WanSaiful.com

(Professor Pierre Garello, University Paul Cezanne Aix-Marseille & Institute of Economic Studies-Europe)

The free market is not a homogenous club. Differences pervade the free-marketer community.

Some of the main schools of thought are:

1. Classical school

•  Includes names like Adam Smith, Ricardo, Malthius, Mill, Say and Bastiat.

• Subscribes to the concept of spontaneous order

• Calls for a limited state as the state does not have enough knowledge to plan (i.e.: cognitive limitations)

• Believes that the value of an item (theory of value) is directly associated with the cost of production of that item.

2. Neo-classical school

• Includes names like Marshall, Jevons, Friedman and Walras

• Re-states the beliefs of the classical school but with two main differences:

• Believes that the value of an item is directly associated with the needs and demands for that item, not the cost of production.

• Use more mathematics when dealing with economic issues

The classical and neo-classical schools missed out a very important aspect of life – the dynamics of social interactions. This gives rise to the third school:

3. Austrian school

-         Still believe in the same main principles of spontaneity and limited state.

-         Menger argued that:

o       Social phenomena change with time

o       People have limited knowledge

o       There are a lot of uncertainties

-         Combined, these result in evolution and changes of “the rules”

-         Austrian school does not support the “Rule of Reason” theory. This theory calls for every issue to be dealt with on a case by case basis. This may sound very reasonable but in reality it is not. Austrian school economists argue that the cognitive limitations prevent people from making the right judgement if everything is dealt with on a case by case basis. We simply do not know enough and our cognitive limitations make us look for answers only within the realm of our knowledge. Thus, when searching for an answer, there is always a possibility we search at the wrong place while the answer lies elsewhere(e.g. the streetlight fallacy)

-         Believes that order in the market is created by a combination of property law, contract law, tort law and the existence of properly functioning institutions to enforce the laws. The market therefore should not be regulated with laws like anti-trust or competition law. The market is just too complex to regulate.

Question to self: If you do not favour competition law, how do you deal with a situation where a monopoly charges an extortionate price?

Filed under: Freedom & Liberty