Thursday, November 30, 2006

It ain't pie, at any price 

Via Chad, I read a post at First Things' On the Square blog critiquing Pope Benedict's view of poverty. The pope is quoted as saying there is a need to "eliminate the structural causes linked to the system of government of the world economy." The writer focuses on the mistake of looking at the distribution of goods and services rather than the production of them. The conversation reminds me first of John Stuart Mill's Principles of Political Economy, in which Mill says distribution is a matter of human choice (production being more governed by laws of nature). Still, Mill does find that changes in the rules of distribution affect the production of goods and services. In short, how you decide to slice the pie changes the size of the pie. Thus the pie metaphor really fails to appreciate the workings of an economy. Miller (and Chad) are correct to point this out.

But I'm more reminded of what the Invisible Hand means: There is no "system of government of the world economy." The 'economy' does not exist: What exists are millions of individual transactions, which as a by-product give us a set of prices that provide every individual with incentives to truck, barter and exchange in certain patterns depending on their gifts. Nobody calls out the prices either as a Walrasian auctioneer, a benevolent dictator, or a Marxist governmental form. Prices are not intentional. Making them intentional tries to stand between the market and the state as the organizer of economic activity. Friedrich Hayek writes in The Road to Serfdom:
But the fact that we have to resort to direct regulation by authority where the conditions for the proper working of competition cannot be created does not prove that we should suppress competition where it can be made to function. To create conditions in which competition will be as effective as possible, to prevent fraud and deception, to break up monopolies� these tasks provide a wide and unquestioned field for state activity. This does not mean that it is possible to find some "middle way" between competition and central direction, though nothing seems at first more plausible, or is more likely to appeal to reasonable people. Mere common sense proves a treacherous guide in this field. Although competition can bear some admixture of regulation, it cannot be combined with planning to any extent we like without ceasing to operate as an effective guide to production. Both competition and central direction become poor and inefficient tools if they are incomplete, and a mixture of the two - means that neither will work.
Yet what most religious writers about economics espouse is some way to put God in the middle. It sounds reasonable, but man "putting God in the market" is an act of man trying to be God, and that is the original sin.