I expect that many economists who might happen to read what follows would say that I present a caricature of the discipline. That may be so, or partly so, but unfortunately it’s a caricature that many people, including many influential people, think is reality. It strongly influences journalism, our political discourse, our jurisprudence, and our public policy, so it needs debunking. In fact, I took two introductory economics courses (it's a bit of a long story, but it was the easiest way to get the needed credit) and this is in fact how it was taught to me. The instructor and the textbook laid out a series of assumptions, none of which actually pertain to reality, and then went on to forget that the assumptions were not true, logically deduced what the world would be like, and then pretended that fantasy is the real world. In other words, economics is more like theology than science.
A typical way to begin is by imagining cartoon worlds in which there are only two people with goods to exchange, or only two products for sale. In the imaginary world of only two people, let’s say Alice and Bob, Alice raises chickens and Bob grows corn. So if they exchange chickens and corn, they’ll both end up feeling better off. That’s called a transaction, and so it would seem to follow that whenever a transaction happens, the world is a better place because now both parties are happier. Obviously, if some busybody comes along and stops Alice and Bob from doing all the trading they want to do, they won’t be as happy as they could be.
The endeavor from this point on is to inflate this into a claim about the real world of many people, many corporations, and innumerable products. A first order conclusion, without looking too deeply, would be that the way to the happiest possible world is to let everybody do whatever trading they want, of anything, with anybody. The posited “free market” economy, if left to its own devices, will turn out maximum prosperity, efficiency and utility -- a jargon word we’ll get to -- for all. Government just needs to leave it alone – an idea called laissez faire – French for “let do” – a phrase popularized in the 19th Century.
This conclusion was a central premise of liberalism as the term was used back then, although liberalism doesn’t have quite the same meaning today. Nineteenth Century liberalism was more like what we today call libertarianism (although without the accompanying emphasis on social freedoms), and was partially resurrected as neoliberalism in the 1980s. The changing meaning of the word “liberal” creates much confusion.
Now that we are, I hope, off to a good start, we'll take this up again tomorrow.
