You may be surprised to learn that of the trio of long-awaited coronavirus vaccines, the most promising, Moderna’s mRNA-1273, which reported a 94.5 percent efficacy rate on November 16, had been designed by January 13. This was just two days after the genetic sequence had been made public in an act of scientific and humanitarian generosity that resulted in China’s Yong-Zhen Zhang’s being temporarily forced out of his lab. In Massachusetts, the Moderna vaccine design took all of one weekend. It was completed before China had even acknowledged that the disease could be transmitted from human to human, more than a week before the first confirmed coronavirus case in the United States. By the time the first American death was announced a month later, the vaccine had already been manufactured and shipped to the National Institutes of Health for the beginning of its Phase I clinical trial. This is — as the country and the world are rightly celebrating — the fastest timeline of development in the history of vaccines. It also means that for the entire span of the pandemic in this country, which has already killed more than 250,000 Americans, we had the tools we needed to prevent it. This is from David Wallace-Wells, “We Had the Vaccine the Whole Time,” New York, December 7, 2020. HT to my Hoover colleague John Cochrane, who hits home run after home run, but this is one went out of the park. If you do nothing else today, read his post. Wallace-Wells writes: To be clear, I don’t want to suggest that Moderna should have been allowed to roll out its vaccine in February or even in May. To be clear, I want not only to suggest that but to advocate that. John Cochrane explains why: Even under operation Warp Speed — a truly commendable accomplishment of the Trump Administration that, maybe a year or so from now the TDS crowd might acknowledge — the only thing we have been waiting for is FDA certification: Randomized clinical trials to prove safety and efficacy, before anyone is allowed to take the vaccine. What’s the free-market way? A drug company can sell a vaccine on January 14, and you can buy it, without fear of going to jail. Sure, there is an FDA, and a Federal Trade Commission which monitors drug labeling. The vaccine has to say “this is totally untested, and has not been proven safe or effective in clinical trials” and offer a stack of paper about known risks. You sign a stack of consent forms. If you take it, you’re enrolled in our big national database — you just volunteered for the national non-random clinical trial. (We don’t collect much data on drugs that are out there).  The FDA rapidly collects information. At the same time, randomized clinical trials are going on. Drugs can give more and more hopeful labels as the results roll in. At some point after Phase III and FDA review, a drug can get the official FDA seal of approval. No, insurance and medicare don’t pay for non-approved stuff. This is free-market nirvana, you pay for unapproved medicines if you want them (see part 1). There is an FTC and a tort system. Drug companies that sell things they know are unsafe or ineffective pay billions. Sunk costs are sunk, of course. But wouldn’t it be great if we took some learning from this so that we could be more prepared for the next pandemic and not shut down the economy and lose lives both from the pandemic and from the shutdown?   (0 COMMENTS)

A Liberty Classic Book Review of Competition and Entrepreneurship by Israel Kirzner.1 The start of the 1970s was not the best time for the Austrian school of economics. Ludwig von Mises was past his productive years and would pass away in 1973. F. A. Hayek was still active but had turned much of his attention to his work in political theory, and his Nobel Prize was still a few years away. Murray Rothbard had also turned his attention away from economics and toward libertarian theory and activism. Ludwig Lachmann was still very much an engaged scholar, but he was isolated in South Africa and not yet playing the central role he would take on by the decade’s end. There were only a few graduate students interested in pursuing the school’s ideas. The only real voice for the school in the American economics profession was Mises’s former Ph.D. student Israel Kirzner who continued to contribute after publishing three books during the 1960s: The Economic Point of View, Market Theory and the Price System, and An Essay on Capital. Although those books remain important contributions to the Austrian school, their influence when published was negligible. In particular, the Austrians faced two problems. First, the school had stagnated intellectually. In 1949 Mises published Human Action, and Hayek’s major essays of the 1930s and 1940s were published together in 1948 as Individualism and Economic Order. Those two books laid out a clear and distinct new direction for the Austrian school, but few people picked it up and continued to advance it in a meaningful way in the 25 years that followed. Second, the Austrians failed to engage with the broader discipline of economics. There were economists who were “fellow travelers” and who were influenced by the Mises and Hayek books of the late 1940s, but there was no contribution that laid out a distinct Austrian view of the market and did so in a way that engaged with the then-contemporary mainstream literature. “One way of seeing the contribution of Competition and Entrepreneurship, and Kirzner’s work on entrepreneurship more generally, is that he provided a Misesian solution to a Hayekian problem…” That all changed in 1973 when Kirzner published his Competition and Entrepreneurship. Kirzner’s book managed to fill the two needs Austrian economics had at the time. It advanced the school’s ideas in a meaningful and productive way, and it did so by engaging with the mainstream literature in economics in a style that made the book accessible to non-Austrians. One way of seeing the contribution of Competition and Entrepreneurship, and Kirzner’s work on entrepreneurship more generally, is that he provided a Misesian solution to a Hayekian problem, both of which come out of the late 1940s books mentioned above. The Hayekian problem was how to explain the process of social learning that led to the coordination that characterized equilibrium. What ensured that the tendency toward equilibrium would be effective? The answer Kirzner offered was to take from Mises the idea of the entrepreneurial element of human action- the idea that we are not just maximizers but active agents who do not take our means-ends frameworks as given, and to make entrepreneurship the prime mover of the market process. Kirzner argued that the process of plan coordination is set in motion by entrepreneurial alertness to hitherto unseen opportunities, the exploiting of which constitutes the competitive market process. The book also provided a fertile foundation for the revival of the Austrian school that would begin during the rest of the 1970s. It is not wrong to say that a great deal of the scholarship that characterized the Austrian economics of the 25 years after Competition and Entrepreneurship owed much to the arguments Kirzner made there. Kirzner makes clear the core of the book’s argument in the very first paragraph. He notes that he will offer a “theory of the market and the price system that differs in significant respects from the orthodox theory of price” (1). More specifically, he will explain his “dissatisfaction with the usual emphasis on equilibrium analysis, and… attempt to replace this emphasis by a fuller understanding of the operation of the market as a process” (1, emphasis in original). This distinction between viewing the market as a process and focusing on equilibrium states was not original to Kirzner, as it appears in various forms in both Mises and Hayek, especially in Hayek’s 1940s papers on competition and socialism. However, none of those were a systematic exploration of that distinction and why it mattered, nor did either Mises or Hayek contend in depth with the mainstream literature of their day. In the time between the late 1940s and the early 1970s, a clear body of equilibrium-oriented thought had come to define modern microeconomics, including work by many scholars friendly to the Austrians. The task Kirzner set for himself was to engage that literature and to demonstrate that the Austrian contribution was something different and more radical than the neoclassical consensus of the day. In Competition and Entrepreneurship, he characterizes that difference as a question of what a theory of the market should attempt to explain. Where mainstream microeconomics is concerned with identifying the combinations of prices and quantities that will produce equilibrium outcomes, the Austrian approach focuses on the interaction of the decisions of market participants and how they “generate the market forces that compel changes in prices, in outputs, and in methods of production and the allocation of resources” (5, emphasis in original). A market process approach is interested in these changes themselves and not the way in which all of these variables might be related to each other in a hypothetical equilibrium. Further, Kirzner points out that there is a normative element to this difference. For equilibrium-oriented approaches, the desirability of the market as a set of institutions is seen in terms of its ability to produce optimal allocations of resources in equilibrium. Markets are good if and when they generate equilibria because those equilibria have certain optimality properties. From the Austrian perspective, this is misguided. First, markets do not actually ever reach the equilibria described by standard price theory, so why are they useful in making judgments about the desirability of real-world institutions? Second, and more important, because we live in a world of change, an Austrian theory of the market process should judge the desirability of market institutions not by the optimality properties of equilibria but by how well “market forces can be relied upon to generate spontaneous corrections in the allocation patterns prevailing at times of disequilibrium” (5). There is a lot going on in that statement. The keys, however, are its emphasis on “corrections” and “disequilibrium.” For Kirzner, understanding the market process means understanding the ways in which market institutions enable actors to be aware of their (inevitable) mistakes and provide guidance as to how to correct those errors. Of course, as that correction process takes place, new errors will appear, and those will also require correction. The market, for Kirzner and the Austrians, is an unceasing process of social learning, as people exercise entrepreneurial alertness to discover and attempt to correct the inevitable errors that characterize fallible humans and produce worlds of constant disequilibrium. That is, markets are processes of social learning. Our normative judgment of their social value needs to consider their ability to enable that learning as compared to the learning enabled by alternative sets of institutions. It is the very errors that are banished in a world of equilibrium that are the reason for a variety of real-world market institutions. Equilibrium theory cannot help us understand the importance of those institutions. Kirzner also expanded upon a point made by Hayek years earlier with respect to the role of knowledge in mainstream models of competition. The model of perfect competition, which still dominates the textbooks today, assumes that everyone has perfect relevant knowledge. The model also assumes that all the participants take the price of their product as given, that is, as dictated by the market as a whole. No one actor can change the price. Furthermore, all the products being sold in each market are identical, as with perfect knowledge the desired characteristics of each good have already been figured out. In his 1937 “Economics and Knowledge,” Hayek defined equilibrium as that situation in which the plans of all actors perfectly dovetail. Each of us has accurate expectations not only about the material world but also about the plans of other actors. In equilibrium, there is no scope for learning because everything is already known. In a world of disequilibrium and imperfect knowledge, however, there are opportunities to learn and to improve the coordination of plans. The key feature of Kirzner’s entrepreneur is that he is alert to just these sorts of opportunities. The person walking down the street who sees that apples cost $4/pound at one store and then notices them for $2/pound a block away has noticed a situation of discoordinated plans. The buyers at $4 don’t know they can spend less a block away and the sellers at $2 don’t know that they might increase revenue by selling closer to $4. That moment of recognition is, for Kirzner, the essence of entrepreneurship. Seeing what others have enables the entrepreneur not only to profit by arbitraging the difference, but, in so doing, to bring the plans of apple buyers and sellers into greater coordination. Similarly, the person who realizes that a pile of wood, a box of nails, and a hammer can be transformed into ladders that people will value more highly than the sum of the inputs is also engaged in an act of entrepreneurial alertness that brings plans into greater coordination. Production is a kind of arbitrage through time rather than just across space. In the world of perfectly competitive equilibrium, there is no scope for entrepreneurial alertness, as everything that is needed to be known is already known. There is no scope for genuine discovery of what we did not know we did not know. Rather than the textbook world of producers who mechanically maximize profits on the basis of known revenue and cost curves, we are in the world where the challenge is for the entrepreneur to discover “what revenue functions and what cost functions…[he] believe[s] to be relevant for him in general” (38). In this way, entrepreneurship is central to the error-correcting process of the competitive market. Hayek observed in the aforementioned 1937 essay that really understanding the market process involves explaining how markets facilitate some sort of process of social learning that brings the plans of producers and consumers into greater coordination. If equilibrium is understood in terms of complete knowledge, then any tendency that markets have to move toward equilibrium must be explained in terms of people acquiring knowledge that allows them to correct their mistakes. Hayek offers no explicit answer to how that might happen, but Kirzner’s theory of entrepreneurship fills that gap. If the tendency toward equilibrium (which Hayek also describes as the empirical proposition that prices correspond to costs) is a core piece of what makes economics anything close to scientific, then an explanation for how that happens is crucial. When the Kirznerian entrepreneur notices that differential in apple prices and acts on it he corrects errors on both sides of the market and, what amounts to the same thing, sets in motion the tendency toward market-clearing. That moment of discovery, of realizing that what you thought was the relevant means-ends framework for action is no longer the case, is the moment of entrepreneurial insight that generates the process of social learning that leads to plan coordination. As Kirzner (57) puts it: “[I]t is necessary to build formally into our theory the insight that such a learning process can be relied upon. For this, the recognition of the entrepreneurial element in individual action is completely adequate.” Kirzner’s use of the phrase “entrepreneurial element” is important too. This is where his “Misesian solution” to the Hayekian problem of learning comes in. For Mises, the alertness that characterizes entrepreneurship is a feature of all human action in a world of uncertainty. Human actors are always speculating about the future when we act in any capacity and are alert to opportunities to substitute a better state of affairs for the status quo. As Mises (1966: 290) puts it in Human Action, “Like every acting man, the entrepreneur is always a speculator. He deals with the uncertain conditions of the future.” Recognizing that the entrepreneurial element in all human action could be deployed to explain how entrepreneurs in the market make possible the social learning process of market discovery is Kirzner’s Misesian solution to the Hayekian problem. This entrepreneurial process, Kirzner notes, is also inherently competitive. Being alert to previously unseen opportunities is an act of competition in that it aims to create more value than the status quo. Seeing that the wood, nails, and hammer can make a ladder is an attempt to out-do those who are making inferior ladders or close substitutes, or who are using those inputs for alternative uses. Unlike the then-dominant conception of competition, which required price-taking and a large number of small firms producing a homogeneous product, Kirzner’s theory of entrepreneurship focused on the question of freedom of entry and exit. As long as people are free to exercise their entrepreneurial alertness, markets are competitive, regardless of the number or size of firms. And, in this view, product differentiation is seen not as a monopolistic element, but as the very essence of competition. Alert entrepreneurs are continually adjusting their products in attempts to out-do their competition by discovering new ways of creating value and coordinating plans in the face of imperfect knowledge of their costs and consumer demand. Starting from a world of disequilibrium and viewing entrepreneurship as, to use the title of another Kirzner book, “the driving force of the market,” provides Kirzner and the contemporary Austrian school a unique perspective on questions of competition and monopoly than that of mainstream economics. The approach to these fundamental microeconomic questions that Kirzner provided in Competition and Entrepreneurship became the starting point for what is now almost 50 years of progressive research by the Austrian school. The careful, patient, scholarly engagement with the mainstream that is reflected in Kirzner’s book, and in so much of the rest of his professional work, served not only as a fountainhead of ideas, but a model for young Austrian economists to emulate. No single factor is solely responsible for the revival of Austrian economics, but Competition and Entrepreneurship probably tops the list of books that helped put the Austrian school back in the scholarly conversation in economics. Footnotes [1] Israel Kirzner, Competition and Entrepreneurship. Liberty Fund, Inc. *Steven Horwitz is the John H. Schnatter Distinguished Professor of Free Enterprise in the Department of Economics at Ball State University in Muncie, IN. He is also an Affiliated Senior Scholar at the Mercatus Center in Arlington, VA, and a Senior Fellow at the Fraser Institute of Canada. He is the author of three books, including most recently Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions. He has written extensively on Hayek and Austrian economics, monetary theory and history, and American economic history, and is a frequent guest on radio and cable TV programs. For more articles by Steven Horwitz, see the Archive. (0 COMMENTS)

In a speech last November at Catholic University,1 Marco Rubio elaborated a program of “common good capitalism.” Drawing on the encyclicals of Pope Leo XIII and John Paul II, Rubio presents a vision of “a system of free enterprise in which workers fulfill their obligation to work and enjoy the benefits of their work, and where businesses enjoy their right to make a profit and reinvest enough of those profits to create dignified work for Americans.” The plan to create “dignified work,” in Rubio’s estimation, calls for an active policy agenda in which government seeks to affect the level, and to some extent the composition, of business investment. “Common good capitalism” echoes themes in other recent conservative thought and is not dissimilar to Donald Trump’s “America First” agenda. Rubio’s patter touches upon important social and political issues—the collapse of traditional family structures, the changing composition of the American manufacturing sector, trade with China, and the scope of the horizon of opportunities for low-skilled workers. We do well to consider the harmful effects of our current complex of regulations—for example, occupational licensing restrictions, wage laws, and zoning regulations—on American opportunity before stepping towards industrial policy. But I’d like to consider a question elicited by the title of Rubio’s program: What is the relationship between capitalism and the common good? It is true that our economic arrangements occasionally serve the good of a select few at the cost of the many. But those arrangements are shaped by some wrongheaded policies, regulations, and special interests. Our economic situation is a far cry from the economic freedom advocated by our founders and the luminaries of the classical liberal tradition, such as Adam Smith. To Smith, “common good capitalism” would seem redundant. Smith of course never used the word “capitalism”—that came with Karl Marx and his followers. But if we think about capitalism simply in terms of the private ownership of property, which includes a person’s ownership of her physical and human capital and the liberty to use that capital as she sees fit, the word can be reasonably mapped onto Smith’s thought. We can view capitalism as broadly synonymous with what Smith called “the liberal plan” or the “system of natural liberty” in which “every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men.”2 “It is liberty, in Smith’s view, that is at the heart of capitalism, and at the heart of liberty lies commitment to the good of humankind.” It is liberty, in Smith’s view, that is at the heart of capitalism, and at the heart of liberty lies commitment to the good of humankind. Considering Smith’s position reminds us of a long-standing, but increasingly endangered, American moral sensibility: liberty and the economic freedom it entails serve the common good. Two cases for liberty There are many cases for liberty in Smith. One argument he is famous for is that by enabling individuals to use their property to produce and exchange, liberty unleashes a productive synergy through the dividing of tasks. Later economists, following David Ricardo, emphasize the beneficial effects of trade in terms of differences in cost of production (comparative advantage). But Smith shows us that simply increasing the size of the market, even on the assumption of equal production possibilities and endowments, enables specialization and the realization of economies of scale and scope. The tide rises for all as the market extends. Smith’s focus on the productivity of the market reflects his egalitarianism. From the outset of The Wealth of Nations he emphasizes that the wealth created by the market “extends itself to the lowest ranks of people.”3 Liberty reduces hardship by reducing living costs for the poor, but also enables the poor to develop skills, move about freely, and bring their work into competition with others—abilities impeded by licensing requirements and trade guilds. And it is worth pointing out that Smith was an outspoken critic of slavery.4 He saw slavery as morally repugnant and economically unproductive. Another case for liberty in Smith pertains to knowledge. Smith holds a presumption of liberty in economic policy partly because he believes that central authorities, however well-intended, normally lack the knowledge needed to beneficially intervene in the market. Government officials do not know enough to effectively direct individual choices: The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and directing it towards the employment most suitable to the interest of society.5 Smith does not say here that individuals freely pursuing their interests will always further the good of society. He is under no delusion that markets are “perfect,” whatever that might mean. But he believes that, by and large, liberty is conducive to the interest of society more effectively than sovereign command because sovereigns lack the God-like knowledge that would be necessary to beneficially intervene into people’s daily lives and businesses. This is not to say, of course, that the sovereign can’t intervene beneficially on behalf of some parties. English brewers in the 18th century were surely glad for the high tariffs on French wines. But such interventions have their costs, most of which are hidden and burden third parties. Arguments relating to knowledge seem to be missing from many contemporary discussions of economic affairs. But they are essential. In questioning whether we ought to restrict or guide business investment, create tax or reimbursement incentives for American manufacturing companies, or provide interest-free loans for infrastructure projects, we should first ask the question: Do we have the wisdom and knowledge to say that such social engineering will serve the public good? A desire to further the good of our country, of humankind, is laudable. But do we have the knowledge to benefit humankind by departing from the liberal plan of allowing every man to pursue his own interest his own way? Knowledge and the limits of good will Smith addresses issues relating to knowledge in The Theory of Moral Sentiments. His analysis there is not formulated overtly for a political context. But the ideas inform his political sensibilities and ultimately support those in The Wealth of Nations. Smith conceives of different sorts of knowledge. One may have “system knowledge” of how individual parts relate to a larger whole, or one may have “contextual knowledge,”6 which is the concrete, experiential knowledge we acquire through social interaction. When it comes to assessing social situations, we need both sorts of knowledge. We need knowledge of how an individual’s choice affects a broader array of interactions and knowledge of how individuals affected by that choice are specifically impacted. But our command of both sorts of knowledge is limited and faulty. At a system level, it is impossible for us to “see” the great concatenation of the market order, which, as Smith’s contemporary Adam Ferguson said is a consequence of human action but not of human design. Smith attempts to illustrate a small piece of that concatenation by elucidating the magnificent supply chain of a woolen coat, the production of which requires the metaphorical “assistance and co-operation of many thousands.”7 But our lack of system knowledge makes it difficult to properly understand or even express the effects of interventions into those supply chains. It is equally difficult for us to envision the effects of social changes on those we don’t know. Contextual knowledge by nature is diffuse. We need lived experience to acquire it. If we don’t habituate ourselves to entering into others’ affections, we will be hard-pressed to comprehend their world. I have virtually no sense of how a particular person in China might be concretely affected by an American obstruction of Chinese goods and services. Smith, following his teacher Francis Hutcheson, affirms what he calls “universal benevolence” as the highest ethical good. Universal benevolence is shorthand for actions and policies which a super-knowledgeable, beneficial, God-like spectator of human affairs would approve of. Such a spectator presumably approves of actions and, in the realm of government, public policies that increase the overall well-being or happiness of humankind. The question is, given our limited knowledge, how do we serve universal benevolence? Building on arguments made by Hutcheson, the Anglican Bishop Joseph Butler, Henry Home Lord Kames, and others, Smith recommends that we take the conscious focus of our everyday activities and habits off of universal benevolence for the sake of universal benevolence. We indeed have a duty to serve universal benevolence. But given the limits of our knowledge, Smith perceives that duty as an obligation to serve our focal social relations—to tend to our own happiness, the happiness of those we live with, and the needs of those with whom we interact on a regular basis. Honing in on these focal relations taps into our natural contextual knowledge and enables effective beneficence. Smith writes, “the great society of mankind [is] best promoted by direct the principal attention of each individual to that particular portion of it, which was most within the sphere both of his abilities and of his understanding.”8 Focusing on the spheres within our knowledge implies that we are also not focusing on spheres outside of our knowledge. In addition to serving humankind by caring for the happiness of those within our sphere of influence, we also serve humankind by dropping the pretence that we can always beneficially intervene into complex social spaces of which we have neither sufficient system knowledge nor contextual knowledge. Our task is, in Smith’s conception, not the grandiose, romantic one of directly striving to care for the universe. Our task lies in “a much humbler department, but one much more suitable to the weakness of [our] powers, and to the narrowness of [our] comprehension; the care [in this order] of [our] own happiness, of that of [our] family, [our] friends, [our] country.”9 But by immersing ourselves in the everyday duties, even our duty to care for our own happiness, we are doing what lies in our power to serve universal benevolence. Liberty serves the common good Smith’s case for liberty on the basis of the positive effects of extending the division of labor interrelates with his sensibilities about knowledge and the duties of universal benevolence. His view that we ought to tend to our focal social relations because of our limited knowledge is reinforced by his sense of the wonders of the market order. His view of the synergy of the division of labor reinforces the paradoxical idea that by shifting our attention off of universal benevolence and towards our local spheres, we actually serve universal benevolence. Smith famously writes, “it is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from regard to their own interest.”10 But in taking into account Smith’s perspective on knowledge, and in catching a glimpse of the marvels underlying the unplanned order beneath production of, say, a woolen coat, we see that the honest pursuit of interest on the part of the butcher, the brewer, and the baker contributes to a social order that serves the good of humankind. The activities of the butcher, the brewer, and the baker contribute to what we might metaphorically call our “common stock of goods.” Through the activities of commerce “different produces of their respective talents, by the general disposition to truck, barter, and exchange [are] brought into a common stock, where every man may purchase whatever part of the produce of other men’s talents he has occasion for.”11 Smith’s perspective does not imply that we should adopt political quietism. Government plays a role in Smith’s liberal system in providing for national defense, administering and protecting commutative justice, and delivering a select number of public services. He admits of several additional exceptions to liberty in his politics—e.g., restrictions on small-denomination bank notes, forbidding certain bank practices, and usury regulation. Smith does, however, challenge us in our political aspirations to consider closely whether we have sufficient knowledge to affect the change that we seek. He shows us the tremendous cooperative potential of humankind within a framework of free enterprise under limited government. He reminds us that liberty serves universal benevolence. And that is why he propounds a presumption in favor of free markets. Footnotes [1] “Catholic Social Doctrine and the Dignity of Work”. Rubio.Senate.gov, November 5, 2019. Catholic University of America [CUA] speech. PDF file. [2] Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, ed. R.H. Campbell and A.S. Skinner (Indianapolis: Liberty Fund, 1981), 687. Also available online: An Inquiry into the Nature and Causes of the Wealth of Nations, Cannan edition. [3] Smith, The Wealth of Nations, 22. [4] See Daniel B. Klein, “Adam Smith’s 1759 Rebuke of the Slave Trade,” The Independent Review (forthcoming). [5] Smith, The Wealth of Nations, 687. [6] Knud Haakonssen, The Science of a Legislator: The Natural Jurisprudence of David Hume and Adam Smith (Cambridge: Cambridge University Press, 1981), 79. [7] Smith, Wealth of Nations, 23. [8] Adam Smith, The Theory of Moral Sentiments, ed. D.D Raphael and A.L. Macfie (Indianapolis: Liberty Fund, 1982), 229. Also available online: The Theory of Moral Sentiments. [9] Smith, Theory of Moral Sentiments, 237. [10] Smith, Wealth of Nations, 27. [11] Smith, Wealth of Nations, 30. *Erik W. Matson is a Senior Research Fellow, Mercatus Center at George Mason University and Deputy Director of Adam Smith Program at GMU Department of Economics. (0 COMMENTS)

Review of The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes, by Zachary D. Carter.1 Why should someone write another biography of Keynes? Major biographies of John Maynard Keynes (not merely books on Keynes and Keynesianism, of which the supply is far larger) include the 1951 Life of John Maynard Keynes by Roy Harrod; the 1992 Maynard Keynes: An Economist’s Biography by Donald Moggridge, and the multi-volume biography by Robert Skidelsky, who happily gave us also Keynes: A Very Short Introduction for Oxford University Press. But this hardly exhausts the number of Keynes’s biographies. On the top of that, Keynes is also part of the narrative in books like Nicholas Wapshott’s Keynes Hayek: The Clash That Defined Modern Economics and, of course, a necessary character in any work on the Bloomsbury Group. Yet the question “why should someone write another biography of Keynes” has a very clear answer: because Keynes had a tremendously interesting life, unmatched among economists before and after him. Zachary D. Carter is a talented writer, a journalist from the Huffington Post, and his biography of Keynes is thoroughly enjoyable. He has considerable sympathy for his subject and doesn’t hide it. While Carter is hardly parsimonious with details of Keynes’s personal life, his book is never petty or gossipy. The biographer knows he stands in front of a genuinely great man, and he treats him as such. The Price of Peace: Money, Democracy and the Life of John Maynard Keynes is a pleasure to read. But the more you read it, the more you are forced to consider another possible answer to the question of why anybody should write another life of Keynes. It is that Carter, a man of the left, thought such a biography was needed in the face of the mishmash of public policies we have seen in the last few years? Some of them bore the mark of Keynesianism (indeed, “both the Bush and Obama administrations used Keynesian tools to mitigate the disaster that began to unfold in 2008,” [525]), but “the American commitment to Keynesian stimulus after the crash was inconstant.” For Carter, “after nearly a century on trial,” Keynesianism “has not embarrassed itself, but neither has it been vindicated” (530). In particular, he sees the recent history of both the United States and the United Kingdom as “mixing Keynesian disaster management—bailouts and stimulus programs—with the aristocratic deregulatory [sic] agenda of Hayekian neoliberalism” (531). Carter cannot escape the impression that such policies were tailored to the needs of the moneyed elites—but never was Keynes more at ease than when surrounded by grandees. At a dinner party in honour of Queen Mary of Romania, the Spanish king Alfonso XIII “said that of everyone I [Keynes] was the person in London he wanted to speak with, and that he read my books with greatest care” (146). If it is easy to picture the king glancing through Keynes’s 1919 The Economic Consequences of the Peace, one cannot but sympathize with him struggling with Keynes’s 1921 A Treatise on Probability. Sadly, Mr Carter does not report whether Keynes quizzed the king on his support for the 1923 putsch by Miguel Primo de Rivera. However, we learn that “he was embarrassed when Lydia relayed such events to friends.” The picture of the great economist rebuking his wife because such “boasting” was better kept “internal” between the two, is a telling one. There is something childish, and therefore admirable, in Carter’s Keynes. You can picture him leaving behind the dusty, academic environment in which he was raised, and truly having fun at his first fox hunt. He aspired to a life surrounded by art and beauty, free of the conventions of traditional morality. Like many intellectuals, he was a runaway son of the bourgeoisie. But he was also a man who “savored tradition and contemplation” (3), of the sort easily enjoyed in his hometown of Cambridge, where he was educated and where he was a fellow at King’s College (whose assets he also managed). Yet Keynes was inexorably attracted to public affairs. Appetite comes with eating. Mr. Carter suggests that Keynes was directly involved in government policy until the Paris conference. Then he left government and published The Economic Consequences of Peace, a strong indictment of the decisions taken at the Paris conference, written with “a biting mockery” that was “directly influenced by the ironic prose of the Eminent Victorians,” written by his friend Lytton Strachey. (Keynes admired Strachey so much that he “could imagine no better way to demonstrate his own excellence than to win a lover [Duncan Grant] away from the man he most admired” 30]. The wonders of friendship!). The Economic Consequences of Peace proved Keynes more an ingenious writer (thanks to Strachey’s example) than anything else, for “it was not the power of Keynes’s argument that propelled the book to such wild success. It was the vicious, detailed personal portraits of the Great Men he lambasted” (106). Soon enough, Keynes found himself at the forefront of public opinion. At first, he did not like it because he considered “the art of public persuasion” as “too close to politics and propaganda to be the proper endeavour” for a member of the Bloomsbury set. But to cover the 1922 Genoa Economic and Financial Conference he was paid “$45,000 in today’s money, a better rate word-for-word than even the windfall he had received from his international bestseller” (125). In a few years he became a publisher himself by buying, with a consortium of investors, The Nation and Athenaeum, later to be absorbed into the New Statesman. In this period Keynes learned to play the keyboard of the public debate, writing with clarity and panache. This was the period in which he abandoned whatever faith he had in free trade and the market economy. Now a married man (by all accounts, happily), Keynes’s desire to do away with Victorian values moved from sexuality to thrift. “In 1919, he had viewed thrift and abstinence as Victorian virtues that enabled the creation of capital hoards that could be invested in great projects. By 1930, he recognized that—as with other Victorian pruderies—too much thrift could take the fun out of life” (192), writes Carter. In the sterling crisis of 1931 (which Carter blames on the “austerians”), Keynes thought he built a considerable reputation as a Cassandra (215). Still, he was not happy with it: he thought he did not succeed “in convincing either the expert or the ordinary man” (219). Carter points out that in those years Keynes “fashioned an extraordinary career for himself… economic ideas, he maintained, were not really that complex; people were simply intimidated by the technical jargon financiers deployed and by the prestige of their affluent personas” (221). “Keynes had built quite an audience as a man of letters, but the audience had not moved its leaders” (221). Hence, “Keynes decided to become a mystic himself. He changed the way he described economic problems. No longer were financial dilemmas simple matters with easy solutions anyone could understand. They were hard, complex—the territory of brilliant gladiator-intellectuals questing after great truth…. He cast himself not as a debunker of myths but as an economic Albert Einstein at work on the grand new theory that would revolutionize the old ways of thinking” (222). And so the General Theory was born. “Keynes, Carter argues, knew how to make himself understood and had plenty of time to polish the new book: it is ‘difficult and obscure because he wanted it to be.'” For Carter, the General Theory is a “masterpiece of social and political thought that belongs with the monuments left by Aristotle, Thomas Hobbes, Edmund Burke and Karl Marx” (256). Yet “much of it is nearly incomprehensible. Taken as a whole, it is very likely the worst-written book of its significance ever published in the English language.” Still, “bad writing can make a career in academia just as surely as exceptional writing can” (257). Keynes, Carter argues, knew how to make himself understood and had plenty of time to polish the new book: it is “difficult and obscure because he wanted it to be.” In Carter’s book, a portrait of Keynes emerges as a man busy finding ways to steer nothing less than the world on the course he deems right, while staying behind the scenes and never entering the boxing ring of politics himself. That over-quoted sentence, “Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back,” comes to mind. This was, in fact, a prophecy based upon a lifelong experience. It was hard work: Keynes has no peer when it comes to an intellectual’s influence over policies. One would say: rightly so, as no other intellectual has ever tried as hard as he did. Carter’s point that the noticeable change in style between the 1920s essays which are crystal clear and witty, whether one likes them or not, and the General Theory was actually a matter of strategy is a fascinating one. Carter’s Keynes would happily advise AOC [Alexandria Ocasio-Cortez, U.S. Representative, NY-14], were he to come back to life. Yet for all his mastery in impressing his views upon public opinion, one wonders if Keynes was not really naive (a word Mr. Carter sometimes uses to describe him) when it came to his forceful beliefs in the power of ideas. More precisely, one wonders if Keynes ever paused for a moment and, while pondering the best strategy for his words to be heard, considered instead that in politics your ideas tend to find the biggest resonance the more you say something politicians actually want to hear. That virtually the whole Western world converted to Keynesianism may have more to do with the fact that Keynes provided leeway to politicians and officials to grow their budgets, their power, and their spheres of influence, rather than attesting to the unquestionable virtues of the preacher. Carter builds on a reading of Keynes’s motivations which is not new but that he presents without mincing words, and with renewed appeal for a new generation of political radicals. He maintains that Keynes tried to achieve a “remarkable synthesis”: “how to make the practical, risk-averse, anti-revolutionary conservatism of Burke fit the radical democratic ideals advanced by Rousseau” (153). “Keynes was both embracing Rousseau’s conception of the state as an expression of democratic will and restating Edmund Burke’s emphasis on the power of culture and tradition” (549-550). Is such a reconciliation even conceivable? To the radical Carter, Keynes was a “Burkean,” a conservative at heart who began his own life and scientific career believing more or less in the good old creed of economists, which included a certain reliance on markets and the price mechanism. Yet such a creed was shaken by his attendance at the Versailles conference in 1919. Keynes then realized the importance of politics and the fact there was no such thing as an economic realm truly independent of political influence. In the 1920s, when Britain experienced economic havoc, and particularly after the Great Crash of 1929, he began to think big and boldly in terms of an increasing socialization of investments, not because he liked socialism (he did not) but because that was the only way to save not so much capitalism but social peace. The more time passed, the more he realized that “uncertainty about the future makes crowds prone to calamity in both finance and politics, particularly under conditions of significant anxiety” (267). Hence the need for macroeconomic management. Carter often associates Keynes with Burke: a successful Burke, who pulled the deficit trigger in order to keep the revolution at bay. This story is not without its merits. Few of us realized that, when Keynes at first drifted away from free trade, his bohemian friends of the Bloomsbury group were quite shocked. It would be easy to place them, so to say, to the left of Keynes. “Maynard has become a Protectionist,” Virginia Woolf wrote to a friend in September 1930, “which horrified me so that I promptly fainted” (quoted on 202). But it is also a story that is based upon a never questioned, overarching belief that “capitalism,” being inherently prone to devastating crises, ought to be balanced by government action. One wonders how can the great champion of socialization of investment ever have been considered the “savior of capitalism.” For what is left of a market economy if the government is set to become the investor of last resort? Carter maintains that “it is appropriate for neoliberalism to take most of the blame for the political upheavals of the twenty-first century” as “the neoliberal faith in the power of financial markets bequeathed us the financial crisis of 2008” (531). This is certainly a popular thesis, but perhaps one should argue for it, rather than simply stating it. The biggest shortcoming of his book is indeed that Carter, who also presents us with a lively picture of post-Keynes Keynesians, makes no effort to present in a cogent way ideas, or even people, he does not agree with. The chapter on conservative-libertarian reactions to Keynesianism is titled “The Aristocracy Strikes Back,” and not by chance. Consider the way in which Carter describes the intellectual path taken by F.A. Hayek after World War II: Hayek had spent the postwar years struggling to reconcile his enthusiasm for laissez-faire with some semblance of the New Deal nation-state. By 1962, he had been unable to come up with an elegant solution to the problem, and none of his attempts had generated anything like the public response that The Road to Serfdom almost two decades prior. The Constitution of Liberty, which Hayek regarded as his most important political statement, had flopped in 1960, the same year the election of John F. Kennedy seemed to doom once and for all the political viability of his [Hayek’s, not Kennedy’s] intellectual movement. As Hayek’s public celebrity subsided, Keynes’s ideas grew more influential and prestigious, and Hayek’s chief financial supporter in the intellectual resistance, Harold Luhnow, lost his mind. Exhausted and defeated, Hayek retreated from the American scene to the University of Freiburg, a medieval institution founded by the Habsburgs, where his academic output slowed considerably (459). From Carter’s engaging prose, we should deduce that Hayek struggled to write other best sellers like The Road to Serfdom (he did not, or one would not understand why he published a book like The Sensory Order in 1952),2 that he stopped writing after The Constitution of Liberty (in fact, he wrote a trilogy of books in political theory, among many other things, in the 1970s!) and that his tastes and politics were such that, when he went back to Europe, he could not but land at a “medieval institution founded by the Habsburgs.” The reader will naturally think that this Hayek guy really belongs in that sinister-looking castle, the Springfield headquarters of the Republican Party! Perhaps the problem here is that Carter’s key, though implicit, contention about Keynes is that “the style is the man.” So great were Keynes’s intellectual powers, so marvellous and sporty and gentlemanly his attitude toward life, that we should expect a reconciliation between his views and his persona. But not everybody wears his own ideas with the same ease with which he wears a bespoke suit. Consider these comments on what Hayek and Keynes had in common: Hayek and Keynes agreed that democracy… was a tool for achieving more important goals. They even agreed that the most critical function of democracy was its ability to produce a vibrant, elite culture. The value Keynes placed on Bloomsbury was in some respects very similar to Hayek’s appreciation for the old Viennese aristocracy. But to Keynes, nothing was lost in guiding all the world to Bloomsbury, while for Hayek, aristocracy was inherently exclusive: the whole point was that not everyone could be an aristocrat. And so where Keynes sought to democratize the comforts and privileges of the elites, Hayek hoped to reinforce the aristocracy’s social distance from the masses. What Hayek believed could be achieved only through inequality, Keynes believed could be accomplished through education. (349) Really? Lots of pictures of Hayek are taken when he was puffing his pipe, invariably wearing a tie. Recorded interviews and memories of students and friends suggest he was a professor who kept students and younger folks at a distance, a tendency not uncommon among European academics even today. But Hayek’s entire theoretical edifice exalts liberty because it allows us to take advantage of other people’s ideas and skills. If he celebrated the entrepreneurs’ successes, it was because such successes resulted in access to more goods and services than ever before, for a wider population. For more on these topics, see the EconTalk episode Nicholas Wapshott on Keynes and Hayek. See also “Keynes as Lucifer,” by Pedro Schwartz, Library of Economics and Liberty, Sep. 7, 2015; and Edmund Burke, Online Library of Liberty. Carter is certainly right in pointing out that Keynes wanted to guide all the world to Bloomsbury, and Hayek did not. But that’s not because the latter wanted only a chosen few to enjoy beauty and the good things. It is because Hayek thought all people are different, and not everybody wants to be a member of the Bloomsbury set. The idea of raising everybody to the upper levels of culture may sound generous, but it is utterly paternalistic. Not all our fellow human beings prize the things intellectuals like. I think Mr. Carter is right in assuming Keynes never thought that other people, properly educated, could fail in appreciating the “good” things, but that is perhaps Keynes’s greatest fault. Surely it’d be great if everybody could live on caviar and champagne, but some people may just prefer a pint of beer and fish and chips, the present author included. Footnotes [1] Zachary D. Carter, The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes. Random House, 2020. [2] Elsewhere, Carter acknowledges that when Hayek wrote The Road to Serfdom “he had not expected the book to transform him into a cause célèbre among American businessmen” (381). *Alberto Mingardi is Director General of the Italian free-market think tank, Istituto Bruno Leoni. He is also assistant professor of the history of political thought at IULM University in Milan and a Presidential Scholar in Political Theory at Chapman University. He is also an adjunct fellow at the Cato Institute. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

Review of Classical Liberalism and the Industrial Working Class, by Alberto Alberto Mingardi.1 Thomas Hodgskin (12 December 1787-21 August 1869) was an English socialist writer on political economy, critic of capitalism, and defender of free trade and early trade unions. In the late 19th and early 20th centuries, the term socialist included any opponent of capitalism, at the time defined as a construed political system built on privileges for the owners of capital. Intellectual historian Alberto Mingardi’s new biography of Thomas Hodgskin, Classical Liberalism and the Industrial Working Class, takes a different view of the 19th-century journalist and commentator. Mingardi argues that when understood in the context of his era, Hodgskin’s views were close to what we would today call libertarianism. Mingardi concedes that Hodgskin’s sympathies lay with ordinary working people against the upper classes. The crucial issue therefore appears to be the legislative domination by those whom Hodgskin considers “idle,” not “productive,” classes as they live off private income. These privileged positions are a not natural consequence of the social division of labor; they are, in fact, parasitical to the division of labor. (39) But Mingardi tells us that this did not make Hodgskin an intellectual cousin of Karl Marx or Thomas Piketty. Instead, Hodgskin saw government interference, not capitalist exploitation, as the force standing between workers and their fair share of income. Mingardi suggests that Hodgskin came to his particular prejudices from his experience as a youth. Forced by his father to leave school and enlist in the navy at age twelve, his formative experience was aboard a ship, where the captain had absolute authority and corporal punishment was routine. When the Royal Navy needed extra manpower, particularly in times of war, it would send “press gangs” to capture sailors from private ships–or even ordinary men on shore– and force them to help sail the warships. This form of slavery is where the phrase “pressed into service” comes from. In 1813, now out of the Navy, Hodgskin wrote An Essay on Naval Discipline, expressing his opposition to absolute power and the use of force on board naval vessels. In 1815, he wrote a series of letters in a newspaper arguing against impressment. These helped launch him on a career in journalism. “Mingardi sees Adam Smith as the theorist who made the strongest impression on Hodgskin.” Hodgskin’s political economy was self-taught. Mingardi sees Adam Smith as the theorist who made the strongest impression on Hodgskin. Early in the 19th century in England, factories were a new phenomenon, spreading rapidly and frightening many observers. Critics saw factories as de-skilling workers. Hodgskin differed in that he saw machines as up-skilling workers and raising their standard of living. Today, mainstream economists would analyze the effect of machinery on labor by referring to a neoclassical production function, in which output depends on capital and labor. But this approach has its problems. For one thing, it treats labor as homogeneous, when in fact there are a variety of skills and occupations. For another thing, it treats innovation as either “embodied” in capital or else “neutral,” meaning that it just appears as a deus ex machina, raising output. The concept of “human capital” sits awkwardly on the side of the standard neoclassical model. Mingardi shows that Hodgskin anticipated the idea of human capital. In fact, Hodgskin’s analysis may have even been more sophisticated, in that he saw innovation as embodied in labor. Hodgskin also was keenly aware that the factory system created specialized labor, not simply undifferentiated rote work. Hodgskin was optimistic that workers’ skills and living standards were headed upward. He saw this improvement as the natural outcome of a market economy. If workers did not receive a fair share of prosperity, this was because government intervened on the part of the idle rich. Note that at the time that Hodgskin wrote, much of the power in Britain’s Parliament was concentrated in the hands of wealthy landowners. Hodgskin’s more nuanced characterization of labor led him to see population growth as promoting prosperity. Mingardi quotes Hodgskin, The chances of improvement… are great in proportion as the persons are multiplied whose attention is devoted to any particular subject… an increase in the number of persons produces the same effect as communication [on longer distance]; for the latter only operates by bringing members to think on the same subject… Almost all discoveries and improvements have been made in crowded cities and in densely peopled countries. (72)2 For more on these topics, see Thomas Hodgskin, Online Library of Liberty. See also Division of Labor, Part 3: The System of Exchange, by Michael Munger: Adam Smith Works, Aug. 21, 2019; and the EconTalk podcast episodes Michael Munger on the Division of Labor and Paul Romer on Growth. Mingardi notes that Hodgskin is suggesting that increasing the extent of the market through population growth has the same positive effects that Adam Smith saw arising from increasing the extent of the market through trade. I would add that the quoted passage seems to anticipate the growth theory that earned Paul Romer a Nobel Prize in 2018. Among those who fancy themselves friends of the working class, Hodgskins’ opposition to government interference and support for free trade appear to go against the grain. Mingardi shows how such views can be reconciled. There are many people today, conservatives as well as progressives, who would do well to explore Hodgskin’s thinking as documented in Mingardi’s concise biography. Footnotes [1] Alberto Mingardi 2021, Classical Liberalism and the Industrial Working Class: The Economic Thought of Thomas Hodgskin. Routledge, 2020. [2] The passage is from Hodgskin 1827, Popular Political Economy: Four Lectures Delivered at the Mechanics’ Institution. *Arnold Kling has a Ph.D. in economics from the Massachusetts Institute of Technology. He is the author of several books, including Crisis of Abundance: Rethinking How We Pay for Health Care; Invisible Wealth: The Hidden Story of How Markets Work; Unchecked and Unbalanced: How the Discrepancy Between Knowledge and Power Caused the Financial Crisis and Threatens Democracy; and Specialization and Trade: A Re-introduction to Economics. He contributed to EconLog from January 2003 through August 2012. Read more of what Arnold Kling’s been reading. For more book reviews and articles by Arnold Kling, see the Archive. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

Author and economist Branko Milanovic of CUNY talks about the big questions in economics with EconTalk host Russ Roberts. Milanovic argues that the Nobel Prize Committee is missing an opportunity to encourage more ambitious work by awarding the prize to economists tackling questions like the rise of China’s economy and other challenging but crucial areas […] The post Branko Milanovic on the Big Questions of Economics appeared first on Econlib.

Some acquaintances recently paddled surfboards and kayaks into the Pacific to disperse a relative’s ashes where he loved to surf. During the memorial service, one brother of the deceased expressed concern about the risk from sharks. The image of an aggressive shark in the deep ocean is graphic and terrifying, but the risk of mundane threats far outweighs the risk from shark attack. The dead man’s brother should worry much more about heart disease, which felled his brother, and devote his attention to lowering that and similar risks. There is only so much time and energy; each unit of energy spent on lowering the risk from sharks is one less unit that can be spent on hearts. What should we fear? What threats are most likely to kill us? Setting aside cataclysmic events such as nuclear wars and planet-altering meteorites, there are some risks that generate a lot of fear but few deaths, such as shark attacks, terrorism, and killings by police. On the other end of the spectrum are everyday risks that kill a large number, such as heart disease and cancer. In between are risks from motor vehicle collisions and the seasonal flu. And this year is a new risk: COVID-19. This is from David R. Henderson and Charles L. Hooper, “What Should We Fear Most and What Should We Do About It?, Regulation, Winter 2020-21. Another excerpt: Larger risks / The typical American faces much greater risk of death from comparatively mundane causes. Heart disease kills about 1 in 502 Americans each year, while cancer kills 1 in 542. The number of deaths from seasonal flu varies significantly from year to year, but it has averaged about 40,000 in the United States in recent years, which works out to 1 death in 8,125 Americans. The good news is that rate has fallen significantly over the decades; if the death rate from flu in the 1950s and 1960s were applied to today’s population, we would see over 160,000 deaths per year. If the death rates from these diseases seem high, it is because they are. Heart disease alone kills as many Americans each year as the combined U.S. combat casualties from all American wars. Read the whole thing and check out our table.   (1 COMMENTS)

Pope Francis is an amazingly productive author. On October 3 he released a new encyclical letter (All Brothers), now he published a new book, Let Us Dream: The Path to a Better Future. We learn from UCL that the Pope commends in the book Mariana Mazzucato’s work and that in the book: The Pope … states that Mazzucato’s The Value of Everything “provoked a lot of reflection” within him as the book issues a direct challenge to the wealth creators of our world, urging them to reprioritise ‘value’ over ‘price’. In other words, ‘taking’ wealth is not the same as ‘making’ wealth, and the world has lost sight of what value really means. That a Pope praises an economist is always a news item, though this is not a first. If I’m right, John Paul II mentioned in public several times his friend and advisor Michael Novak, who, though not an economist, provided him with help in crafting the encyclical letter Centesimus Annus. In that letter, however, the then-Pope did not quote economists, but reasoned on the compatibility between Catholic social thinking and the market economy. Francis, on the other hand, as in his last encyclical, prefers quoting himself and is quite parsimonious with references to the Catholic tradition, including the Scriptures. In a book that deals largely with Mazzucato, The Myth of the Entrepreneurial State, Deirdre McCloskey and I have a chapter in which we sort of anticipated Pope Francis was to fall in love with Mazzucato’s work. Here’s a dash of our argument: We disagree on the matter with the priest and with Zamagni and with Mazzucato and other good-hearted folk. We note that the independence of the individual in a liberal economy lets people exchange as they wish with free will—and it results in the great and good interdependence of modern life. Catholic social teaching of the sort Zamagni retails doesn’t get the point. One-to-one cooperation is splendid, and certainly subject to “intentionality.” You give virtuously to the worthy beggar, intentionally, consciously, in full knowledge of who is benefited. But one-to-many cooperation is by far more significant in life beyond the Desert Fathers in their hermitages. Your shoes, TVs, books, and whatever come of course from the voluntary paid work of thousands of people worldwide. They and you are cooperating every day, for producing a baguette out of self-interest and pride of craft. Interdependence gives everyone a mutually voluntary access to the talents and resources of everyone else. People do not know personally their benefactors, who grind the flour for their baguette or drive the truck to deliver it to the baker. As Hayek explained, in his somewhat Germanic English, “in an order taking advantage of the higher productivity of extensive division of labour, the individual can no longer know whose needs his efforts do or ought to serve, or what will be the effects of his actions on those unknown persons who do consume his products or products to which he has contributed.” Nonetheless the buyer receives the correct signal from its price, learning the cost to other people that is to be compared with the gain to the very buyer. Benefit minus cost is gain to the person and to society. It is, to use the business jargon, “value creating.” The economist’s word is simply “profit.” For the rest, read the book. If you like it and you’re Catholic, please consider buying an extra copy and sending it to Pope Francis in Vatican City. You know, the way of providence. (0 COMMENTS)

Regulators are supposed to protect us from making foolish decisions. When doing so, they often believe the public interest is served by promoting “white lies’, that is, false statements that are intended to be for our own good. If fact, the short run benefits of white lies are almost always outweighed by their much bigger long run costs. 1. Early in the pandemic, experts said there was no reason for a travel ban. Presumably they were trying to prevent panic, or xenophobia, or something. But in retrospect, an international travel ban would have been helpful if instituted back in January. Indeed travel bans largely explain why some countries have mostly avoided Covid-19, although in fairness other policies such as masks and test/trace/isolate also played a big role. 2. Early in the pandemic, experts suggested that masks don’t help average people. Even then they must have known that was wrong—why else would doctors wear masks? Their white lies seem to have been motivated by a feeling that masks might make people feel overly self confident (which might be true), as well as the fear that a mask shortage might deprive health care workers of masks.  Unfortunately, these “white lies” had extremely negative long run consequences. 3. More recently, Dr. Fauci suggested that it was important for the FDA to spend several weeks evaluating the Pfizer trial data before making a decision. According to experts cited by Tyler Cowen, that also seems to have been inaccurate. Alex Tabarrok suggests that the motivation seems to have been to make the public feel like the FDA was being careful: I am getting very angry at people like Anthony Fauci who say that FDA delay is necessary or useful to alleviate vaccine hesitancy. Fauci told Fox News that the FDA “really scrutinises the data very carefully to guarantee to the American public that this is a safe and efficacious vaccine. I think if we did any less, we would add to the already existing hesitancy on the part of many people because … they’re concerned that we went too quickly.” The WSJ says much the same thing just with a slightly different flavor: …this regulatory rigmarole is essentially a placebo to reassure the public it will be safe to get inoculated. The ‘we must delay to allay’ argument is deadly and wrong. Tabarrok points out that the effect could easily go in the opposite direction, making the public even more wary of vaccines, and Matt Yglesias is rightly skeptical of public health officials becoming amateur social psychologists: The internet is full of conspiracy theories about almost everything.  Most of the theories are unsubstantiated.  Unfortunately, if our experts believe that white lies are frequently in the public interest, this will gradually erode confidence in expert opinion, breeding even more conspiracy theories. As an analogy, deposit insurance is often useful in the midst of a financial crisis.  But in the long run, the existence of deposit insurance encourages banks to take excessive risks, and this makes financial crises more likely in the long run. Tabarrok and Yglesias are right that Dr. Fauci should not try to be an amateur psychologist.  And this is true for reasons even beyond those that they cite—the fact that he’s not very good at it.  Even if Fauci were an expert in knowing just how to manipulate public opinion at a point in time, the long run effect of his action would to reduce public trust in experts, with consequences much greater than any short run benefit. When it comes to regulators, there are no “white lies”.     (0 COMMENTS)

Who are those guys? In December 1972, I was in southern Ontario for Christmas after a fairly successful first quarter in the Ph.D. program at UCLA. I had Christmas with my friend and fellow Canadian UCLAer, Harry Watson, at his mom’s (“mum’s” to Canadians) place in Brantford. We knew that the 1972 American Economic Association meetings were being held in Toronto just after Christmas. (Economists of all ideological stripes seem to adhere to the stereotype that we’re cheap. Hotel prices are generally low between Christmas and the first few days of the new year.) So Harry and I went into Toronto to hang out, pay the student rate, and see what those meetings were like. We ran into Clay La Force, the chairman of UCLA’s econ department, in a hotel lobby and he invited us up to the UCLA suite. We took him up on it. We were sitting on a couch with our backs to the front door of the suite, talking to someone across a coffee table. I don’t remember who. After a few minutes we heard a conversation between two people who had entered. It was very animated. They were talking about various colleges having made a pitch to hire them. One college had made it clear that he and his colleagues didn’t like the views of one of the guys but they did like his skin color. The other told a similar story. Then the first one told another similar story about a different college. As it ramped up, the laughter among the two got louder and louder. Who are those guys, I wondered. So I turned slightly and as unobtrusively as I could to see who was talking and saw two tall handsome black guys. We knew the more handsome of the two although we hadn’t spoken to him during our first quarter at UCLA: Professor Thomas Sowell. We didn’t know the other one and asked someone, who told us it was a recent UCLA Ph.D. named Walter Williams. What I remember is their delight in telling the stories about racist white department chairs making clear that they wanted to hire on the basis of race, not ability. It was such a fun conversation to eavesdrop on. They were talking as if there was no one else around and I wanted to keep it that way–so did Harry–so we just sat there with our backs to them listening in. (0 COMMENTS)