Patterico's Pontifications

12/19/2014

A Conflict of Visions, Part 4: The Constrained Vision’s Support for the Free Market

Filed under: Books,Economics,General — Patterico @ 3:12 am

I have promised a series of posts on Thomas Sowell’s revelatory book A Conflict of Visions: Ideological Origins of Political Struggles. The book has given me critical insights into the way people think about various issues, and I now find it hard to consider any political issue without seeing it through the lens of Sowell’s constrained/unconstrained dichotomy. Since the this dichotomy is becoming an integral part of my day-to-day analysis, you might as well become familiar with it.

I have delivered three posts so far, here, here, and here. Here is part 4. The last post I did was a bit meandering, muddled, and inconclusive — so today, by contrast, I am tacking an issue that is quite clear and straightforward. The post is a bit long, to be sure, but the concepts are very simple and easy to understand.

A couple of people suggested that I do a post on each of the 20 questions I included in my quiz. That might be a bit too ambitious, but I will certainly do a few. Today I would like to discuss a point that may be obvious but is an absolutely central and unshakable belief of mine: my belief in the free market. I thought I would illustrate the point with question 3, which explains part of my thinking, and then move on to the critical relationship between a free market and the very concept of political freedom. As I will show below, the latter simply cannot exist without the former.

Here’s question 3 from my quiz:

3.
a. I want to get government out of the people’s way, and let people make their own decisions for themselves. The knowledge any one human can possess is limited, and I prefer to rely on a process that coordinates information scattered throughout society, rather than relying on experts.
b. Government has a role in improving people’s lives. Part of the reason is that certain people possess concentrated specialized knowledge, and I would prefer to entrust decisions to those people, rather than to the masses.

Here, I am quite clearly from the constrained vision (and have become more so over time, as I have learned more about Austrian economics.). Here is a (very slightly) less-doctrinaire-than-today Patterico, from December 2008:

I’m skeptical of government intervention in economic affairs, because I believe they can lead to unintended consequences that are hard to predict. And I’m generally a believer in free-market principles. The idea is that the free market is the economic system most compatible with freedom, because rather than putting our trust in government to manage the economy, I believe we should trust the collective wisdom of consumers to make whatever decisions are best for them. As those decisions multiply, markets form as if by magic — and (in theory at least) it causes the best businesses to flourish while less useful ones fail. Put simply, a collection of choices, freely made, forms our markets.

This is a straightforward articulation of the “constrained vision” as applied to economics. As I have described in my recent posts on Sowell’s book, the believer in the “constrained vision” trusts mankind as a whole, far more than he trusts individuals or small groups. This view has implications for his views of all manner of social policies.

As for economics, the holder of the “constrained vision” rejects rule by a handful of experts relying on their purportedly superior vision, command of the facts, and rational explanations for their policies. Instead, the constrained vision prefers systemic processes that have evolved over time, building on the wisdom of humanity collectively — but stemming from individual decisions, not by a single group of philosopher kings, but by everyone in society. In particular, he is a believer in the price system, which directs entrepreneurs to move their resources into the lines of production most demanded by individual consumers. Like magic, this results in shortages being met by supply, and gluts being met by slowing demand, all providing for efficiency — but also, very importantly, in a higher standard of living for the least fortunate in society.

In short, if leftists really wanted to improve the lot of the poor, they would get government the hell out of the way and let the market work its magic. Thanks to the workings of the free market — and no thanks to government — the world has made gains in the lot of the poor in the last 200 years that would have been unthinkable to the richest kings and queens of the 1500s.

It’s not really a coincidence that I hold this vision, though. I learned this view of economics from reading . . . [wait for it] . . . Thomas Sowell — namely, his book Basic Economics, which changed my life years and years and years ago. Indeed, I cited an example from this book on this blog over ten years ago, in May 2004 — and I cited it in August 2007 as one of five books that fundamentally changed the way I look at the world.

One important point that bears repeating: capitalism is the only economic system compatible with freedom. That is important enough, in a long post, to say twice, so that you don’t miss it. Capitalism is the only economic system — the only one — compatible with freedom. I made this point in 2009, citing [prepare for a shock] Thomas Sowell, who said in “Basic Economics”:

Too often a false contrast is made between the impersonal marketplace and the compassionate policies of various government programs. But both systems face the same scarcity of resources and both systems make choices within the constraints of that scarcity. The difference is that one system involves each individual making choices for himself or herself, while the other system involves a smaller number of people making choices for others.

It may be fashionable for journalists to refer to “the whim of the marketplace,” as if that were something different from the desires of people, just as it was once fashionable to refer to “production for use, rather than for profit” — as if profits could be made by producing things that people cannot use or do not want to use. The real contrast is between choices made by individuals for themselves and choices made for them by others who presume to define what these individuals “really” need.

As I summarized the argument in my 2009 post:

Simply put:

Capitalism is each individual making choices for himself.

Socialism is those who claim to know best, making your choices for you.

The former is freedom. The latter is anything but.

So says the adherent to the constrained vision.

24 Responses to “A Conflict of Visions, Part 4: The Constrained Vision’s Support for the Free Market”

  1. I should probably go to bed, huh?

    Patterico (9c670f)

  2. One question: Does this apply to immigration laws? That is, should any kind of economic idea ever be a consideration?

    Or does central planning somehow make better sense there?

    Sammy Finkelman (6a57b5)

  3. Milton Friedman said there is a problem with the welfare state. (or you could say that some of its provisions become more unworkable)

    Sammy Finkelman (6a57b5)

  4. Milton Friedman said you can have a welfare state or you can have open borders, but you cannot have both.

    I do not see how open borders — having no idea whether we are allowing in criminals, terrorists, or the diseased — is a component of a constrained vision that relies on traditions, order in society, adherence to rules, and (critically) an understanding of the importance of incentives.

    As usual, Sammy, you fixate on one portion of the whole and ignore the forest around you. There is a lot to Sowell’s description of the visions. That is why I am spending so many different posts trying to describe it. Stop trying to oversimplify it and go read the book.

    Patterico (9c670f)

  5. Anything that Dr. Sowell writes is worth reading. He has read and understood Smith, Say, Ricardo, Bastiat and other great economists and has undertaken to render their findings in current terms and language. Bravo, Patterico! I was an Economist before I became a lawyer and benefited from my earlier training in Economics.

    Michael M. Keohane (44085c)

  6. So, if man chooses, for himself, to kidnap young girls and rent out their vaginas to perverts against their will. How does capitalism respond to that?

    Michael Ejercito (45f52b)

  7. There’s good reason to be highly skeptical, if not adamantly opposed, to federal government intrusion especially in economic affairs, but also in any arena outside designated Constitutional limits. The greatest fear our nation’s founders faced was an ever expanding and consequently increasingly coercive central government, they knew that centralized authority grows only at the expense of personal liberty and took strong steps to strictly limit the federal government’s lust to expand.

    However, over time those well intentioned limits have been exceeded to a degree unimaginable to the founders and thoroughly repugnant to their designs. So voracious has the federal government become that its current office holders openly flaunt established laws, ignore the people’s representatives, and misuse federal agencies to repress the political liberties of our people. We long ago reached the point where the federal government itself became the chief instrument of repression.

    When was the last time you can recall federal government involvement served the interests of ordinary American citizens or improved the well-being of taxpayers? When did the President tell the truth? When did our elected representatives fulfill their campaign promises? When was the last time our government made you proud to be an American?

    ropelight (0001a7)

  8. So, if man chooses, for himself, to kidnap young girls and rent out their vaginas to perverts against their will. How does capitalism respond to that?

    Michael Ejercito (45f52b) — 12/19/2014 @ 6:24 am

    With a lengthy prison sentence.

    Is this supposed to be some kind of trick question?

    Patterico (3d1266)

  9. 6. Michael Ejercito (45f52b) — 12/19/2014 @ 6:24 am

    So, if man chooses, for himself, to kidnap young girls and rent out their vaginas to perverts against their will. How does capitalism respond to that?

    Certain things are immoral.

    This is actually a (worse than usual) variant of slavery.

    Sammy Finkelman (6a57b5)

  10. Aha!

    As I have described in my recent posts on Sowell’s book, the believer in the “constrained vision” trusts mankind as a whole, far more than he trusts individuals or small groups.

    Now I get it. The “Constrained vision” restrains the government (or other such “group wisdom” organizations), leaving the individuals unconstrained.

    One of my on-going complaints about modern USA is that we seem to trust the government more than we trust our neighbors.

    htom (9b625a)

  11. Now I get it. The “Constrained vision” restrains the government (or other such “group wisdom” organizations), leaving the individuals unconstrained.

    No, that’s correct on one level and pretty much backwards on another.

    The beginning of the video in Part 2 has a nice definition. The constrained vision believes that man is inherently limited; that human nature does not change; that experts have no remarkable insights or wisdom beyond that possessed by the common man. Fundamentally, it is a vision of human potential: that human potential is limited — constrained by reality.

    So: the constrained vision believes in placing the locus of decisionmaking in systemic processes developed organically by the populace as a whole, ideally with great deference to rules and traditions built up over time, so that the wisdom of the ages and the collective wisdom of individual decisionmakers, acting through those systemic processes (like the price mechanism of the free market), is viewed as superior to decisions made by a small group of decisionmakers (like government officials) who are thought to have superior wisdom and can rationally decide what is best for the rest of us.

    But it’s wrong to describe individuals as “unconstrained” because Sowell defines “unconstrained” not as “hampered by government restrictions” but as a philosophical construct that envisions human beings as possessing limitless potential. The essence of the unconstrained vision of individuals was expressed by Rousseau, who said “Man is born free, but he is everywhere in chains.” Rousseau saw “freedom” as being ruled by the group, and was dead set against the concept of private property. His belief in the “general will” was a utopian view of man and his potential. Such views are anathema to those who subscribe to the constrained vision of humanity.

    Does that help?

    Patterico (9c670f)

  12. For ~80,000 generations we lived as hunter/gatherers where all “goods” were zero-sum. We’ve only lived ~500 in agricultural/commercial society. Our instincts are zero-sum and benefits of the free market are not instinctively grasped. In fact seeing someone succeed, though that success also benefited society, is often seen as immoral.
    Good references: “Why We Bite The Invisible Hand”, Peter Foster; “The Open Society And Its Enemies”, Karl Popper; and of course Hayek

    Bruce Macdonald (6a7832)

  13. I hear you, but even hunter-gatherers cooperated and engaged in some division of labor, generally by sex.

    But I agree that the fundamental nature of the free market, in which two individuals engage in a transaction that benefits each, is poorly understood and leads to a misplaced sense of envy and silly worry over “inequality.”

    Patterico (3d1266)

  14. “Our instincts are zero-sum and benefits of the free market are not instinctively grasped. In fact seeing someone succeed, though that success also benefited society, is often seen as immoral.”

    Bruce – That might be an explanation of the intense focus of the left on redistributing what they always see as a finite pie as opposed to the benefits of growing the pie for everybody.

    daleyrocks (bf33e9)

  15. Exactly, yes.

    Patterico (9c670f)

  16. Thomas Sowell has a great summary of the zero-sum fallacy in his book Economic Facts and Fallacies, which I am also in the middle of:

    Let us start at square one. Why do economic transactions take place at all and what determines the terms of those transactions? The potential for mutual benefit is necessary but not sufficient, unless the transaction’s terms are in fact mutually acceptable. Each side may of course prefer terms that are especially favorable to themselves but they will accept other terms rather than lose the benefits of making the transaction altogether. There may be many terms acceptable to one side or the other but the only way transactions can take place is if these sets of terms acceptable to each side overlap.

    In other words, when two people enter into a transaction, it is because both think they are benefitting. If I buy a car, I would rather have the car than the money I paid, and the dealer would rather have the money than the car. At the end of the transaction, we are both happier. It’s not zero-sum. Market transactions actually add to human happiness.

    Multiply this increase in happiness on both sides by millions, indeed billions, of transactions, and it is easy to see how the market increases human happiness on a tremendous scale, by meeting people’s desires and needs.

    But what happens when a third party enters the transaction and must also be satisified? Sowell describes that next:

    Suppose that a government policy is imposed, in the interest of helping one side— say, employees or tenants. Such a policy means that there are now three different parties involved in these transactions and only those particular terms which are simultaneously acceptable to all three parties are legally permitted. In other words, these new terms preclude some terms that would otherwise be mutually acceptable to the parties themselves. With fewer terms now available for making transactions, fewer transactions are likely to be made. Since these transactions are mutually beneficial, this usually means that both parties are now worse off in some respect.

    When government interferes with the terms of transactions that make people happy, government decreases overall happiness.

    So simple and so straightforward. So fundamental and true.

    This may be worth its own post at some point. It’s such an important point.

    Patterico (9c670f)

  17. Our instincts are zero-sum and benefits of the free market are not instinctively grasped.

    This instinct can be explained by the fact that members of hunter-gatherer tribes often had to risk their lives to defend their tribes.

    A person backed up by a tribe was more likely to survive to breed to the next generation, or for his children to survive long enough to breed to the next generation, than solitary persons. Thus, a trait that would make people more likely to work for a tribe that would back them up would be favored by natural selection.

    Now here is the thing. Most people who believe that they are being treated inequitably by their tribe would not risk their lives to defend it. Those who are willing to defend a tribe that does not give a shit about them tended to die before breeding to the next generation, so that trait would not be naturally selected.

    Tribes which treated its members equitably had a larger pool of members who would risk their lives in defense of the tribe (because they believed the triobe would protect them and their children). Consequently, tribes that did not have equitable treatment, which existed only for the privileged few, had almost no one to defend them when confronted by a pack of predators or an enemy tribe.

    this also explains why so many societies teach equitable treatment. It was an ethical tradition inherited from their ancestor hunter-gatherer tribes who learned that you need to offer a fair deal to get people to risk their lives for you.

    Michael (e545b1)

  18. What’s the opposite of “Aha!”

    More confused.

    The beginning of the video in Part 2 has a nice definition. The constrained vision believes that man is inherently limited; that human nature does not change; that experts have no remarkable insights or wisdom beyond that possessed by the common man. Fundamentally, it is a vision of human potential: that human potential is limited — constrained by reality.

    Individual men are inherently limited, this is true. Individual men can change (hard, but possible for some, at least.) These changes may be taught and learned, thus changing individuals in ways that they would not have changed without the teachings. Men as a class may or may not regress to the mean (will mankind ever again think that we can’t get to the moon?) The idea that experts do not have remarkable insights or wisdom beyond that of the common man, hmmm, counter-examples : Thomas Sowell, Richard Feynman, Carl G. Jung, Seymour Cray, Carl Rogers, ….

    Individuals are restrained. That does not mean that their potential is constrained. lIn the very short term (a human lifetime, perhaps) it almost is. The sum to infinity of infinitesimals does not always equal zero, and you don’t even need to sum them that far to get to lower limits that are greater than zero. Not saying that mankind will become God; would Lucy have recognized us as her descendents?

    I suspect the failure here is in my initial world view, and what I see as long-term (thousands and millions of years), not your message, which I hear as “human potential is limited — doomed by reality.”

    htom (9b625a)

  19. Just because an expert has insights and/or wisdom does not mean that those should be followed; other may have even better insights and wisdom, but are not known as “experts”, and cannot be so known, until their insights are tried and discovered to be effective.

    What we have now, though, is a pile of experts at being re-elected choosing from old ideas that have already been demonstrated not to be effective.

    htom (9b625a)

  20. this also explains why so many societies teach equitable treatment. It was an ethical tradition inherited from their ancestor hunter-gatherer tribes who learned that you need to offer a fair deal to get people to risk their lives for you.

    Adherents of both the constrained and unconstrained visions believe in equitable treatment, but define it differently.

    In the unconstrained vision, what matters is equality of result. Even if the law gives everyone an equal chance, these folks believe that society has a duty to help them change their personal circumstances so that they can accomplish economic and other social goals as easily as other, more fortunate people.

    In the constrained vision, what matters is equality of opportunity. The law must treat everyone the same, and what people do with that opportunity is up to them.

    That is not to say that those from the constrained vision are pleased when they see someone enjoying the benefits of wealth or privilege that they did not earn — like a trust fund baby. But they believe that attempts to remedy these inequalities have negative unintended consequences. For one thing, they create perverse incentives; when government gives a handout, that encourages others to abandon or lessen productive activity to obtain the handout. Also, those from the constrained vision believe that forcing group x to improve the lot of group y results in a power shift that elevates group y over group x. Because now someone from group x is now forced (at threat of being at the wrong end of a federal agent’s gun) to provide his time and money to someone from group y.

    Patterico (9c670f)

  21. Capitalism is not satisfied with mutual benefit. It would feel it was letting down the team. It needs profit, sometimes called surplus value. Maximum profit, all that the market will bear. More value than it is giving. In economic terms, profit is not different than a sales tax. Something, profit, is taken for nothing in return. It does have a lesser element of compulsion. Only “lesser” because alternative markets are limited and those markets play on the capitalist team too, so you won’t likely find it cheaper. (Whether you need it at all in the first place is why we have such a ginormous advertising industry.) But it also has a lesser element of social benefit. A sales tax is more likely to used for the general welfare, than profit is to find its way into the Bill and Melinda Gates Foundation.

    Only economic system compatible with freedom? Well, there is piracy, you know. That’s freer. Just kidding. Freedom is relative and economic systems are only methods of complying with the natural laws of economics, not the laws themselves. Can we say that it is more compatible than other economic systems with relatively greater individual freedom? Everyone is a prisoner of necessity and capitalism exploits people’s economic necessity at least as much as any other system. I will grant it virtue in demanding only money and not adherence to the state or fealty to the feudal lord.

    nk (dbc370)

  22. Capitalism is not satisfied with mutual benefit. It would feel it was letting down the team. It needs profit, sometimes called surplus value. Maximum profit, all that the market will bear. More value than it is giving. In economic terms, profit is not different than a sales tax. Something, profit, is taken for nothing in return. It does have a lesser element of compulsion. Only “lesser” because alternative markets are limited and those markets play on the capitalist team too, so you won’t likely find it cheaper. (Whether you need it at all in the first place is why we have such a ginormous advertising industry.) But it also has a lesser element of social benefit. A sales tax is more likely to used for the general welfare, than profit is to find its way into the Bill and Melinda Gates Foundation.

    This is a variant on Marxism, as I understand it (I am not an expert on Marxist philosophy). What you have been taught to see as “surplus value” is the payment to the entrepreneur that rewards him for his foresight in knowing to provide these goods to you at this price. Entrepreneurs who fail to exercise proper foresight, because they choose the wrong good or service to sell, or make it too expensively, or choose the wrong price, are punished. Those with good foresight are rewarded with profits. This is a valuable aspect of the transaction, this foresight.

    But Marx — with his credo that a good should be priced at precisely what it cost to make, with all excess being profit that should be kept by the worker (or, in your modified view, by you) — denies the critical role played by the entrepreneur and his foresight.

    This is a critical mistake.

    Patterico (9c670f)

  23. I differ from Marx in that I only critique the “maximize” part and that mildly.

    I agree with you about business risk deserving compensation. (As well as talent and innovation, and a farmer working not only to feed me and himself but also to send his kids to college.) On the other thread, economics was mentioned as a zero-sum game. There has been such a thing. Economics is a negative-sum game, just like the Second Law of Thermodynamics. In a closed economic system, if you play long enough you will lose. The entire system will lose. It will shrink and collapse. It cannot regenerate itself or grow only feeding on itself. It must be fed from the outside. I consider that to be the primary virtue of capitalism; and we have dramatic examples of the failures of closed (or not open enough) systems.

    nk (dbc370)

  24. Oops. There has *never* been such a thing.

    nk (dbc370)


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