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Diseconomies of Scale

Dismembering Leviathan

“Free trade,” like “free love,” is a beguiling abstraction that hides more than it reveals.  Absolute free trade would be an exchange of commodities between two people without the coercive intervention of a third party.  But economic exchange is always embedded in a cultural landscape of noneconomic values, which impose restraints.  Blue laws prevent trade on Sundays, medieval Christendom prohibited charging interest on money, and some think no decent society could legalize the sale of drugs or firearms.  If someone disagrees with these restraints, it is because he rejects the moral ideals they express, not because he favors “free trade.”  Within the restrictions imposed by usury laws, trade flourished in medieval Europe; indeed, it gave rise to the practices we call “capitalism” today.  Those who value liberty may seek to minimize these constraints, but economic relations cannot exist outside of noneconomic restraints.

The failure to understand this leads to a number of modern superstitions.  One is the illusion that there are economic experts in the way there are experts in medicine or chemistry.  But economics is not a predictive science, because it does not have deterministic laws.  We act on the basis of our knowledge, and no one can predict future knowledge (to do so would be already to possess it), much less predict how people...

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