No Superhero in the wings, but there are speculators

The New York Times business section has an article in today's paper discussing last weeks stock market downward ride.  I agree that there are major problems with the financial sector in the US that require significant market adjustments.  But we don't need to look outside of the system for a savior, we need only free up actors within the economy.  The role of the speculator in smoothing out market adjustments (even in times of crisis) is one of the least understood economic principles in the public mind (and even forgotten somewhat among those in the profession). 

The entrepreneur by buying low and selling high not only reaps profits, but in the process moves resources and changes the pattern of production and exchange in the economic system.  Relative price adjustments work wonders in shuffling and reshuffling assets so wealth is created rather than destroyed.  Will there be economic hardship during this adjustment? --- yes.  Is this severe adjustment process that is necessitated a result of bad government poicy? -- of course.  But IF government stays out of the economic process --- in short, we don't look for any superhero to save us --- the salvation will come from wtihin the market system itself as adjustments will be made in response to speculators looking to exploit the situation and in the process smoothing out production plans and consumption demands over time. 

Step back for a minute as an economists quo economist and recognize the "marvel" of this system of relative price adjustments.  As private citizens we are confronted with some tough decisions on the prudent path, but as teachers we have what is called a "teachable moment".

Comments

[Brian Pitt]

Dr. Boettke,

You do not provide readers the opportunity to respond to the Boettke as a Rothbardian piece, but I have been struggling with something regarding just that.

I am often convinced of the socio-political conclusions of neo-classical, Austrian economists, and rational-choice sociologists and political scientists. However, I believe that many have not done a very good job in promulgating the wonderful insights of classical liberalism and libertarianism. For instance, I believe that Hans Hermann-Hoppe has one of the most interesting minds in the social sciences; but his (semi) polemical rhetorical style diminishes the quality of his insights. My frustrastion with his rhetorical style notwithstanding, I found the methodological insights of the Austrian school and the socio-political insights of classical liberalism and libertarianism through him.

The point I am trying to make is that I am trying to expound Hoppian conclusions (sans his intolerance of Gadamer and philosophical hermenuetics) through the "post-classical" political economy arguments that you and Storr (2000) posit.

What I am asking you is:

Does one have to choose an "intellectual camp" (i.e., a methodological, a theoretical, and/or an empirical style) in order to put forward similar conclusions. For instance, Mises and James Buchanan certainly have/had misgivings about the democratic mechanism, but they appeal to opposing mechanisms. Also, I would argue that the writings of Lavoie and Hoppe evidence that theory being strictly separated from history is dubious. While Hoppe will disagree with what I have written, his adducing the theoretical/historical writing of scholars like Bernard Bailyn and his discussion of the "sociology of taxation" says otherwise.

[Peter Boettke]

Brian,

I have come to a position that we should not place ANY intellectual restrictions on ourselves on who we learn from, and draw inspiration from. I do think that we must "submit" to the authority of our professional peers in finding out whether or not our argument works or not. But I also have a fairly wide notion of what works because I realize that some ideas while correct are unpopular. But I interpret that to mean that we just have to work harder to get our arguments a hearing among our peers.

But my position on this aspect of science is very much influenced by Polanyi --- we have to balance originality with plausibility and interest to professional peers.

In the end, however, I am now (mid-career) much more comfortable with the idea that I am just muddling throw than I was when I started. I am not embracing inconsistency --- we should strive to be clear and consistent in our writing. But often arguments that I thought work, don't and you learn and try to work it out in your own mind again. In short, I am more suspicious now than I was of any claim that someone makes that they have figured it all out. Instead, we are all just taking stabs at trying to figure it out, and there are different "windows" through which we see the world. Part of our job at scholars is to learn to respect the "windows" and to present our own arguments as suggesting that a slightly different window might be worth looking through.

Does that make any sense?

To put it another way, I see the intellectual world as "streams of arguments" --- Buchanan can clearly be mixed with Rawls, Nozick and Hayek to discuss social justice issues and we can get different arguments from each of these thinkers to run an argument that becomes our own, and then we test that against professional philosophers and social theorists. I don't think we are forced with categorical choices. Creativity is also found in the unique syntheses that we forge that others never thought were possible. Make an argument, write it as clearly as possible given your talents, and provide empirical evidence that your position has some correspondence with the world out the window.

I am sure I haven't expressed this well ... but I have to run off to class.

Pete

BTW, I turned the comments off because my experiment in civil discourse didn't take place. I will perhaps try again. People just cannot help themselves and tend to post under false names and/or engage in rude commentary. I find it all depressing from an Austrian perspective because it reflects that the sort of conversation that we are hoping to generate is either not intellectual exciting to young minds or it is vulnerable to crowding out effects. Can you help me understand what we are doing wrong so we can have a vibrant discussion and thus learning community on this blog without it being destroyed by irresponsible individuals who don't want to follow the posted rules?

[Brian Pitt]

Thank you for your time Dr. Boettke.

Believe it or not, your scholarship has already answered my question. I no longer consider myself to be a fraud by making myself known as an Austrian economic SOCIOLOGIST. One who is inspired by the work(s) of Mises, Menger, Hayek, Lachmann, Albert Jay Nock, Franz Oppenheimer, Kirzner, Weber, Simmel, de Jouvenel, de Tocqueville, Richard Wagner, Richard Swedberg, Don Lavoie, Hoppe, Rothbard, Storr, and Boettke.

As far as the blog, the issues you raise excite our intellectual passions. And, as evident from this blog, and many others, our intellectual passions, at times, evoke insigtful comments, yet they also can call forward mean-spirited and immature comments directed toward figures whom we harbor intellectual disagreements with. We students can't help it though. We do not have time to put together our ideas as paid academics do!

[Brian Pitt]

While I am sure that I left off a number of others, I cannot believe that I forgot to include the man who I believe best understood the methodological program of Weber: Alfred Schutz. (Of course Mises and Lachmann are very close seconds.)