A superb piece by Louis Rouanet which sums up quite the core of philosophy of market economics.
One of the most important debate in economics is state vs markets. There is little doubt that most economists are on the side of markets. The oft quoted phrase in economics is let the markets work. But what is this market? How does it work?
Rouanet says well markets is the people:
It is wrongly accepted by many liberals (i.e., libertarians) that most, if not all, social problems can be “solved by the market.” But clearly, the “market” cannot magically solve our problems. Let it be clear that there is no doubt that the best way to have social progress is to have a free market economy. However, free markets are not solutions to problems, per se, but are rather what gives us the opportunity to find our own solutions to our own problems by finding the most valuable way to serve one another. For example, Frédéric Bastiat famously wrote in The Law that: “At whatever point of the scientific horizon I start from, I invariably come to the same thing — the solution of the social problem is in liberty.”
By speaking about the virtues of the market, we tend to forget that markets do not have virtues, only people do. As Murray Rothbard once wrote, “it is overlooked that the ‘market’ is not some sort of living entity making good or bad decisions, but simply a label for individual persons and their voluntary interactions. … The ‘market’ is individual acting.”
During each crisis, politicians and intellectuals systematically presume that “we should do something.” Thus, when liberals emphasize the importance of not violently intervening in the free market order because of the harmful, but yet unseen, consequences of state intervention, they are often accused of favoring inaction. This is a misconception of the liberal argument.
The free market is not superior because it offers solutions. It is superior because its basis is freedom, a freedom that is used by individuals to find new ways for them that are in harmony with the interests of their fellow men. Of course, there are many problems and abuses with the market, but entrepreneurs — if not prevented from entering the marketplace by governments — seek to solve these problems in the pursuit of profits. Through these entrepreneurs, the market is a process that tends to satisfy the most urgent, not-yet-satisfied, needs of the consumers.
To be clear, liberalism — used here to denote the philosophy of laissez-faire — should not be considered as being the utopian opposite of socialism. It is not a magic recipe that guarantees perfect solutions at all times and for all things. Socialists like to imagine that liberals believe the market can cure every ill. In other words, they think liberalism is a mirror reflection of socialism. It is not. True liberalism does not promise perfection, it does not even promise a solution. There will always be problems. Our goal should be to find the best way to improve the situation, not to achieve an ideal world of fantasy.
This is actually the way to think about markets. How can people collaborate and work on a solution to a problem. The Pretense of knowledge is such a problem in economics where saying I don’t know is like a crime.
The biggest problem with all this talk about markets is that we expect some government/institution to make the market function. I mean look at India for instance. All the discussion on Indian economy says we should allow markets to function, deregulate etc. In all these talks, the focus is on government. How some government ministry or institution should allow such and such thing to happen and then Indian growth will explode. There is hardly any talk about India’s potential in industries, human resources and so on.
Economic literature also needs to be criticised for not even mentioning people in any discourse on development. The entire thing is about how some law of economics or superior economist has all the solutions for the developing world. It is also such a double standard to see market leaning economists to be working at some government ministry/institution and telling us the virtues of markets.