I, Section 8 spells it out in no uncertain terms: “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises.”
Some members of Congress have been making this point for months. “Tariffs are taxes, and the power to tax belongs to Congress—not the president,” is how Sen. Rand Paul (R–Ky.) likes to explain it. “Our Founders were clear: tax policy should never rest in the hands of one person.”
GMU Econ alum Ryan Young explains that “without trade, life more complex than bacteria could not exist.” Two slices:
We are literally made of free trade. It is in every cell of our bodies.
The first lifeforms to evolve on Earth, at least 3.5 billion years ago, were very simple. They were single-celled organisms that lacked a nucleus or the organelles we see in more recently evolved organisms. They live on today as archaea and bacteria. But somewhere along the way, possibly as early as 2.7 billion years ago, some of these simple cells discovered specialization and exchange. In other words, trade.
These early entrepreneurs had comparative advantages, like producing energy or providing propulsion. Some of these specialists banded together as a survival tactic. If an energy-producing proto-mitochondria could give up some of its energy in exchange for a proto-flagellum’s help in escaping predators, both benefitted. Both survived, and both reproduced.
Eventually, these mutually beneficial trading relationships became permanent. Members of a trading group enclosed themselves inside a common membrane, which itself specialized in protection and chemical balancing.
These early traders became the first eukaryotic cells. All life more complex than bacteria descends from these entrepreneurs. The word “eukaryotic” comes from the Greek words for “good” and “seed,” referring to the nucleus that housed some of the specialists, now called organelles.
…..
Once humans emerged, we invented several new levels of trade. Individual humans traded with each other within their tribe, and with humans in other tribes. The specialization and productivity this enabled eventually allowed for villages, cities, states, nations, and even empires. Over millennia, people eventually developed a deep enough division of labor and the technology to trade with each other around the world, when they are allowed to.
It is amazing to think that all these levels of trade are operating simultaneously. Every cell in your body, right now, two trillion of them, is engaging in internal trade among their organelles. Each of these cells is part of an organ or body part that is itself a specialist.
All of these specialists work together to form an individual person with a single consciousness and free will. This person in turn specializes in certain tasks, such as writing essays about trade, which it then exchanges with specialists in other areas.
Biological evolution and social evolution are tightly intertwined in what might be the world’s most intricate dance. It is all made possible by trade, from the microscopic level to the global level. Trade doesn’t just make possible modern prosperity. It makes possible life as we know it. If any one of those levels of trade were to cease, most life on Earth would cease.
Steven Greenhut reminds us of the value of the First Amendment. A slice:
For a sense of where we might be without it, I’d recommend looking at Great Britain and its approach to the speech concepts detailed on our First Amendment. Our nation was spawned from the British, so we share a culture and history. Yet, without a specific constitutional dictate, that nation has taken a disturbing approach that rightly offends American sensibilities.
As Tablet magazine reported, “74-year-old Scottish grandmother Rose Docherty was arrested on video by four police officers for silently holding a sign in proximity to a Glasgow abortion clinic reading ‘Coercion is a crime, here to talk, only if you want.'” Thousands of Brits are detained, questioned, and prosecuted, it notes, for online posts of the type that wouldn’t raise an eyebrow here. The chilling effect is profound.
This isn’t as awful as what happens in authoritarian countries such as Russia, where the government’s critics have a habit of accidentally falling out of windows. But that’s thin gruel. Britain and the European Union are supposed to be free countries. Their speech codes are intended to battle disinformation/misinformation, but empowering the government to be the arbiter of such vague concepts only destroys everyone’s freedoms.
America’s unfortunate rising suspicion of foreign students began before Trump 2.0.
