… if that’s what they still call it these days. Substack then, if you want me to be more accurate.
Samrudha is a friend, a person I’ve worked with on some teaching assignments, and currently a second year Master’s student at the Gokhale Institute. He’s also my sparring partner when it comes to behavioral economics, but that is a story for another day.
And his blog is off to a great start, courtesy a mutual friend, Alex Thomas:
At a recent conference on the History of Economic Thought, Prof. Alex M. Thomas asked a brilliant, interesting question (which I have taken some liberty to rephrase):
https://samrudha.substack.com/p/natural-and-artificial-price
If in both, markets and the government, we have individuals acting, why is it that some scholars (among them some associated with the Austrian school) refer to the market price as a “natural” price, and a government set price as an “artificial” price?
Read the rest of the blog to find out Samrudha’s answer to Alex’s question. I largely agree with it, and for the sake of getting to see an excellent debate between two learned friends, I hope Alex doesn’t!
But careful readers will note that I have said largely agree.
Here’s why.
Samrudha bases his arguments, and therefore his answer, on his careful reading of a paper by James Buchanan. It is one of my favorite papers by Buchanan, and the title is “What Should Economists Do?” (Samrudha links to a JStor version of the article, which may not be accessible to everybody. Here is an ungated version.) Note that Samrudha bases his answer also in part on another paper by Buchanan, and on other arguments by Adam Smith and Elaine Sternberg. Again – please read his blogpost.
But with regard to the first Buchanan paper, here is a lengthy excerpt from it:
I propose to extend the system of human relationships brought within the economist’s scope widely enough to include collective as well as private organization. This being so, you may ask, how are “politics” and “economics” to be distinguished? This is a proper question, and it helps me to illustrate the central point of the paper in yet another way. The distinction to be drawn between economics and politics, as disciplines, lies in the nature of the social relationships among individuals that is examined in each. In so far as individuals exchange, trade, as freely-contracting units, the predominant characteristic of their behavior is “economic.” And this, of course, extends our range far beyond the ordinary price-money
https://www.cooperative-individualism.org/buchanan-james_what-should-economists-do-1964-jan.pdf
nexus. In so far as individuals meet one another in a relationship of superior-inferior, leader to follower, principal to agent, the predominant characteristic in their behavior is “political,” stemming, of course, from our everyday usage of the word “politician.” Economics is the study of the whole system of exchange relationships. Politics is the study of the whole system of coercive or potentially coercive
relationships. In almost any particular social institution, there are elements of both types of behavior, and it is appropriate that both the economist and the political scientist study such institutions. What I should stress is the potentiality of exchange in those socio-political institutions that we normally consider to embody primarily coercive or quasi-coercive elements. To the extent that man has available to him
alternatives of action, he meets his associates as, in some sense, an “equal,” in other words, in a trading relationship. Only in those situations where pure rent is the sole element in return is the economic relationship wholly replaced by the political
Regular readers will note that this is a longer excerpt from the same paper that I had cited only a week ago or so, in a post titled “Is It Time To Reboot Welfare Economics?”. I had followed up that quote with these questions:
“To what extent do people today have “alternatives of action”? In other words, when person X meets person Y today in India, do they meet as equals? Might income have a role to play? Might language have a role to play? Might caste have a role to play? Might religion have a role to play? Might gender have a role to play? To what extent is trade then purely economic in India? Or does politics (not to mention sociology and anthropology) have a role to play too?”
“To the extent that man has available to him alternatives of action, he meets his associates as, in some sense, an “equal,” in other words, in a trading relationship.”
… and in those circumstances, prices are indeed emergent (or natural, if you like), and therefore not artificial. But when these conditions are not met, is there not good reason to call prices in even these markets “artificial”?
In other words, the world that we live in is one of artificial prices, whether those set by the government, or those set by markets. Because the government doesn’t have the ability to magically generate emergent prices – sure.
But neither do non-Utopian markets.
And the world that we live in is populated by non-Utopian markets.
No?
Of what use are two bloggers if they find themselves in complete agreement with each other? I look forward to Samrudha’s disagreement!
EconForEverybody 