MD: Here at MD we are aware of far more delusions that cripple society than just the money delusion. Some are related. Some are not. Other delusions are about democracy … and about the rule of law. In commenting here, I think I’m going to be getting into delusions about law. Let’s see.
… is from page 110 of my late Nobel laureate colleague Jim Buchanan‘s 1980 paper “Rent Seeking and Profit Seeking,” as it is reprinted in volume 1 of The Collected Works of James M. Buchanan: The Logical Foundations of Constitutional Liberty:
MD: Laws just plain don’t work … witness the 40,000+ new ones we get every single year. Further, take a gander at how those laws are made. To further show the falacy of laws, consider how many you must write just to embrace the simple “principle” of the golden rule. Hint: There are fewer grains of sand on all the worlds beaches. When we deal with things in a societal manner, we should deal in principles and not laws. And we shouldn’t bring things to a societal forum that can be handled in a more constrained forum. The individual is the ideal forum for addressing issues … most can be dealt with right there when you are guided by principles …. not laws.
But economists have concentrated far too much attention on efficiency and far too little on the political role of markets.
MD: Any discovery of political role reveals a flawed process. Politics has no place in trading … no place in economics. All issues in trading and economics are easily handled by the traders involved … and adherence to principles … starting with the golden rule. When you tolerate cheating, you’re going to be dealing with lots of cheating. When you classify cheating as gamesmanship you are deluding yourself.
To the extent that markets are allowed to allocated resources among uses, political allocation is not required.
MD: Bingo … even without the “allowed” qualification.
Markets minimize resort to politics. Once markets are not allowed to work, however, or once they are interfered with in their allocative functioning, politics must enter. And political allocation, like market allocation, involves profit seeking as a dynamic activating force.
MD: I’m perplexed how we can be in violent agreement here … and how Cafe Hayek can be so clueless about trade, traders, and money.
DBx: Many opponents of markets find the open quest for profits in market economies to be unethical or unaesthetic, and they blame markets.
MD: There is no substitute for “markets”. To attempt a substitute is just to impose another market … i.e. another playing field … with a set of rules that favors one set of traders over another. Let the traders be free to choose their own playing field … and others who claim they should not be allowed to do that can just go pound sand.
What these opponents miss is the fact that the self-interest that is typically – and even the greed that is sometimes – on display in markets is not created by commercial markets.
MD: Self interest is personal and totally natural. Anyone who claims they are not first in every question of pecking order is deluding themselves. Greed, in the final analysis, is a person’s confusion about what their self interest really is. In the end it accomplishes a goal they don’t want to attain. There is very little of use in the bible … but at least they there tell of a guy named Ecclesiastes as “getting this concept” … in the end
Commercial markets are merely a forum in which individuals act on these motivations.
MD: Why the “commercial” qualification?
One of most profound errors committed by market opponents is to suppose that when activities are transferred from commercial markets into the realm of politics human imperfections and self-interest are replaced by superhuman perfection and altruism.
MD: Pretty peculiar isn’t it, when you stand back and observe “all” politics is sub-human, not close to perfection, and arises out of advanced selfishness … in violation of the golden rule for those practicing and imposing it. In fact, they openly oppose and refuse to comply with their own rules and those they impose on others.
But as Buchanan argues, it’s naive to suppose that the mere shifting of activities from one resource-allocation forum to another changes the underlying human motivations. (And such shifting certainly does not change the underlying human cognitive limitations.)
MD: It changes the playing field. That’s it. But worse, it disallows others from leaving the field … just taking their ball and going home. The USA Constitution does not have the “obligatory” buy/sell agreement. You “will not” secede.
So profit seeking occurs in political settings no less than in market settings. But the kinds of information and constraints in political settings differ greatly from those in market settings.
MD: Remember, democracy only works with less than 50 people involved. And the political setting being addressed in the case of the USA has 500,000 involved … in the “most representative” case. Ridiculous! We are tolerating a process that was DOA … and the writers of the Anti-Federalist Papers were totally aware of it. But the money changers, as always, prevailed. They’re the ones who called the meeting in the first place.
Therefore, the kinds of actions taken in one setting, and the consequences of those actions, differ from the actions and consequences in the other setting.
MD: That’s not a “therefore” qualification. You see those differences and consequences between just two traders on the same playing field negotiating the same issues … just at a different point in time. That’s called trading. It has, at most, three steps: (1) Negotiation; (2) Promise to Deliver; (3) Delivery. In many cases it doesn’t pass the first step. In the case of simple barter exchange in the here and now, steps (2) and (3) happen simultaneously on the spot. Under political influences, step (3) happens under manipulated time and space and step (2) never is used at all! It is just lied about.
One important difference is that in markets, profits are earned only through voluntary payments while in politics profits are typically extracted by forcibly transferring property from the politically weak to the politically strong. The fact that such transfers are not overtly called “profit seeking” – and the fact that political activities are camouflaged with public-interest rhetoric – doesn’t change the underlying reality.
MD: But it’s worse. The money changers control the “improper” MOE process we all use. That is really where the problems begin and end. Allowing a “proper” MOE process to compete makes all these issues go away. There is “no political economy” in such a case.
In summary, in the market Smith profits only by building a better mousetrap or by devising a process that reduces the amount of resources used to build a familiar mousetrap.
MD: Wrong. The process allows one trader to convince another that that is the case. More trades take place under delusions than under rational choice. If that wasn’t the case, advertising would be very much different.
(Smith might do so directly, as a mousetrap producer, or indirectly, as someone who secures the financing for a mousetrap producer.)
MD: With a “proper” MOE process, the “financing” qualification is totally unnecessary. Any responsible trader can make a promise spanning time and space and create the money to carry it out in the domain of a “proper” MOE process. Deadbeat traders can too, but the more irresponsible they prove to be, the more interest load they must bear in reclaiming the defaults the make. At the limit, they preclude “themselves” from money creation privileges in the domain. They can use all the money they want … anonymously. They just can’t effectively create it. What they create immediately is taken back by interest collections. There is nothing left to do anything with.
In politics, Jones typically profits by confiscating mousetraps from Smith or from Smith’s customers, or by confiscating the inputs that Smith would otherwise use to make mousetraps.
MD: This also happens in normal trade without politics. If Jones can manipulate Smith’s perception in the (1) Negotiation phase, Smith is putty in Jones’ hands. And if you don’t allow the (1) Negotiation phase, you have different issues entirely. Don’t make this more complicated than it needs to be.