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Fundamentals of capitalist economic life : Comments
By Peter Gilchrist, published 10/12/2008Now is a good time to examine the corpse of the unregulated market.
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(Mil_observer's last post assumes that the price of money in private transactions has got nothing to do with government's manipulation of price of money it supplies to the market.)
First, obviously perfection is not an option for human beings. Theory puts the cart before the horse when it gives policy prescriptions intended to approach perfection, before it has done its primary job of explaining the facts in the real world.
Secondly this state of perfection in theory - perfect knowledge, perfect competition etc - is a state of equilibrium. In this state the market is at rest: no-one can get an advantage by making an exchange. But the task of economic theory is to explain human action in the real world, not to prescribe the conditions of inaction in a hypothetical perfect stasis.
Thirdly, the original problem is in optimising economic activity. It is not permissible to simply presume that people acting as governments, more closely approach a perfection that people acting as markets do not. Government is also made up of human beings with all the same imperfections and motivations as people generally. But if the assumption were true, there would be no need for private action whatsoever: the entire task of economic activity could be optimally delegated to government.
Talk of ‘true’ value, ‘distortions’ of prices, ‘unequal’ power, ‘incomplete’ information, ‘irrational’ expectations: - these are not self-proving, self-evident. They presuppose propositions of economic theory which are themselves both
a) problematic in terms of epistemology, and
b) implicated in policies which led to the current economic crisis.
There is a need to strike to the root and the root is epistemology. The issues you raise cannot be resolved without first resolving the underlying epistemological issues.
But the mainstream economic theories: Keynesianism, neo-classical, monetarism, don’t even recognise the underlying issues.
They assume that what makes economics scientific is positive measurement. But the assumption is wrong, because human action is based on subjective valuations that cannot be measured so all their mathematical models and statistical aggregates are based on a fallacy.