[This is Chapter Seventeen of Murphey’s book The Emerging Crisis of Economic Displacement.]

Chapter Seventeen

DIFFERENCES WITHIN CLASSICAL LIBERAL THOUGHT

The overview I have given of the individualist "philosophy of a free society" provides, I hope, an appreciation of both the true liberality and coherence of the classical liberal outlook. Its coherence doesn't mean, though, that classical liberals haven't had a number of differences among themselves on specific issues. I will touch briefly on those issues in this chapter, but will focus mainly on a vitally important difference about methodology. The reason to emphasize that difference is that the tendency of many free market advocates toward a "closed philosophical system" will, if they adhere to it, greatly inhibit their ability to adjust classical liberalism to the world's emerging realities.

One of the specific issues about which there is a difference has to do with monopolies, restraints on trade, and anti-trust. The most common view among market theorists today would seem to be that there is no meaningful problem of monopoly or restraint on trade in a competitive market economy unless there is government intervention favoring one or more competitors. It is seen not as a problem of the market, but of government meddling. Lord Robbins, on the other hand, provided the contrasting view when he said "I still believe, as against Schumpeter and others, that there is a real monopoly problem in free societies, and that it is unwise to resign ourselves to doing nothing about it."[1]

A second difference relates to monetary policy. Many laissez-faire proponents favor the gold standard. Milton Friedman, whose economic thinking has towered over classical liberalism during the past four decades, has long supported a fixed rule for a gradual increase in the quantity of money by the Federal Reserve Board. Mises and Hayek have favored "free banking," which would have banks themselves decide about lending and money-creation under the watchful discipline of the market. Yet another approach is to require banks to have a 100% reserve for deposits, which would totally remove banking's money-creation aspect.

In the preceding chapter I indicated that classical liberals vary widely about religion. Some are very religious; others are deists or even atheists. Wilhelm Roepke considered religion critically important.[2] Ayn Rand, on the other hand, was an outspoken atheist. (I include her here as a classical liberal even though her thinking was really a mixture of the diverse philosophical schools of Mises, Nietzsche and Chernyshevsky.[3] Her lack of identification with the middle class, including the smaller tradesman,[4] and with a "bourgeois ethic" on such things as sex and family separates her significantly from the main body of classical liberal thought. Nevertheless, her emphasis on the heroic potential of free individuals was a monumental contribution.) The difference over religion has mainly been reflected in background philosophical premises, but can give rise to serious divisions about social policy. Abortion is one of these, and I anticipate they will include euthanasia, an issue that is likely to be one of the most heated of the twenty-first century as the population ages.

With the growth of the world market, a division has been developing that has very real potential to split the "conservative movement" into hostile camps. Those who most single-mindedly support laissez-faire have been enthusiastic for free trade, the global market, and open immigration into the United States and Europe. Others such as Patrick Buchanan have considered low-cost foreign labor a threat to American workers and unlimited immigration a danger to the national survival of the United States. You know, of course, that the thesis of the present book is that there is a massive threat to jobs, although I agree with those who say it will come much more from non-labor-intensive technology than from foreign labor. And we saw in Chapter 13 that immigration does threaten the United States and Europe. These issues will grow far beyond what they are today. The reader knows, of course, that I predict the free trade, global market, open immigration view will become hateful in the eyes of the world if it doesn't adapt to the onrushing situation. Unless it adapts, it will almost certainly suffer extinction as a political and ideological force. One of my purposes here is to try to keep it from doing that--or at least to assure that classical liberalism as a whole doesn't go down with it.

Methodological differences are, however, where I want to focus my main attention. I know that sounds forbidding to readers who probably would never read anything about "methodology" unless chained to a desk. But it isn't as tough a subject as it sounds. And it is central to the review I will make in Chapter 18 of a good many conceptual issues that can stand in the way of free market devotees' adapting to the world that's coming. Stay the course, and I think you will find it is actually an interesting and very important subject.

If you talk at length with many libertarians, or with people who pride themselves as steadfast free-market advocates, or with committed pacifists, what will strike you most about the conversation? More than likely, the extent to which they strive for consistency. They have a set of principles, and seem to maintain an on-going competition among themselves to be the most "purist" in applying them. They would consider it a mark of dishonor to deviate one iota from those principles, to which they are fully loyal. They have the satisfaction of knowing that they are onto the central kernel of truth that most people overlook. This provides them extraordinary confidence in their moral position.

I remember a conversation I had with anarcho-capitalist-pacifist Robert LeFevre at the Freedom School some forty years ago when it was located north of Colorado Springs. His view was that it was unjustified to use force under any circumstances. If a rapist tried to attack his wife, he said, all he could do would be to interpose his body between hers and the rapist's. When I argued that the consequence might well be that his wife would be raped, he responded that the proper way to judge the rightness or wrongness of something is not by considering its consequences, but by asking whether the correct principle -- in this case, non-violence -- was adhered to. That way, he said, you are at least not yourself a part of the problem.

I have seen a similar approach made by uncompromising libertarians. Many start with a set of moral axioms such as "each person owns himself" and "the sanctity of private property" and try to be strictly deductive from them. No argument seems fully to the point that concerns itself with whether an economic or social model results that most people would consider workable. I think the inestimable Milton Friedman did this when he argued that such a natural treasure as the Grand Canyon ought to be privately owned rather than part of a "commons."[5] (Friedman does get into subtlety about whether the private property axiom should apply when he discusses, and then decides against, the appropriateness of what he calls a "neighborhood effects" exception to the axiom; but he is remaining faithful to the strictly deductive approach. That he does so with regard to the Grand Canyon isn't altogether typical of his thinking, though, since he has been ingenious in devising stratagems -- such as the fixed rule for monetary increase, the voucher system for education, and the negative income tax -- that are calculated to accomplish classical liberal objectives while still addressing needs that free-market theory wouldn't otherwise take into account. Friedman, like Hayek, has mixed purity and practicality. I notice that Charles Murray does this, too, in his What It Means to be a Libertarian, where he sets out a series of axioms but also indicates that he isn't as strict an adherent to them as many libertarians are.[6])

The examples of pacifist or libertarian purists illustrate any philosophy that deduces strictly from axioms without evaluating consequences. Thus, we come to what is perhaps the single most important division within moral philosophy. The sociologist Max Weber many years ago described two opposing approaches to ethical theory: one holds that "the intrinsic value of ethical conduct is sufficient for its justification," and this contrasts with those who hold that "the responsibility for the predictable consequences of the action is to be taken into consideration."[7] The classical liberal Lord Robbins made the distinction even more graphically: "The critical division in social philosophy...is surely between those who judge laws and institutions in terms of conformity to an abstract scheme of rights, deduced in some way or other from the principles of pure reason, and those who judge them in terms of the utility of their consequences--the judgement being, of course, in terms of rational analysis but the ultimate criterion, as both Hume and Bentham showed, being something outside reason. It is the division between those who cry ‘let justice be done, if the skies fall,' and those who would regard the falling of the skies to be one of the consequences which must be taken into account before it is decided whether a particular action or a particular framework of action is, or is not, just."[8]

I much prefer the system that evaluates consequences rather than adheres unwaveringly to deduction from axioms. The problem is that the axioms, if they are to be used for strict deduction, have to contain within them a distillation of all human experience and wisdom, and all preferences, needs and wants that people, now or at any time in the future, might feel. Any failure to include all of this will subject the theory to devastating "counter-examples," which will raise points that people consider necessary or valuable and that the axioms don't take into account. But it's impossible to devise in advance a set of axioms that are so all-seeing.

The core issue is whether all relevant considerations and consequences are to be taken into account at some point or other. A seductive aspect of the axiomatic method is that after the axioms are selected the process tends to become one of pure deduction, without a willingness to evaluate its results. This is my fundamental criticism of the axiomatic systems of, for example, John Rawls and Robert Nozick. For many proponents of a deductive system, the conclusions are drawn by rote, with the result being an unthinking over-simplification.

When I was a young man in the Marine Corps stationed in San Diego, I wrote the first draft of Emergent Man, later published in 1963. I remember a week of intellectual turmoil as I fought to clarify in my own mind the fundamental principles of a free society. In Emergent Man I followed these principles through to their implications, using a deductive method. If my process differed from the iron-clad deductivism I am criticizing now, it was in the fact that both before and after the publication of that book I have kept my mind open to new considerations and to criticism of the principles themselves. That had even been my frame of mind when I attended the Mises seminar in 1956-7.

Still further, I have come to think for a specific reason that the axioms were not altogether sufficient: that it is too narrow to make even so desirable a thing as "liberty" the one and only consideration. Liberty (as life within a society in which coercion is reduced to a minimum and the voluntary is accentuated) remains vital to me both as an end and as the most important means; but I became aware that there are other aspirations that need to fit into the mix. It would seem better to make "advanced civilization, with liberty at its core" the goal (or even, if we allow ourselves to leave the realm of philosophic systems enough to indulge in a certain cultural specificity, to make the goal "western civilization, with liberty at its core"). This would be more all-inclusive, not necessarily omitting anything that people insist upon in a philosophy. Even with that, it would be a mistake to set the theory up as a closed deductive system. We will almost certainly never come to the end of consequences and new circumstances that demand to be considered. The message of the present book, that emerging world realities force a drastic rethinking, is perhaps the single most important demonstration of that.

What I am saying has an apparent contradiction. I see great value in formulating principles in light of ones best understanding, and then thinking and acting in a "principled" way. "Principled" behavior is essential in life as people deal with each other and as they try to avoid all sorts of preventable difficulties. Still further, there are important reasons for moral principles to be adhered to without everyone's constantly questioning them, and for the community to enforce them by social pressures. This is because if moral behavior is important there needs to be an acculturation to make it habitual. People aren't well situated to be "judges in their own case" (consider, for example, a husband or a wife's pondering, in a time of temptation or of stress within the marriage, whether adultery is ever justified) and for each person to be a philosopher. If this is so, how is the "openness" to come in? The answer lies in something that John Stuart Mill pointed out: that a free society needs an intellectual culture appropriate to itself. It is within that subculture, where ideas and theories are seriously considered from a reasoned perspective, that the openness to new considerations is essential. This involves a certain compartmentalization: there needs to be openness in serious philosophic discussion at the very same time there is a culturally reenforced ethic. Both needs exist, even though they are at odds. (The fact that the intelligentsia of the past 200 years has been deeply alienated has made it ill-suited for the purpose just stated, so I am talking about an intellectual subculture vastly different from the one we have had.)

There are other points that would be relevant if my purpose here were to explore methodology for its own sake. I wrote several additional paragraphs, but struck them out with my "delete" button when I saw how far they took us off course from my main point, which relates to the critical need, as technology bears down on us, for adaptability.

What is most important in the context of that main point is that there is today a widely held view in the United States that "the market is adequate for all contingencies." Many people committed to limited government and a market economy can't think past it, since it takes the form of a closed system. The ideas are mutually reenforcing and have a built-in normative criterion about what is good and bad, so that the system seems entirely sufficient in itself. The system combines economic theory and the sort of classical liberal axiom-driven theory I have just criticized. In the next chapter, I will carefully examine the ideas one by one, showing that they have had a number of weaknesses even in the absence of the emerging technology and global market. (The point will be that they should never have been given blind obeisance, and certainly should not be as we go into the future.) For the present, it is enough to notice what the ideas are that make up this body of doctrine, how they relate to each other, and how it is that they form a closed system.

1. Private property. The existence and rightfulness of private property is an important starting-point. In The Law, Frederic Bastiat accepts it as "a gift from God" and proceeds from there with an analysis of the "theft" that comes from any governmental action that goes beyond the minimal function of defending life, liberty and property. The philosopher who served as the main source of classical liberal property theory, however, was John Locke, who traced it to a person's mixing of his labor with nature. In a 1996 essay, Peter J. Hill essentially expressed the Lockean rationale when he said that "a person whose creative effort adds to the stock of wealth without decreasing the well-being of others would seem to have a moral claim to that new wealth."[9] Robert Nozick starts there and argues that anything that arises out of voluntary contractual dealings with the property is legitimate. Ludwig von Mises, though, takes an interestingly modern view that reflects his economic perspective. He acknowledges that "again and again proprietors were robbed of their property by expropriation. The history of private property can be traced back to a point at which it originated out of acts which were certainly not legal." But he adds:

The fact that legal formalism can trace back every title either to arbitrary appropriation or to violent expropriation has no significance whatever for the conditions of a market society. Ownership in the market economy is no longer linked up with the remote origin of private property. Those events in a far-distant past... are no longer of any concern for our day. For in an unhampered market society the consumers daily decide anew who should own and how much he should own. The consumers allot control of the means of production to those who know how to use them best for the satisfaction of the most urgent wants of the consumers.[10]

So we see that classical liberals cite various justifications for private property. Suffice it to say that it is fundamental to the theory. What is meant is the type of transferable property typical in a market system; it presupposes a legal order that is suitable to it. Classical liberals fought, for example, the medieval principle of "primogeniture" whereby land passed to the eldest son.

Note that the ownership is seen as total, without any idea that society has even a partial claim upon it because of the social preconditions for its existence. Henry George was a classical liberal a century ago who said that land existed without anyone's having made it, and that therefore the rent from it should rightly go into a social fund to be used for general benefit.[11] Some classical liberals are followers of George, but they are a minority. Most have felt that it is better not to dilute the sanctity of private property, so as not to encourage an incremental destruction of a system that they see as necessary to individual autonomy and self-sufficiency. This is something I have agreed with myself under the conditions of the twentieth century during which incremental moves away from private property have distinctly been part of a socialist program, though never admitted as such in the United States outside the intellectual culture's in-house literature. Later, I will come back to George's insight, since I think it will be a crucial one for the conditions of the future. For now, let's just notice that the "closed system of market thinking" that I am describing does not qualify its adherence to private property in any such way. That allows it to be much more rigorous in its conclusions than it would otherwise be.

2. The Act of Exchange. In the non-coercive setting desired by classical liberalism, the "act of exchange" is a key form of human activity that serves as the building-block for economic efforts, large and small. Each party to a voluntary exchange values what he is receiving more than what he is giving up, so each party benefits. One person's benefit does not come from somebody else's losing. Since this is so, exchange is an engine for enormous service to people. The whole market economy, with all of its features as described by economists, arises out of it. Private property is important to it for various reasons, one of which is that the exchange often involves property.

William Allen has often made his radio "Midnight Economist" commentaries entertaining by having one fanciful mouse talk to another. Here's a good description of the act of exchange in that context: "Trade is a very good thing. It must be, for everyone does it. And no mouse would participate in exchange if he did not gain from it. No one will trade unless he himself puts a greater value on what he receives than on what he gives up... An activity which benefits everyone involved ought not to be curtailed."[12] Jacob Hornberger gives an example that relates it to marginal utility theory: "Suppose you have ten oranges and I have ten apples. I value one of your oranges more than my tenth apple; and you value one of my apples more than your tenth orange. We trade -- one apple for one orange. Our standard of living has improved -- through the mere act of exchange! Thus, the more people are free to trade, the higher the standards of living tend to be."[13] Peter J. Hill puts it more abstractly: "Under a set of well-defined and enforced property rights, the only transactions people engage in are ‘positive-sum' or wealth-creating transactions, those that occur because all parties to the transaction believe they will be better off as a result."[14]

3. "Consumer sovereignty." Mises emphasized that people as producers operate in an "entrepreneurial" role of anticipating what at least some portion of the consuming public will want. If the businessman is successful in this anticipation, profitable exchange ensues; if not, the entrepreneur fails. Accordingly, it is ultimately the consumers who determine what is offered: "Neither the entrepreneurs nor the farmers nor the capitalists determine what has to be produced. The consumers do that." Producers "are bound to comply in their operations with the orders of the buying public... With every penny spent the consumers determine the direction of all production processes...."[15] The economist John Van Sickle made the same point: "The consumer calls the tune. He is the king, exacting and frequently capricious... In a market economy every income receiver is a voter. His dollars are his ballots."[16]

The Left likes to emphasize how consumers are subject to manipulation by advertising, packaging, etc. It is true that there are all sorts of determinants of what consumers want. But in keeping with his view of human nature generally, the classical liberal credits the public with being primarily composed of people who are competent and self-determining. He considers the fact that they are influenced irrelevant to the point about their sovereignty.

4. "The optimum allocation of resources." The point about consumer sovereignty is a description of how the market works. It leads on to the further observation that serving the consumers in the marketplace creates the "optimum" allocation of resources (and, as part of it, the most appropriate assignment of economic and social position to those who succeed or fail). This was expressed by Mises when he said that "the social function of catallactic [market] competition... is to safeguard the best satisfaction of the consumers which they can attain under the given state of the economic data" and when he added that "to assign to everybody his proper place in society is the task of the consumers."[17] The same point was made a century ago by Henry George: "On the whole, the ability of any industry to establish and sustain itself in a free field is the measure of its public utility, and that ‘struggle for existence' which drives out unprofitable industries is the best means of determining what industries are needed under existing conditions and what are not."[18]

It is sometimes argued that this is a point that has a purely technical meaning in economics, and that "optimum" has nothing necessarily to do with "good" or "best" as a value judgment. But that isn't the way the concept is used in the system of thought I am describing. There, the value judgment definitely does come in, just as we saw that it did in the quotes just now from Mises and George. In the book from which I have been quoting published in 1996 by the Foundation for Economic Education, John K. Williams argues that "profits simply show that people want" [a certain thing]... "Limited resources are being allocated in a people-serving, responsible way."[19] In the same book, Garet Garrett includes a quote from Adam Smith's The Wealth of Nations (1776): "Each individual... generally... neither intends to promote the public interest or knows how much he is promoting it... [H]e intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was not part of his intention... By pursuing his own interest he frequently promotes that of society...."[20]

Exception is taken to this view when William Allen has one of his mice say that "the theory of trade tells us much about why and how trade takes place; it does not pass final judgment on the ultimate desirability of trade" [his emphasis].[21] Some classical liberals will acknowledge that objects of trade can be illegitimate, and would assert, for example, that a landlord shouldn't knowingly rent space for use as a house of prostitution. Others remain obdurate on the point, however, and say it is none of the landlord's concern. It is enough for our present purposes to see that, when speaking on a "macro" scale, the advocates of the closed-system I am describing don't hesitate to affirm that the market makes the best allocation of resources. In the next chapter, I will point to the logical fallacy in this, but that is not our present concern.

What needs to be noticed now is that even though Mises and most economists argue that economics as a descriptive science has nothing to say about value judgments, so that science is one thing and preferences are something totally separate, the "optimum allocation of resources" concept does in fact introduce a massive value judgment in the course of describing how the market works. This is no small matter. It provides the basis for the often-heard argument that any deviation from unhampered free exchange, such as from "free trade" in international affairs, will "distort" the allocation of resources, introducing an "inefficiency" that produces a sub-optimum satisfaction of wants. That it might do so is treated as a definitive argument against the action. Nothing could better serve a theory of pure laissez-faire. It is the linchpin of the closed system, since it provides a powerfully persuasive, virtually conclusive argument against anything that would alter or deviate from unhampered exchange.

5. Emphasis on consumers. Out of Mises's stress on "consumer sovereignty," we can see why the supporters of the current free trade, global economy school (in common with other "free trade" proponents historically) put their emphasis totally on consumer well-being, without any comparable preoccupation with the well-being of people in their role as producers and earners. Recall George's point about the desirability of a "struggle for existence" among producers. To this we can add Joseph Schumpeter's famous praise for the "creative destruction" that in effect leaves burnt-out hulks all over the marketplace as those who don't satisfy the consumers fail.

The assumption underlying this seemingly one-sided preoccupation is that the system as a whole works quite well. Failures on the producer side can be tolerated, even welcomed, in such a dynamic setting. Each failure is a passing phenomenon that doesn't go to the heart of the matter. There is no reason to worry about people as they wear their producer hats, since that will take care of itself within the competitive framework. A value judgment that mobility of location and of economic and social station is an accepted part of the system is certainly a part of it (in contrast to the "conservative" love of community and family attachments), as well as the expectation that the economy, with the vast majority of people in it, will thrive even though some fail temporarily.

6. The role of supply-and-demand. As the theory sees it, there is no such thing as unemployment in an unhampered market economy other than the "frictional unemployment" that occurs temporarily as someone moves from place to place or job to job. "Supply and demand" adjusts everything on an on-going basis. If, for example, there are a lot of people wanting to work but only a few jobs, the price of labor will be bid down to where entrepreneurs find it profitable to employ everybody who then still wants to work (some will have responded to the fall in wages by going elsewhere, either physically or market-wise by training for new skills, or by dropping out of the labor market). In the absence of an out-of-kilter monetary system, the economy develops no long-standing maladjustments.

7. The market has very few, if any, imperfections. The argument that raged early in the nineteenth century between classical economists and critics of a market economy largely had to do with whether the market had flaws that kept it from working. David Ricardo formulated the "law of comparative cost" (also called the "law of association") to counter the argument that some people (such as one country in international trade) might be better at everything than someone else, and hence would get all the business, leaving the other to starve. Jean Baptiste Say formulated "Say's Law" to counter the argument that if one person produces something there may be no one to buy it.

In the twentieth century, classical liberals haven't been sold on the idea of "bargaining power disparities" as meaningfully vitiating the "act of exchange." In this connection the commonsense of the American people, who do believe in bargaining power disparities, has overridden what I have called the "classical liberal underlay." Most people do see that the parties to a transaction often are not equally prepared to protect their own interests.[22] This causes them to support a good many legal protections that classical liberals consider uncalled-for "interventions."

At the beginning of this chapter, I pointed out a difference of opinion among classical liberals about whether there is any problem of combinations or conspiracies-in-restraint-of-trade within a market economy. In the closed-system I am now describing, however, there is no dispute about it; its proponents are clearly on the side of the view that there can be no such imperfections. Government favoritism is the source of any such warpings of the market, since unrelenting competition would quickly wipe out any anti-competitive effort by firms unless they are shielded from it. This becomes especially true in a global marketplace with its limitless competition.

8. Wants are insatiable, so there will never be any limit to "scarcity" and the need to satisfy consumers. This thought picks up on a truism that was stated by economic theory long ago and that has certainly been descriptive of the world as we have known it. Socialists have argued that "people don't really need all the things that are made available to them in a consumer society," and that is a sentiment cultural conservatives are inclined to share. Each may prefer a simplification that would restore a leisured pace to life and a variety of less gadget-oriented pleasures. Such a view is bound to take on more significance as the new technology allows an ever-higher affluence, and it may be forced by the displacement of people from the market. But until now the market-oriented philosophy has been able to point toward expanding wants, as things that once were considered luxuries (or hadn't even been thought of) come to be considered necessities. We can see that there is vast room for upward expansion of desires in the context of technology's new possibilities. And we also know that much of the world is a sink of poverty and unmet needs. So the premise that wants are insatiable remains a pretty good one as we go into the future. (Whether, as is often assumed, this will provide unending demand for billions of unskilled workers, or even for billions of skilled ones, is much harder to affirm.)

These are the concepts that, along with a number of associated ideas, make up what we might aptly call the current "religion of the market." You can readily see how they form a closed system, providing an answer for any objection. The holders of this faith are wonderful people, and I count many good friends among them. As you know, I don't call their ideas "a closed system" or a "religion" because I enjoy disparaging what they believe, or ideas that are so close to my own philosophy. I do it because of the growing urgency to adapt.

Having said what I have, I might as well mention some unfavorable attributes of this body of thought as a closed system. They are important because they will reenforce any unwillingness to change.

Much of the closed-system's argumentation is put forward adversarially, as a lawyer does who is "building a case." This lack of objectivity greatly weakens its intellectual quality. The writing tends to be for an audience of true believers, who see any doubts or introspections as weakness. It follows that there is often an unwillingness to give other views any credit. (This is a common human failing, and one that the Left has been guilty of for many decades with regard to ideas that are not part of itself.)

No wonder, then, that intellectual shallowness discolors the whole endeavor. In the twentieth century, the thinkers behind almost every philosophy have finely honed each concept, exploring nuances that hadn't been thought of in the nineteenth century. But this hasn't been true of the market philosophy, which has stayed almost exactly where it was a century ago. Little depth of thought is given to any of its concepts, and very little to the legal, institutional, cultural and moral prerequisites of a market society. All those things are taken as givens that don't need critical thinking.

An example of the shallowness appears in the preoccupation that pro-market think-tanks continue to have with "government intervention" (which is identical to the concerns of the 1950s), even years after the New Left and its aftermath have brought on the "culture war" by so many attacks on the society. When the United States is damned for having displaced the American indians from the continent, or for having evacuated the Japanese-Americans from the west coast during World War II, or for once "being racist in lynching blacks," almost nobody in today's "conservative movement" looks back to study what really happened and why, which is essential if the country is to retain a decent memory of its past. Part of the reason for this default is the myopia of the ideological closed-system; its enthusiasts simply can't see anything outside its circle.

This inability bars sensibility toward values that the system doesn't accommodate. The system lends itself to the world-cosmopolitan outlook that cares nothing for national or cultural values. It is the perfect philosophy for the multinational businessman's denigration of national loyalty, and will remain so for as long as it continues being a closed system.

Part of the shallowness comes from a confusion of theoretical economic models with reality. I gave the example above about how supply-and-demand is expected to lead to adjustments that will clear the market of everything that is offered to be sold. "If there is a large supply of workers, wages will fall until it becomes profitable for entrepreneurs to hire the full supply." No doubt that is exactly the way the model-building of the theory postulates things will work; and it's fine as model-building, which is a way of conceptualizing. But the model doesn't seek directly to replicate reality. To understand what happens in fact, it is necessary to ask "how long will it take for entrepreneurs to see the profit opportunity and to respond to it? How long to raise the capital, to establish the organizations?" Economic theory doesn't promise that things will jump into place overnight; it only predicts a "tendency" for some people to spot profit opportunities and move toward them. You would never know this from the sugar-coated descriptions in the free-trade literature.

The same shallowness comes from the expectation of human rationality. The theory realizes that rationality and perfect knowledge are hypotheticals, inserted so that it becomes possible to deduce the behavior that will follow if they are present. (And so the Left is misguided when it attacks the theory's use of constructs of that sort as part of its criticism of the theory. It is like criticizing a mathematician for using the concept of a perfectly straight line.) But often these theoretical constructs are used as though they describe reality, which they don't. The best example I know of is the recent enthusiasm for "free banking," in which totally unregulated banking is projected to be disciplined by the ever-watchful eye of the marketplace. I mentioned this earlier, and can add that Hayek's ideologically purist side is perhaps best revealed by his work in this area. But how is it possible to think that "the market" is capable of exercising a splendid attentiveness when we see all around us situations in which consumers, even in the most competitive situations, are acting half-blind (and continue to do so over many years). An example would be having a home built in a large city where there are many contractors. In the United States, no industry is more laissez-faire than that one. The assumption of market rationality would predict that the good contractors would be rewarded and the bad ones forced out. We know it just isn't so.

All of this adds up to a warning. The market ideology in its currently popular form is the one that will most resist changing to meet the coming displacement and polarization. Since classical liberalism has so much to offer, that will be a tragedy.

If any of those who most support a laissez-faire market have been persuaded by what I have said to look beyond the closed system, I urge them to give special attention to my critique of specific concepts in the next chapter. It is too late to cling tightly to ideas that have gone so long without serious scrutiny from those who hold them. Anyone who is going to meet the future has to "have his head on straight."

The critique will also be valuable for others, not for its criticism of the market philosophy so much as for its clarification of economic and social concepts.

DIFFERENCES WITHIN CLASSICAL LIBERAL THOUGHT

ENDNOTES