The Legacy of Smith and Hayek: Free The Market

|Peter Boettke|

The European will be running a debate on whether the free market ideology has outlived its purposefulness.  I was invited to contribute and my piece was posted today in English and German.  Please join the conversation.

Comments

[b123]

"The great free market economic thinkers from Adam Smith to F. A. Hayek [...] argued that individuals will pursue [...] those activities that are in their interest to pursue. [...] Human fallibility may cause “failures,” inefficient markets, but this very fallibility also sets in motion the market process of discovery and adjustment."

Of course, not all market "failures" can be remedied by the market itself. In some cases, transaction costs may be too high and even "inefficient" government action could improve the result.

I know your piece was short, but I wonder why you chose to defend the "free market" order instead of a "constitutional market" order, i.e. a market order bound by general rules which exclude harmful actions by market participants.

If one uses the paradigm of the market as an institutional arena, the question becomes not _how much_ rules and government action, but _which_ rules and government action are in the citizen's interest.

Yes, there is a knowledge problem when creating or modifying rules of the market. Such a knowledge problem can only be a warning against lighthearted tinkering with the rules of the market, but not an argument against trying to make the market process work better through rules ad regulations where it works in an undesirable way.

Two be clear, the knowledge problem can be an argument against rules that try to steer the market process in a certain way, that try to immediately impose the desired ends of a central planner and thus prohibit market participants to use their own knowledge of the circumstances of time and place. It cannot be an argument against "negative" rules which only prohibit certain conducts and thus improves the general pattern of outcomes of the markte, but which do not otherwise impede the freedom to search and realize profit opportunities.

Do I think that in the present there are too many undesireable rules and regulations in place? yes, I do.
However I think that the "free market" concept has certain problems and leaves itself open to critcisms, criticisms which can be well adressed by recognizing the important role of government rules in making the market work to the satisfaction of the people. The "simple system of natural liberty", or Hayeks "rules of just conduct" meant freedom _within_ the given rules, but (cautious) planning and improvement of the rules themselves.

[cpranger]

b123,

I am not here to disagree with you. I'm asking that you provide examples of improper rules and proper rules.