One of my favorite economists on the left was the late Abba Lerner. In my biography of him for The Concise Encyclopedia of Economics, I wrote:
Abba Lerner was the Milton Friedman of the left. Like Friedman, Lerner was a brilliant expositor of economics who was able to make complex concepts crystal clear. Lerner was also an unusual kind of socialist: he hated government power over people’s lives. Like Friedman, he praised private enterprise on the ground that “alternatives to government employment are a safeguard of the freedom of the individual.” Also like Friedman, Lerner loved Free Markets. He opposed Minimum Wage laws and other price controls because they interfered with the price system, which he called “one of the most valuable instruments of modern society.”
I also quoted one of my favorite quotes from Lerner:
One of the deepest scars of my early youth was etched when my teacher told me, “You do not want that,” after I had told her that I did. I would not have been so upset if she had said that I could not have it, whatever it was, or that it was very wicked of me to want it. What rankled was the denial of my personality—a kind of rape of my integrity. I confess I still find a similar rising of my hackles when I hear people’s preferences dismissed as not genuine, because influenced by advertising, and somebody else telling them what they “really want.”
The quote is from Abba Lerner, “The Economics and Politics of Consumer Sovereignty.” American Economic Review 62 (May): 258–266. I recommend reading his whole article.
READER COMMENTS
Jon Murphy
Nov 23 2019 at 9:43pm
Fascinating story. Lerner is someone I want to learn more about and, as I recall, James Buchanan held him in high respects
Don Boudreaux
Nov 23 2019 at 11:38pm
I know that, while at the LSE, Lerner studied under Hayek. But I also believe – although don’t know for sure – that Hayek was Lerner’s major professor.
In addition, I heard or read somewhere that Lerner was friends with Barry Goldwater. Strange bedfellows, if true – but it true, it’s a fine testament to the quality of each man’s character.
Thaomas
Nov 24 2019 at 9:09am
The “Learner Theorem,” the equivalence of import restrictions with export taxes, is the most important virtually unknown insight of trade theory.
Phil H
Nov 24 2019 at 11:18am
This is a great exposition of something that I have often failed to state clearly:
“Simplified accounts…seem to have led to the notion that a free market is a natural state of affairs…[that] will automatically arise like weeds in the garden or the fish in the sea, if only there is no human, and particularly no governmental, intervention.
There can be no greater misunderstanding of the origin of market economies. Thousands of habits of behavior and of enforced laws had to be developed over millennia to…disentangle sets of rights from the buzzing chaos of the universe and designate each such set of rights as a commodity that an individual (or a group) could exchange…”
Markets seem to me to be wondrous things, but they are artificial constructs; and their outcomes are artificial constructs.
Jon Murphy
Nov 24 2019 at 1:22pm
That’s going to depend entirely on your definition of artificial. Markets are “natural” in the sense that no one mind directs them; that is, they are not the product of a “great mind” (or great minds). No one determines what markets succeed and what markets fail. No one determines what the “markets of the future” are. They arise from human nature.
They are “artificial” in the sense that they are man-made institutions; they are driven by purposeful human action. A market interaction is between two people who make a conscious act of choice.
Phil H
Nov 24 2019 at 6:50pm
Hi, Jon. I’m not sure I understand your terms exactly. What do you mean by “what markets fail”? I don’t know what you imagine constitutes the failure of a market.
“A market interaction is between two people who make a conscious act of choice.” – This is precisely the point I’m disagreeing with. We interact consciously and with choices all the time. Only a limited set of those interactions are market interactions. Markets are characterised, classically, by things like awareness of participation, understanding of the options available to you, unconstrained consent, honest dealing, trust (generated through mechanisms of recourse against those who break market rules), etc. Those conditions only hold true for a certain portion of our conscious interactions.
(Of course, I do have to concede two points here: 1) It is striking how robust many markets are, i.e. that they work well even when a number of those perfect market conditions do not hold; and 2) applying market analyses to non-market situations has often led to very interesting insights. These two points taken together constitute the power of economic analysis. However, I don’t think they negate the underlying point, which is that markets are artificial constructs, and when they haven’t been constructed, they don’t exist.)
“they are not the product of a “great mind” (or great minds)” – Again, this is where I disagree. The opposite of markets, often raised here on this site, is usually the “central planner”, who is a single great mind who controls both inputs and outcomes. And the contrast is stark: with a market, we deliberately set out not to control outcomes. But a number of great minds working together definitely do control the starting conditions. The NYSE, with its myriad rules, is the classic example. But so is the housing market, with its various land laws and mortgage laws. So is the food market, with its regulations. Or the electronics market (I used to work for a big electronics maker, and they spend a lot of time and energy contributing to standards and regulations, and talk explicitly about how they want to help “set the rules”).
The analogy that works for me is a boardgame. The makers of the boardgame don’t control who wins. Usually. It’s possible, of course, to make a game in which one particular player always wins, and if the game is complex enough, it might be a very long time before anyone notices. But even in a fair game, the rules and the gameplay and the distribution of winners and losers are very much the artificial products of the makers’ great minds.
Jon Murphy
Nov 24 2019 at 9:07pm
For example, no one planned VHS displacing Betamax.
Some of those elements are in markets (not unconstrained consent. Much of market transactions are non-conceptual, in particular: competition). But consciousness does not necessarily need to make a market. Each exchange is a conscious act of choice, but the overall process is unconscious. See I, Pencil.
I don’t disagree with that point, but rather I am saying the definition of “artifactual” matters.
Setting the rules is not the same as a great mind planning an outcome. Oh sure, they can try, but again I refer you to I, Pencil. The insights in that short pamphlet will enlighten you.
Phil H
Nov 25 2019 at 3:33am
Hi, Jon. I’m not really convinced. I went and read I, Pencil, and it is indeed very good. But all it really shows is that the processes behind a pencil are very complex. The processes behind many non-market products are also very complex – a painting might include dozens of different pigments, each with their own story; all the knowledge of the artist and the stories she’s heard… That doesn’t tell me anything specific about markets.
You keep talking about “planning an outcome” in a way that makes me think you haven’t understood my point. In particular, why would VHS displacing Betamax be a market failure? The product (or technology) failed. The market worked fine, it’s just that one product won, and the other product lost.
The starting conditions for a market do not plan for one single outcome. On that we certainly agree. But the starting conditions of a market do determine what set of possible outcomes there can be. We don’t know what the future prices of stocks on the NYSE will be, but we know that the stocks will be corporate equity (because that’s what the market rules say you’re allowed to trade) and fairly liquid (because that’s what the NYSE does) and probably lots of other things as well. We may not know what food will sell best in the supermarket, but we do know that it will be a safe food product, because that’s what FDA regulations ensure. In China, you don’t know what’s going to happen in the housing market, but you do know that you won’t get freehold, because it doesn’t exist here. And that American pencil will not contain any asbestos, nor materials from North Korea.
Like you, I’m extremely impressed by globalization, and the role of markets in that process. But I don’t think it happened “unconsciously”. It couldn’t happen before decent international trade law was invented. And it can be undone by a determined president if he so decides.
David Seltzer
Nov 26 2019 at 2:15pm
Jon, I agree with you. I fail to see how markets emerging as a result of spontaneous order are artificial. I was an equity and derivatives trader on the American Stock Exchange, sometimes referred to as the “Curb”. The history of the AMEX dates back to 18th century. At that time, without a formalized exchange, stockbrokers would meet in coffeehouses and on Broad street to trade securities. Formalization and a SRO constitution followed order without intent. In 1921, The New York Curb Exchange moved into a building at 86 Trinity Place. It became the American Stock Exchange , officially, in 1953.
Pierre Lemieux
Nov 25 2019 at 9:37am
I know socialist politicians who should read this. In fact, I know some on the right too.
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