Wednesday, February 12, 2014

Markets Where Possible; State Where Necessary

 Don Boudreaux in his lively Libertarian Café Hayek Blog HERE  another brilliant talking point in a quote from Karl Popper’s “The Open Society and Its Enemies: The Spell of Plato” (Routledge Classics) (Vol 1), 5tth edition, p 168:
“Aestheticism and radicalism must lead us to jettison reason, and to replace it by a desperate hope for political miracles.  This irrational attitude which springs from intoxication with dreams of a beautiful world is what I call Romanticism.  It may seek its heavenly city in the past or in the future; it may preach ‘back to nature’ or ‘forward to a world of love and beauty’; but its appeal is always to our emotions rather than to reason.  Even with the best intentions of making heaven on earth it only succeeds in making it a hell – that hell which man alone prepares for his fellow-men.
I like Café Hayek and its regular daily short quotations from a large variety of works, especially when they can be applied to a variety of interpretations, as this one can.  So thanks to Don Boudreaux, though I absolve him from necessarily from agreeing with my comments below.
I see it as a metaphoric expression applicable to much of modern economics, especially of the modern neo-classical variety and its obsession with equilibrium and equilibrating forces, imitating physics and the maths of balance with unexplained “invisible hands” to bring that balance about.
Hayek calls it “Romanticism” which “jettison[sons] reason”.  Out in the public domain of media certainties and in the Academy among believers the disease of equilibrium, despite the clear evidence of it absence in the real world and in even in the pure maths of General Equilibrium and its completely impractical assumptions making equilibrium in human societies that makes policies based on such limiting assumptions if applied it would make the promised nirvana of an “heaven on earth” would only succeed in making it a hell” when it is imposed by the zealots of collectivist states free of marketd or the opposite, the zealots of the absolute absence of states in total free markets.
Neither extreme is, or ever has, worked.  States and property relations have always existed since humans left the forest (metaphorically) Markets emerged from early primitive forms as populations grew, particularly within centres of population in towns. National state defence forces became functionally specialised (intense divisions of labour and manufactured equipment and demand for subsistence provisions making local taxation an imperative.  This promoted the evolution of local markets using the sovereign's coinage, which once developed grew within national states and eventually, in some parts of the world, to become dominant new forces in some societies in Europe, and later across the world.
In sum, states and markets co-exist and always have.  The politics of state societies swing about between powerful states (crudely) leaning to the Libertarian/ authoritarian Right and powerful collectivism leaning to the collectivist Left.  Each blames the others’ ideology.  Neither tends to recognize what each values. 
Briefly, I suggest, with little hope of it being accepted by the ideologues (a pox, Sir, on both of you), who often share the same roots, but history shows that the appropriate policy today could be summed as “markets where possible, states where necessary”. 


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