[1] Liberty - Adam Smith

The great achievement of his famous discussion about the division of labour was the recognition that men who were governed in their efforts, not by the known concrete needs and capacities of their intimate fellows, but by the abstract signals of the prices at which things were demanded and offered on the market, were thereby enabled to serve the enormous field of the 'great society' that 'no human wisdom and knowledge could ever be sufficient' to survey. In spite of the 'narrowness of his comprehension' individual man, when allowed to use his own knowledge for his own purposes...was placed in a position to serve men and their needs, and use men and their skills, who were wholly outside the range of his perception.

The great society indeed became possible by the individual directing his own efforts not towards visible wants but towards what the signals of the market represented as the likely gain of receipts over outlay.

The practices by which the great commercial centres had become rich were shown to enable the individual to do much more good and to serve much greater needs than if he let himself be guided by the observed needs and capacities of his neighbours.

It is an error that Adam Smith preached egotism: his central thesis said nothing about how the individual should use his increased product; and his sympathies were all with the benevolent use of the increased income.

He was concerned with how to make it possible for people to make their contribution to the social product as large as possible; and this he thought required that they were paid what their services were worth to those to whom they rendered them.

But this teaching nevertheless offended a deeply ingrained instinct that man had inherited from the earlier face-to-face society, the horde or the tribe, in which through hundreds of thousands of years the emotions were formed which still govern him after he has entered the open society. These inherited instincts demand that man should aim at doing a visible good to his known fellows (the 'neighbour' of the Bible).

These are the feelings that still, under the name of 'social justice', govern all socialist demands and easily engage the sympathies of all good men, but which are irreconcilable with the open society to which today all the inhabitants of the West owe the general level of their wealth.

The demand for 'social justice', for an assignment of the shares in the material wealth to the different people and groups according to their needs and merits, on which the whole of socialism is based, is thus an atavism, a demand which cannot be reconciled with the open society in which the individual may use his own knowledge for his own purposes.

The recognition that a man's efforts will benefit more people, and on the whole satisfy greater needs, when he lets himself be guided by the abstract signals of prices rather than by perceived needs, and that by this method we can best overcome our constitutional ignorance of most of the particular facts, and can make the fullest use of the knowledge of concrete circumstances widely dispersed among millions of individuals, is the great achievement of Adam Smith.

F.A. Hayek, Adam Smith (1723-1790): His Message in Today's Language, Daily Telegraph, London, March 9, 1976

[7] News from Absurdistan - The Rule of Men and Bad Economics

While Germans are proud of their Rechtsstaat ("a state/country/government under the rule of law"), it is, in fact, the 'rule of men' not the 'rule of law' that they practice. Yet, they cannot have their cake and eat it. If democratic license entitles certain agents to determine at will what the law is to be and to shift the posts while the economic game is under way to serve certain groups or goals in violation of general rules applicable to all, you might end up with a soziale Marktwirtschaft but you cannot have a Rechtsstaat.

If you do not wish to have capitalism, you must relinquish the rule of law. If you insist on the rule of law, you cannot have a soziale Marktwirtschaft.

It is amazing that no one seems to notice the contradiction.

Why such incongruence would go unnoticed has to do both with the tradition of legal positivism in Germany - the idea that law is whatever those (legitimately) in power declare it to be - and with the fact that economists (not only in Germany but all over the world) have lost sight of their subject-matter.

Economics ought to explain that self-generating order that comes about when free individuals do commerce with one another based on generally applicable rules of just conduct. However, in economics, little attention is paid to freedom and justice and the discovery process set in motion by them, the dynamics and evolution, the creative destruction inherent in a free economy. The most essential features of a capitalist economy are excluded from the models purporting to represent it: instead economics focusses on equilibrium, precisely the kind of state at hand when the driving forces of a vibrant capitalist economy - change, competition, discovery, innovation - have lost their relevance and disappear from sight.

Economists are eager to be seen as practitioners of an exact science and, therefore, awkwardly and obsolescently, try to satisfy the scientific ideal of the 19th century - the precision of mechanics. To that end, they must turn their subject-matter into something tractable in terms of mechanics. The anally retentive fetish of precision supersedes the business of comprehension.

Their description of the economy is a travesty of the "real thing", an embarrassment that does not fail to be noticed. Rather than realizing that their approach to conceptualizing the economy is wrong - oh no, it is mathematically too beautiful to be given up - the incongruence of the theoretical and the real economy is assiduously ascribed to something being wrong with the economy - namely, the tremendous incidence of "market failure" - meaning: equilibrium does not work, does not show up in the evidence - ah, hence, the economy does not work.

Not economics is flawed, but the capitalist economy is. In fact, it is, due to all that "market failure", a pretty wobbly something that, indeed, needs a lot of fixing. That is why the majority of economists are easily convinced of the need of intervention in the economy, and - in Germany - very fond of the soziale Marktwirtschaft.

In this way economists, who should know better, act as an authority that rehabilitates the propaganda lies of 19th century socialists, on which the general disdain for "pure capitalism" is entirely based - to this day, July 4, in the Year of The Lord 2007.

There is something inherently wrong, fundamentally vicious about the unfettered capitalist economy - actually, an idea intrinsically pre-economic, a savage notion held when economic analysis had not yet been at the disposal of mankind, and the roundabout, counter-intuitive workings of anonymous interactions by suspicious individuals such as traders insulted the values and thinking habits of close-knit tribal communities.

Thus, let us appeal to wise men (the rule of men) to straiten things out.

Let us not follow impartial rules designed to set free the enormous powers of a spontaneous order coordinating billions of people (as opposed to the commands that give cohesion to a horde), let us go for persuasive whims and interests and hope for share outs and windfalls for you and me.

Let us pretend that we are still a smallish community tied together by similar experiences and circumstances, a great family of hunters and gatherers, rather than six billion human beings, who form an abstract order that must follow abstract rules, not parochial conceit, if its incalculable, unbounded, unsurveyable diversity is to bring forth prosperity and peace, not strife, not "order" by domination and subjugation.

Let us make promises of the familiar, even more: of the familial, let us be guided by tribal instincts...and...bang goes the rule of law. Bang comes the soziale Marktwirtschaft.