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Manipulation and Deception in Society

Summary:
Rosolino Candela and I have published a series of papers on the history of price theory since Alfred Marshall.  In these papers we distinguish between not only microeconomics and macroeconomics, but also within microeconomics those theories that could be dubbed price theoretic as opposed to those that are more appropriately labeled choice theoretic.  Furthermore, we distinguish between three different approaches found in the literature in response to thinkers that stress social problems (poverty, ignorance and squalor) and market failures (monopoly, externalities, public goods). Those responses can be summarized as: Conceptual Clarity     it is important to make sure folks are telling the story to the end and thus drawing the curves the right way and in the right place

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Rosolino Candela and I have published a series of papers on the history of price theory since Alfred Marshall.  In these papers we distinguish between not only microeconomics and macroeconomics, but also within microeconomics those theories that could be dubbed price theoretic as opposed to those that are more appropriately labeled choice theoretic.  Furthermore, we distinguish between three different approaches found in the literature in response to thinkers that stress social problems (poverty, ignorance and squalor) and market failures (monopoly, externalities, public goods). Those responses can be summarized as:

Conceptual Clarity

    it is important to make sure folks are telling the story to the end and thus drawing the curves the right way and in the right place

Entrepreneurial Alertness

    today's inefficiency is tomorrow's profit opportunity for the alert and creative entrepreneur that effectively responds

Institutional Innovation

    individuals are amazingly creative at finding contractual solutions that in effect allow them to bargain out of potential conflict into cooperative solutions

In our history of thought, we attribute these positions respectively to Stigler (conceptual clarity), Kirzner (entrepreneurial alertness) and Coase (institutional innovation).  However, we also hold out a special place for Alchian and Buchanan, who we believe have contributed in significant ways to all three.

Last week in my Advanced Microeconomics class, we were talking in part about the difficulties that manipulation and deception present to social order working from the arguments laid out in Akerlof and Shiller's Phishing for Phools.  As I was reading through the various papers and numerous examples given I was thinking of these distinctions Rosolino and I have identified.  While no doubt, a lot of the thinking about market manipulation suffer in my opinion from loose thinking that must be disciplined by conceptual clarity, I also think emphasizing conceptual clarity can almost be invoked too easily and thus serve as a sort of immunizing stratagem that is unhelpful.  Instead, we must face up to the imperfections of human beings and the scope for opportunism that are always lurking around each corner.  We are vulnerable not only to nature which is red in tooth and claw, but to other human beings that seek to identify the ignorant, the weak of will, and the gullible.  The line between cooperating partner and potential predatory is thinner than we want to admit.  But that is why we have strong social institutions (both informal and formal) to try to reinforce that line.

This means, I would argue, that we must talk more about the entrepreneurial and institutional responses if our goal is to stress the robustness of the market economy to the threats of manipulation and deception.  And, I do believe we have to address robustness for the simple reason that if we are consistent our first point should be to insist that any discussion must be about comparative institutional analysis -- manipulation and deception are omnipresent and thus potentially exist across all human realms -- commerce, politics, romantic, and even the sacred. The question is what disciplining devices can be relied upon to protect us in these different realms.  And, once put that way, Milton Friedman's discussion in Free to Choose on "Who Protects the Consumer?" comes to the forefront.  Market discipline doesn't say there aren't serious problems that can be identified, it just says those who commit them will be challenged in the market place by competitors and the buying and abstaining from buying decisions of consumers.

Watch this video, how would you update and what new challenges do you think must be met if the argument is going to hold?

Peter Boettke
Peter Joseph Boettke (January 3, 1960) is an American economist of the Austrian School. He is currently a University Professor of Economics and Philosophy at George Mason University; the BB&T Professor for the Study of Capitalism, Vice President for Research, and Director of the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at GMU.

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