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Oren Cass Is Incorrect to Equate the Competitive Market Process With an Inebriated Ass

Summary:
In my most-recent column for AIER, I do my best to point out some errors that are in Oren Cass’s recent attempt, at Law & Liberty, to defend industrial policy against Samuel Gregg’s wise warnings against such policy. A slice: Now to Cass’s foundational error, which is this: he completely misses the market’s role at gathering and processing information. This error is revealed when he equates the competitive market to the meanderings of a drunk donkey. In fact, it is no such thing. As many economists – from Adam Smith in the 18th century through Carl Menger in the 19th and Ludwig von Mises, F.A. Hayek, Armen Alchian, Milton Friedman, Julian Simon, Deirdre McCloskey, and Vernon Smith in the 20th and 21st – have revealed, the competitive market price system at every moment marshals and

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In my most-recent column for AIER, I do my best to point out some errors that are in Oren Cass’s recent attempt, at Law & Liberty, to defend industrial policy against Samuel Gregg’s wise warnings against such policy. A slice:

Now to Cass’s foundational error, which is this: he completely misses the market’s role at gathering and processing information. This error is revealed when he equates the competitive market to the meanderings of a drunk donkey. In fact, it is no such thing.

As many economists – from Adam Smith in the 18th century through Carl Menger in the 19th and Ludwig von Mises, F.A. Hayek, Armen Alchian, Milton Friedman, Julian Simon, Deirdre McCloskey, and Vernon Smith in the 20th and 21st – have revealed, the competitive market price system at every moment marshals and acts in accordance with an amount of dispersed information so detailed, vast, and frequently changing that no government officials could possibly hope to outperform the results of this market process. These economists’ argument is not that the market process works perfectly; of course it doesn’t. The argument instead is that no amount of conscious planning or intervention can hope to match, and much less to surpass, the performance of decentralized and competitive markets over time.

Cass might disagree with these economists and their arguments. But for this disagreement to obtain any measure of legitimacy requires that he advance a substantive argument to the contrary. Instead, though, he writes in apparent unawareness of this vast scholarly literature. He simply offers two twin assertions: on one hand, market processes are akin to an intoxicated ass, and on the other hand, government officials somehow (by what mysterious means we aren’t told) have uniquely excellent access both to information about the current state of the economy as well as to knowledge about the future. (Cass also ignores public-choice considerations – that is, the bias of government officials to serve special interests at the expense of the general interest – but that’s a tale for another time.)

Assertions such as those made by Cass are easy to offer. Dreamers, dirigistes, and demagogues have done so since the dawn of the industrial age. These assertions are not, though, a sufficient reason to ignore economic theory and to empower state officials to superintend and to override the results of competitive markets in which individuals, as both consumers and producers, spend their own money – and the results of which have proven, without exception, to be far superior to consciously imposed schemes of politicians and bureaucrats.

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Don Boudreaux
He is a professor of economics at George Mason University in Fairfax, Virginia. Previously, he was president of the Foundation for Economic Education.

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