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Friday, December 6, 2013

The Free-Market and the No True Scotsman Fallacy

This is the winning entry for the November Thorpe-Freeman blog contest. You can read the original article here.

Venture into any heated economics debate about what is the best economic system to promote prosperity for the greatest number of people, and you will undoubtedly encounter those with a pro-interventionist outlook making statements such as: “The USSR was not Communist,” “Karl Marx’s ideas were never implemented in reality,” “The government did not spend enough,” and statements along those lines. It sounds silly, and it is, but are free-marketeers any different? In response to a criticism of the free market, there are many who make statements such as: “The free-market has never existed in history”.

This is clearly exhibited in the comments thread in Jane S. Shaw’s article over at the Freeman explaining the work of Ronald Coase and Nina Wang about how China’s growth can be attributed to capitalism. This is a topic that is virtually crying out for the age-old debate about whether capitalism or communism promotes the greatest welfare for the greatest number of people, and it is unsurprising to see the contentiousness of the topic exhibited in the comments thread.

Once we lay down our intellectual arms however, we realize that such statements are intuitively silly. If the USSR was not a Communist regime, then what was or is? If Hong Kong is not a free-market country, then what is? The reason the statements sound silly is that they constitute what is known as the no true Scotsman fallacy. It is an attempt to make one’s stance as pure as possible so that it becomes unfalsifiable. Pro-interventionists will always point out that there was never as much intervention as they would like. Pro-free-marketeers on the other hand will always point out that the market was never as free as they would like it to be. In both scenarios, the positions become totally immune to criticism by virtue of becoming caricatures upon themselves.

Is there a way free-marketeers can get around this? Yes, and that is by looking at an economy market by market, rather than aggregating everything together and dumping a label on it. This avoids the issue that Ludwig von Mises raised, namely, that the “worst enemy of clear thinking is the propensity to hypostatize, i.e. to ascribe substance or real existence to mental constructs or concepts.” It is by looking at economics market by market rather than analyzing a grandiose “market” that has an attitude in itself. It is effectively a form of macroeconomics with microfoundations.

Analyzing markets in this way avoids the no true Scotsman fallacy, and this reaps a variety of benefits. The first is that it prevents complacency. For us to say that “the United States is a free-market economy” implies that we should take a seat and relax, overlooking that even in the United States there is significant room for the frontiers of the State to be rolled back in certain markets and industries.

Another benefit of avoiding the no true Scotsman fallacy is that it underlines that free-markets can actually exist in reality. It is not just an “idea” dreamed up by fanatical libertarian ideologues. As St. Anselm of Canterbury says in his ontological argument, what exists in reality is greater than what exists in the mind. Therefore, it is fitting that pro-free-market economists present a free-market as something that can actually exist in the real world.

In many ways, this boils down to the age-old problem of universals in philosophy, aptly depicted in Raphael’s painting of “The School of Athens.” In the center are two of the most influential philosophers to grace the face of the earth: Plato and Aristotle. Plato is shown to be pointing upward, a visual allusion to his belief in the “Theory of Forms” that there is an ideal of everything existing in a transcendental world. This is very much like economists up until now who believe that the free-market is something that exists in some ethereal world, unable to be attained by earthly human beings. Aristotle, on the other hand, is pointing downward. This demonstrates his empirical attitude and his belief in concrete particulars, bringing everything down to earth away from unnecessary abstractions. Economists should certainly side with Aristotle over Plato.

  • Babatunde Onabajo is a second-year undergraduate studying economics at Cardiff University.