Man, Economy, and State with Power and Market

UP TO THIS POINT WE HAVE been assuming that no violent invasion of person or property occurs in society; we have been tracing the economic analysis of the free society, the free market, where individuals deal with one another only peacefully and never with violence. This is the construct, or “model,” of the purely free market. And this model, imperfectly considered perhaps, has been the main object of study of economic analysis throughout the history of the discipline.

In order to complete the economic picture of our world, however, economic analysis must be extended to the nature and consequences of violent actions and interrelations in society, including intervention in the market and violent abolition of the market (“socialism”). Economic analysis of intervention and socialism has developed much more recently than analysis of the free market.1 In this book, space limitations prevent us from delving into the economics of intervention to the same extent as we have treated the economics of the free market. But our researches into the former field are summarized more briefly in this final chapter.

One reason why economics has tended to concentrate on the free market is that here is presented the problem of order arising out of a seemingly “anarchic” and “planless” set of actions. We have seen that instead of the “anarchy of production” that a person untrained in economics might see in the free market, there emerges an orderly pattern, structured to meet the desires of all individuals, and yet eminently suited to adapt to changing conditions. In this way we have seen how the free, voluntary actions of individuals combine in an orderly determination of such seemingly mysterious processes as the formation of prices, income, money, economic calculation, profits and losses, and production.

The fact that each man, in pursuing his own self-interest, furthers the interest of everyone else, is a conclusion of economic analysis, not an assumption on which the analysis is grounded. Many critics have accused economists of being “biased” in favor of the free-market economy. But this or any other conclusion of economics is not a bias or prejudice, but a post-judice (to use a happy term of Professor E. Merrill Root’s)—a judgment made after inquiry, and not beforehand.2 Personal preferences, moreover, are completely separate from the validity of analytic procedures. The personal preferences of the analyst are of no interest for economic science; what is relevant is the validity of the method itself.

• 1Some economists, notably Edwin Cannan, have denied that economic analysis could be applied to acts of violent intervention. But, on the contrary, economics is the praxeological analysis of human actions, and violent interrelations are forms of action which can be analyzed.
• 2Is it, then, surprising that the early economists, all religious men, marveled at their epochal discovery of the harmony pervading the free market and tended to ascribe this beneficence to a “hidden hand” or divine harmony? It is easier for us to scoff at their enthusiasm than to realize that it does not detract from the validity of their analysis.
       Conventional writers charge, for example, that the French “optimistic” school of the nineteenth century were engaging in a naïve Har-monielehre—a mystical idea of a divinely ordained harmony. But this charge ignores the fact that the French optimists were building on the very sound “welfare-economic” insight that voluntary exchanges on the free market conduce harmoniously to the benefit of all. For example, see About, Handbook of Social Economy, pp. 104–12.