Wednesday, March 11, 2015

Free Enterprise Sees The Forest And The Trees

"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.'  But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."

Murray Rothbard (1926-1995)

How often do we hear somebody in the news, be it a political leader or news person, who states something so absurd economically as if it is fact, and expects everyone to simply accept it?

These "straw men" are put before us all the time.  "Economists all agree..."  "Soccer moms want..."  "The will of the people is..."  "The ______ community is in agreement..."  "The middle class..."

Any time you hear such talk you can discount it right away as incorrect and irresponsible.  Why?

Because such talk is an economic fallacy and an error - the so-called "fallacy of composition."

That fallacy proposes that if one individual thinks so, all in that individual's group must think so.  It is not only incorrect as a philosophy, but as a way of posturing any argument it is absurd.

Adam Smith, in Part 6 of his book "The Theory of Moral Sentiments," states:  "[The statist] seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse [sic] to impress upon it."

Good economics requires an analysis of the system, the entire system.  Economics is indeed a study of systems!  And the components of that system as well.  And free enterprise helps the system to work more efficiently. 

The fallacy of composition is a fallacy because the truth is that individuals will act as individuals!  They will act in their own self interest.  They don't necessarily act because their "group" does so.  And their actions are ENTIRELY UNPREDICTABLE economically because economics has to look at the whole picture.  An economist has to see the forest and the trees, so to speak, and never one in favor of the other.

Free enterprise does NOT favor one or the other.  It can't.

And when the invisible hand is managing the many, many multiples of human behavior in a free market it does so indiscriminately.  The most efficient means and the most efficient end is the goal.

Free enterprise sees the forest and the trees.

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