Faith in an unregulated free market? Do not fall into the trap
In 1918, Irving Fisher, the Yale economist, argued that what people maximize in their actions is something that could best be described as “desirability” rather than utility, as they are subject to temptation and mistakes in the wide range of purchases they make, marketing leaders maximizing their profits to take advantage of them in a systematic way.
In the first half of the 20th century, these critiques were of general interest. But they are little discussed today.
Current economic theory recognizes that if there is an “externality” – say, a company that pollutes the air during the production of the goods it sells – the outcome will not be optimal, and most economists would. agree that in such cases we need Government Intervention.
But the problem of market-induced professional manipulation and deception is fundamental, not an externality. In short, the superiority of unfettered free markets – the fundamental theorem of welfare economics – has taken on the aura of a law from heaven. Yet technology has advanced so that temptations are being handled ever more effectively.
In fact, the true success of the economies that embody free markets has a lot to do with the heroic efforts of activists for better values, both among private organizations and advocates of government regulation. For example, before 1900, most patented drugs sold to the public were fraudulent.
Most of these frauds have since been eradicated, not by market forces, but by the activities of private citizens who acted not selfishly but for the public good. Examples include Harvey Washington Wiley (1844-1930) and Alice Lakey (1857-1935), whose campaigns led to the founding of the Food and Drug Administration in 1906, and Stuart Chase (1888-1985) and Frederick J. Schlink (1891- 1995), whose advocacy in the 1920s led to the creation of Consumer Reports in 1936.
Unfortunately, these giants did not really become famous and have been largely forgotten. Contemporary heroes more often tend to be artists or businessmen who are little more than masters of manipulation. Perhaps the reason is that the hero criticism ignites many of our own day-to-day activities in doubt.
We have fallen into a way of thinking that glorifies free markets and demeans economic heroism. We need these markets, but we also need real heroes.