May 26, 2011

The Eminently Real Free Market (I): Disparaging Imaginary Constructions as Illusions (1)

Followers of this blog may rightly wonder what commitment of time our review of TCATL, Part I, Chapter 2, “The Illusory ‘Free’ Market,” will demand of them. That the previous 31 posts only got us to page 11 is not a source of pride. The examination of the next 30 pages (12-41), however, will not require nearly as many mini-essays. We will not rush things, of course, but no one is more interested than we are in laying bare the confusion on display in Part II (chapters 3-17). That each chapter illustrates defects already identified in our preliminary posts should help streamline the task of documenting just how a given chapter fails to achieve the goals Mr. Ferrara set for it.
He begins Part I’s only substantial chapter with a conclusory statement of his position. What he calls an “essential preliminary” to the ensuing “discussion” (his word for the rest of his book) is the reader’s “understanding of the insuperable problem that undermines the entire Austro-libertarian defense of what they call the ‘free’ market: that it does not exist in the real world, as they themselves admit.” (12)
To claim to understand something is to imply that it is actual, for one cannot understand what is not there to be understood. What Mr. Ferrara intends for his readers to “understand,” however, is nothing more than the uncharitable construction that he puts upon his Austro-libertarian opponents’ words, an interpretation he apparently cannot trust his reads to arrive at on their own after he puts the evidence in front of them. The only thing he leaves for them to decide is whether Austro-libertarians are too stupid to notice that the free market doesn’t exist (even though they admit it doesn’t), too dishonest to call attention to this cognitive dissonance, or too schizophrenic to care how they’re perceived. (I will not further annoy the reader by referring to Mr. Ferrara’s tedious use of scare quotes around “free,” as in “‘free’ market”).
After this tendentious start, Mr. Ferrara quotes Ludwig von Mises to the effect that the free market is an imaginary construction. Unfortunately, however, he never explains what Mises meant by “imaginary construction.” Had Mr. Ferrara done that, his reader would understand that this imaginary effort serves a theoretical, not an historical, purpose. The debate would then be over whether or not it does this well. Parties to the debate would be armed with competing philosophies of theory and practice. Mr. Ferrara expresses no interest in such a debate.
The Austro-libertarians’ theoretical or scientific intention, once recognized, would undermine the defamation, implied in the chapter’s title (and repeated at the head of its every odd-numbered page), that they suffer from an illusion. An imaginary construction might illuminate reality, but illusions can only occlude it. One who suffers from an illusion is disqualified from serving in a scientific capacity.
Let’s see who’s shutting out reality. Mr. Ferrara quotes Human Action from the opening paragraph of the third section of Chapter XIV, “The Scope and Method of Catallactics,” the section’s title being “The Pure Market Economy.” As the words his elliptical dots obscure are relevant for assessing his diagnosis of a cognitive break with reality by Austro-libertarians, and as the words that immediately follow give a fuller sense of Mises’ theoretical interest, we will italicize them:
The imaginary construction of a pure or unhampered market economy assumes that there is division of labor and private ownership (control) of the means of production and that consequently there is market exchange of goods and services. It assumes that the operation of the market is not obstructed by institutional factors. It assumes that the government, the social apparatus of compulsion and coercion, is intent upon preserving the operation of the market system, abstains from hindering its functioning, and protects it against encroachments on the part of other people. The market is free; there is no interference of factors, foreign to the market, with prices, wage rates, and interest rates. Starting from these assumptions economics tries to elucidate the operation of a pure market economy. Only at a later stage, having exhausted everything which can be learned from the study of this imaginary construction, does it turn to the study of the various problems raised by interference with the market on the part of governments and other agencies employing coercion and compulsion.
This is a window into Mises’ theoretical context, with which Mr. Ferrara announced in the previous chapter that he has no interest (except when it suits him). As we can see, however, Mr. Ferrara’s several omissions are arguably germane to his topic:
(1) The ontology of the market, namely, the division of labor, private property in capital goods, and market exchanges, which flesh out the meaning of the “operation of the market,” which “institutional factors” might obstruct.
(2) Mises’ view of government as that agency of coercion that allegedly confines its tender mercies to protecting market actors from other forms.
Anarcho-capitalist students of Mises like Murray Rothbard deny that the government can “abstain from hindering its [the market’s] function”: governments can only supply instances of the “hindering” and “encroachment” which the imaginary construction is to bracket out.
We understand that Mr. Ferrara may not be interested in whether Mises’ “minarchism” is less grounded in reality or coherent with Mises' own theoretical strictures than is anarchism. We fail to see, however, how Mr. Ferrara can integrally avoid the question of coercion in any responsible “discussion” of free markets.
(3) The theoretical (not historical) purpose of Mises’ imaginary construction: it “elucidates” market operations by (a) distinguishing categorically between peaceful exchange and violent interference therewith, (b) considering the logic of the former apart from the latter, and then (c) studying the effects of the latter on the former.
Notably, Mises does not lump peaceful exchange and violent interference together as “human behavior.” The former is the norm, the latter subversive of it. This categorical demarcation is ethical, in a Kantian-logical way: it is possible to universalize peaceful exchange; it is not possible to universalize violence without destroying the human race (and a fortiori all possible subjects and objects of economics).
More significantly, Mr. Ferrara fails to disclose that the preceding section of this chapter of Human Action, that is, Section 2 of Chapter XIV, is wholly devoted to justifying the imaginary theoretical construction that he would have his readers confuse with an illusion.
To Be Continued