… is from page 5, of the original edition, of my late colleague James Buchanan’s brilliant 1973 paper “Introduction: L.S.E. cost theory in retrospect,” which serves as the Introduction to the 1973 collection, edited by Buchanan and G.F. Thirlby, L.S.E. Essays on Cost:

The theory of social interaction, of the mutual adjustment among the plans of separate human beings, is different in kind from the theory of planning, the maximization of some objective function by a conceptualized omniscient being.

DBx: Human beings are not chess pieces to be moved about by a master, and human society neither presents a ‘problem’ that has a unique ‘solution’ nor is a mechanism that can be engineered.

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Here’s a follow-up letter to Daniel Schwartz:

Mr. Schwartz:

Thanks for your response.

In my earlier note I should have made the following point stronger and more distinctly: even if government officials are not motivated by their own narrow interests, and even if these officials are singularly prescient about what are ‘the industries of the future,’ they cannot possibly engineer an economy to have a ‘better’ comparative advantage without overriding many of the freely made choices of legions of ordinary men and women.

A simple example will reveal my meaning. Suppose that you, as an adult, wish to earn your living writing poetry despite your parents’ wish that you become a neurosurgeon. You’re aware that poets earn less monetary income than do neurosurgeons, but your desire to work as a poet is so strong that you’re willing to forego a great deal of income in order to enjoy the satisfaction of writing poetry full-time.

How would you react if your parents secured a court order that permits them to force you to train and then to work as a neurosurgeon? Would you find this use of force acceptable? Would your answer change if your parents show you data that ‘prove’ that having a comparative advantage as a neurosurgeon is ‘better’ than having a comparative advantage at writing poetry?

In one objective, if shallow, sense your parents would be correct about the relative economic merits of neurosurgery versus poetry, for the market value of your services as a neurosurgeon would almost certainly be far higher than the market value of your services as a poet. But should this ‘objective’ fact dominate?

(If your parents instead persuade you, by subsidizing you with money stolen from their neighbors, to pursue a career as a neurosurgeon, the problem remains. The only difference is that now your parents forcibly reduce, not your options, but those of their neighbors.)

Not only does comparative advantage exist only at the level of the individual producing unit (the worker or the firm) rather than at the level of the nation – and not only, therefore, does each nation contain within it countless different (and always in flux) comparative advantages. In addition, each producing-unit’s comparative advantage is determined by a large number of variables, many of which are the subjective preferences of individual workers and owners. For these and a host of other reasons it would be foolish to entrust government officials with the power to engineer changes in comparative advantages.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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My GMU Econ colleague Bryan Caplan, writing in Time, reflects wisely on the recent college-admissions scandal. Here’s his conclusion:

As a college professor, I’ve spent years blowing the whistle on the wasteful system that employs me. When the FBI went public with this case, many of my Twitter friends declared victory on my behalf. Yet truth be told, this salacious scandal proves next to nothing. It just illustrates the obvious. Though we casually talk about our “institutions of higher learning,” little learning is going on. Sure, college is an intellectual banquet for the rare students with a passion for ideas and the energy to locate the also-rare professors with a passion for teaching. The vast majority, however, come in search of a stamp on their foreheads that says grade a — and leave with little else. If the parents accused by the FBI are guilty as charged, don’t say they failed to understand the purpose of a college education. Say they understood its purpose all too well.

In this new video, Dan Mitchell busts some myths about trade deficits.

Arnold Kling writes about hard-left economics.

Jeffrey Tucker tells the tale of the founding father of eco-fascism.

While we’re on the topic of eco-fascism, check out these new videos shared by Mark Perry.

Robert Higgs calls out false communitarians. A slice:

True communities form spontaneously and function voluntarily. False communities represent groups of people who use political means to victimize those outside the group and violate their natural rights. True communities have no need for cops; false communities cannot get by without them. False communities are more accurately described as political factions.

My intrepid Mercatus Center colleague Veronique de Rugy rightly bemoans the fact that sound politics makes for unsound budgetary policies.

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Quotation of the Day…

by Don Boudreaux on March 19, 2019

in Curious Task, Inequality, Philosophy of Freedom

… is from page 283 of the late Richard Pipes’s excellent 1999 book, Property and Freedom:

The main threat to freedom today comes not from tyranny but from equality – equality defined as identity of reward. Related to it is the quest for security.

DBx: Of course, to artificially attempt to bring about the material or monetary equality demanded by the political left – and, increasingly, by some on the political right – requires at least some measure of tyranny, even if it is less beastly than that which stalked the Soviet Union, and China beneath the heel of Chairman Mao.

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Bonus Quotation of the Day…

by Don Boudreaux on March 18, 2019

in Crony Capitalism, Trade

… is from John Pollexfen’s 1697 tract, A discourse of trade, coyn, and paper credit, as quoted on page 95 of Jacob Viner’s brilliant 1937 collection, Studies in the Theory of International Trade:

[M]ost of the laws that have been made relating to trade, since the Act of Navigation, may be presumed were calculated rather for particular interests than public good; more to advance some tradesmen than the trade of the nation.

DBx: Thus it was and so it shall always be.

Protectionists of course attempt to camouflage their predations as great services rendered unto the people of the nation. But any person above the age of four and of reasonably good sense understands that the predator who proclaims his devotion to his victims’ welfare is, in addition to being a predator, also a fraud.

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Do minimum wages reduce crime? No – in fact, the opposite seems to be the case. (HT my intrepid Mercatus Center colleague Veronique de Rugy) Here’s the abstract from a new paper by Zachary S. Fone, Joseph J. Sabia, and Resul Cesur:

An April 2016 Council of Economic Advisers (CEA) report advocated raising the minimum wage to deter crime. This recommendation rests on the assumption that minimum wage hikes increase the returns to legitimate labor market work while generating minimal adverse employment effects. This study comprehensively assesses the impact of minimum wages on crime using data from the 1998-2016 Uniform Crime Reports (UCR), National Incident-Based Reporting System (NIBRS), and National Longitudinal Study of Youth (NLSY). Our results provide no evidence that minimum wage increases reduce crime. Instead, we find that raising the minimum wage increases property crime arrests among those ages 16-to-24, with an estimated elasticity of 0.2. This result is strongest in counties with over 100,000 residents and persists when we use longitudinal data to isolate workers for whom minimum wages bind. Our estimates suggest that a $15 Federal minimum wage could generate criminal externality costs of nearly $2.4 billion.

Also on the minimum wage, here’s evidence from Denmark that the minimum wage does indeed reduce the employment of low-skilled workers.

Mark Perry has some evidence on an effect of the minimum wage on New York City’s restaurants.

In my most-recent column for AIER, I agree with my late, great colleague Jim Buchanan that much of what the state does is indeed predatory.

David Henderson is keeping his copy of Peter Berger’s 1986 book, The Capitalist Revolution.

I share Dan Mitchell’s admiration for the work of the late Bernard Siegan.

Very sad news: Alan Krueger has died at the far-too-young age of 58.

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Rogers Hornsby, who averaged .400 over five years, was facing a rookie pitcher who threw three pitches that he thought were strikes but that the umpire called balls. The rookie shouted a complaint to the umpire, who replied: “Young man, when you throw a strike, Mr. Hornsby will let you know.”

The above passage about the great St. Louis Cardinals’ hitter of a century ago, Rogers Hornsby, is from this 2007 column by George Will. It is one of the few sports stories that I dare to use as a metaphor for markets.

In markets, producers make offers to consumers – offers that consumers are free to accept or to reject. If offerings made by a producer are liked by consumers well enough to prompt them to pay prices high enough for what that producer is offering, that producer profits and prospers for as long as the offerings it makes to consumers are judged by consumers to be worthwhile. In contrast, if offerings made by a producer are not liked well enough by consumers – if, we might say, consumers choose not to ‘take a swing’ at accepting that producer’s offerings – that producer must improve its offerings.

Such choices belong exclusively to consumers.

The charm and captivating twist of the story related above by George Will lies in the umpire’s recognition not only that a great hitter knows a solid offering by a pitcher when that hitter sees one, but that the judgment of such a hitter should not be overridden even by someone in an officiating capacity. If a pitcher’s offering is in the strike zone, a great hitter will swing at it. If a great hitter chooses not to swing at a particular offering by a pitcher, wisdom suggests that that particular offering missed the strike zone even though some third party might judge otherwise. There’s no need, in such cases, for balls and strikes to be called even by an umpire, and certainly not by the pitcher.

Obviously, baseball would be a sport productive of no value if its rules gave to pitchers the right to decide if each particular pitch is a strike or a ball – that is, the right to decide if each particular pitch is acceptable or unacceptable to the batter. Likewise, markets would be economic systems productive of no value if its rules gave to producers the right to decide if each particular product offering is acceptable or unacceptable to consumers.

As in the above story of Rogers Hornsby with respect to pitches, in free markets consumers are the ultimate judges of whether or not any offering by a producer is acceptable. Yet protectionists, nanny-staters, and industrial-policy advocates are among those who believe the contrary – namely, that the right to decide whether or not any offering by a producer is acceptable belongs not to consumers but, rather, to producers.

Protectionists, nanny-staters, and industrial-policy advocates of course mask their disdain for the judgment of consumers by proposing that the ultimate judgment of whether or not consumers should accept any particular offering by producers be given to neutral umpires – that is, to government officials. But even if (contrary to reason and experience) government-employed ‘umpires’ were in such matters unbiased, deeply informed, clear-eyed, and ‘scientific,’ these umpires would still not be remotely as well-placed as is each consumer to determine the legitimacy of any particular offering by a producer.

Like all metaphors, the one I use here isn’t perfect. In baseball, neutral umpires are necessary to stand ready to make the call on whether or not each pitch is one that the person to whom the pitch is made ‘should’ have or ‘shouldn’t’ have treated that pitch as acceptable. But in markets for goods and services the production or consumption of which carry no serious risks of imposing physical harm on innocent third parties, no such neutral umpire is necessary to make such calls: the judgment of consumers is both necessary and sufficient.

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Quotation of the Day…

by Don Boudreaux on March 18, 2019

in Adam Smith, Philosophy of Freedom, The Economy

… is from page 358 of Vol. 19 (Ideas, Persons, and Events [2001]) of The Collected Works of James M. Buchanan; specifically, it’s from Jim’s 1997 essay “Reform without Romance: First Principles in Political Economy”:

The simple system of natural liberty, to use Adam Smith’s own designation, or as we would say, the market organization of economic activity, serves two functions simultaneously. Resources are directed by private owners into the most productive activities, as determined by the demands of final consumers, who get, in turn, the largest bundle of goods, again as measured by individuals’ own evaluations. At the same time, however, over and beyond this economic or efficiency-enhancing function, the market reduces or eliminates the need for collective or political choices to be made concerning composition, organization, extent, and distribution of valued product.

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Bonus Quotation of the Day…

by Don Boudreaux on March 17, 2019

in Seen and Unseen, Trade

… is from a speech delivered by Richard Cobden in Manchester on January 15, 1846; the speech – titled “Free Trade With All Nations” – was delivered to an audience sympathetic to free trade:

I don’t intend to go into an argument to convince any man here that protection to all must be protection to none. It takes from one man’s pocket, and allows him to compensate himself by taking an equivalent from another man’s pocket, and if that goes on in a circle through the whole community, it is only a clumsy process of robbing all to enrich none, and simply has this effect, that it ties up the hands of industry in all directions.

DBx: Any particular protectionist policy sits somewhere on a spectrum. At one end of the spectrum is a scheme of protectionism in which government officials have great discretion in doling out the privilege of tariffs. Some producers get protected; others don’t. Here, the few rob the many.

At the other end of the spectrum, government officials have no discretion in doling out the privilege of tariffs because all industries are equally protected, to the same degree, by tariffs from import competition. Here, everyone robs everyone.

Pick any point along this spectrum, and you’ll find – in practice – some people robbing others but not themselves being robbed; other people robbing others while they themselves also are robbed; and yet other people who do no robbing but who are robbed.

What you’ll not find anywhere along this spectrum is a point at which no robbery occurs, for protectionism is in essence a scheme of organized theft.

Protectionists, as has often been observed, have the ethics of thugs. Regardless of their legerdemain or their excuses – or even their felt intent – they are all apologists for plunderers.

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Here’s a letter to someone in Pittsburgh who, as he described to me his and his friends’ attitude, “completely distrust[s] laissez faire”:

Mr. Schwartz:

Thanks for your feedback on my column discussing Chinese and U.S. industrial policy.

You believe that “we need the government to direct us to obtain as a nation the comparative advantage which will best serve us.”

I disagree.

Comparative advantage does not exist at the level of the nation; it exists only at the level of the individual producing unit – that is, at the level of the worker, the entrepreneur, and the firm. A nation, therefore, has within it not one comparative advantage but, rather, countless comparative advantages.

It’s true that a nation’s geography, culture, institutions, and existing pattern of economic activities often help to determine which specific good or service a particular worker, entrepreneur, or firm has a comparative advantage at producing. But any comparative advantage, whatever it might be, is still located only in the actual, individual producing unit and not in the nation.

Recognizing this reality highlights another: nearly every person individually chooses his or her comparative advantage. Choosing to attend (or not) college, and choosing which major to pursue is a choice in changing one’s comparative advantage. Ditto when young in choosing which occupation to pursue. Ditto when older in choosing if and how to change careers. Ditto when choosing one’s business partners.

Given the multitude of choices constantly being made at the level of the individual either to change or to reinforce an existing comparative advantage, any attempt by the government to determine for the nation what ‘the’ comparative advantage – or what the set of comparative advantages – will be would require that the government override nearly all of these individual choices in order to enforce its national plan. I see no reason to believe that any council of politicians or bureaucrats can possibly know what are the ‘best’ comparative advantages for individuals to have and to pursue.

And I see every reason to believe that any attempt by politicians or bureaucrats to override these countless individual choices would unleash not merely gross inefficiencies, but also a mix of corruption and tyranny. Yet the government would indeed have to override these countless individual choices if it were intent on deciding what will be the country’s comparative advantage(s).

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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