AFF

Alt Fails Free Market

The alt fails -- individuals cant always make rational calculations, and the free market wont be able to sustain order without government oversight. oo!man "#- Professor of Philosophy at the University of Oregon (Colin, "Morals and Markets: Liberal De o!ra!y "hro#gh De$ey and %ayek&" "he 'o#rnal of (pe!#lative Philosophy& )*)*+,& Pro-e!t M#se&.**"D "heir !lai is that the p#rs#it of rightly #nderstood self-interest $ithin a free arket environ ent is on balan!e benefi!ial to so!iety& One proble , ho$ever, is that persons are not al$ays going to be rational in the sense of #nderstanding $hat is best for the & /nother proble is that it ay not be possible for arkets to be !onsistently free of govern ent interferen!es #nfairly privileging so e persons at the e0pense of others& "$o big ass# ptions ade by invisible hand theorists are that $e really !an !reate free arkets and that $e really !an a!t rationally $ithin the & 1eoliberal theorist Milton
2ried an !on!isely !apt#res both ass# ptions in his state ent of the invisible hand: "3oth parties to an e!ono i! transa!tion benefit fro it, provided the transa!tion is bi-laterally vol#ntary and infor ed&"45 /ll of the $eight of the invisible hand arg# ent falls on the #ndefended ass# ption that the provisos of vol#ntariness and infor ation !an be f#lfilled $ith s#ffi!ient fre6#en!y& Despite the obvio#s proble s $ith this ass# ption, there is an even ore debilitating proble fa!ing the syste of nat#ral liberty as e0po#nded by any neoliberals& "his proble !on!erns the i pla#sibility of any e!hanis that ight establish, espe!ially $ith the for!e of nat#ral ne!essity, a har ony bet$een individ#al and so!ial interests& (#!h a e!hanis see s parti!#larly i pla#sible $here there is over$hel ing e piri!al eviden!e against the attrib#ted inevitability& 7ationally p#rs#ed self-interest has in any free arket !onte0ts led to i iseration rather than enri!h ent& "he !oer!ive po$ers of govern ents that neoliberals are rightly $ary of are #nfort#nately also readily available to the onolith private enterprises in!reasingly !oloni8ing every !orner of o#r planet& Private agen!ies ( ega!orporations. are -#st as !apable as p#bli! agen!ies ( egagovern ents. of e0travagant vi!e&44 My !on!ern is not that so eti es govern ents #nfairly privilege !orporations or that so eti es irrational !orporate behavior es!apes govern ental !ontrol& 9ndeed these both o!!#r and are a persisting threat to the s#!!essf#l f#n!tioning of the invisible hand& 7egardless of s#!h proble s,

the ore de!isive !on!ern is the possibility that the p#rs#it of rightly #nderstood (i&e&, infor ed. self-interest $ithin a s#itably free (i&e&, vol#ntary. arket environ ent ay too often !a#se i iseration rather than enri!h ent& :ven if $e grant the fantasti! provisos re6#ired by the invisible hand, there re ains a proble : rational a!tors in free arkets still anage to ake tre endo#s esses for the selves and others& "he great !lassi!al ;:nd Page )<4= liberal tradition in!l#sive of ( ith, Mises, %ayek, 2ried an, :pstein, and any others in bet$een has yet to f#lly re!kon $ith this proble &

Alt Fails $ncom!lete

nowledge

Abstaining from government intervention falls !rey to the same !roblems of incom!lete knowledge that they claim the aff does -- creates cascading and un!redictable economic conse%uences and !revents the free market from functioning effectively. &'onnell, ((. P#r!hase College, (U1> 3&/& :!ono i!s ? %istory& (@yle, APlanning the :nd of Planning: Disintervention and the @no$ledge Proble B, P#r!hase College, May 5+)), http:**$$$5&g!!&ed#*dept*e!on*/((C*Papers5+)+5+))*OCDonnellD5+-D5+/((C&pdf, Callahan. 9nterventionis is distortive, disr#ptive, and potentially so!ially destr#!tive be!a#se it atte pts to defy the !riti!is s and possibilities of !entrali8ed planning a!!ording to the arket pro!ess vie$ of the dyna i! arket& >et disintervention fa!es the sa e proble s& Ehen disintervening, politi!al a!tors $ith ne!essarily li ited infor ation and kno$ledge #st so eho$ de!ide, not only $hat to liberali8e, b#t ho$ and $hen& 9t is perhaps these latter !onsiderations $hi!h are the tr#ly !r#!ial ele ents for s#!!essf#l disintervention& " Cr#de" disinterventionis ena!ted $itho#t #nderstanding the !o ple0 intera!tions that o!!#r bet$een an intervention, other interventions, and the dyna i! arket pro!ess ay very $ell lead to !as!ading negative #nintended !onse6#en!es & Dereg#lation in the one se!tor, letCs say ho#sing, ight lead to bottlene!ks in another !o ple entary (or even see ingly disparate. se!tor, say in finan!e, $hi!h ight !as!ade into other areas in #npredi!table $ays& "o better assert this point 9 offer the follo$ing: not all interventions are !reated e6#ally& 9 say this to e phasi8e the fa!t that not all a!ts of govern ent interferen!e $ith the e!ono y !an be e6#ally har f#l , even a!!ording to the ost stringent anar!ho-libertarian standards& / pri!e floor that falls belo$ the !#rrent arket rate is not as har f#l as the pri!e !eiling that (atte pts. to !#t the pri!e of a prod#!t in half fro its going arket rate & "here also e0ists the possibility that there ay even be less obvio#s interventions that are #nintentionally "benefi!ial" relative to others given the #n!oordinated nat#re of the interventionist syste & Like$ise, even any free- arket e!ono ists $o#ld agree that if a banking syste #st rest #pon a
"lender of last resort" $ith its s#bse6#ent oral ha8ard, then so e reg#latory fra e$ork preventing the to-bee0pe!ted e0!essive risk-taking ay be -#stified or ne!essary in the eanti e, even if the longer-r#n disinterventionist goal is a free arket banking syste & "he i0ed e!ono y often also !ontains entire arkets b#ilt on the ba!ks of previo#sly distorted arket pro!esses& "he $holly s#perfl#o#s arket pro!ess e erges $here opport#nities for profit $o#ld other$ise never have e0isted o#tside of the infl#en!e of interventionis (@ir8ner ),FG.& 9n the real $orld this !an ean entire ind#stries b#ilt on the shaky gro#nds of govern ent intervention& "ho#gh d#e to a la!k of #nen!# bered pri!e signals, fe$ if any ight be able to reali8e this& "h#s there also e0ists the !han!e that by liberali8ing one se!tor, or re oving one !ontrol, that a large !ollapse ay be #nleashed and ba!kfire in the fa!e of the disinterventionists har ing the politi!al !apital ne!essary to !ontin#e $ith any ne!essary disinterventions& /ll this leaves the 6#estion of $hi!h ones are perhaps -#stified in the ean ti e in order to prevent f#rther har by "holding ba!k" other interventionsH %o$ is a planner $ith their li ited kno$ledge s#pposed to be able to tell the differen!eH Lastly ho$ !an these t$o ans$ers e0plain in $hat order to disinterveneH "he poli!y proble 9 have presented - in the for of entren!hed and overlapping, #n!oordinated interventions - is one of organi8ed !o ple0ity& :ven pres#pposing that the n# ber of interventions is set at point , $hat still re ains is a !o ple0 series of interlo!king proble s $ith no !lear sol#tion available to anyone g#iding the disintervention&

Of !o#rse 9 a des!ribing the kno$ledge proble , tra!ed along its i pli!ations for the possibility of (dis.interventionist !oordination& >et it #st also be

the kno$ledge proble is over!o e everyday by the arket pro!ess a!ting thro#gh the pri!e syste & :ven if the planners #nderstand this insight, they #st still ask
re e bered that the selves: "(o in a i0ed e!ono y, even one !o pletely distorted by ra pant intervention, $hy !anCt pie!e eal disintervention of arkets be relied #pon to provide the intended res#ltsH" "he disinterventionist

planner ay note that the arket tends to$ards self-!orre!tion, and that s#rely if he -#st lets the arket $ork, then this proble $ill sort itself o#t on its o$n & Ehile a
free arket $o#ld have the e!hanis so!ially benefi!ial ends fro available

tr#e spontaneo#s for & 9f a disinterventionist plans to liberali8e s#!!essf#lly they #st de!ide at so e point $hat to disintervene, $hen (in $hat order., and ho$& Markets are spontaneo#s orders la!king any !entrali8ed dire!tion, ade possible by the instit#tional settings that shape their in!entive str#!t#res and g#ide the arket pro!ess to$ards so!ially benefi!ial ends& (o $hereas the arket pro!ess en!o#rages de!entrali8ed
entreprene#rs to #tili8e their parti!#lar kno$ledge of the ti e and pla!e to drive the arket to$ards self-!orre!tion and satisfa!tion of !ons# ersC $ants, the !o and e!ono y - and any de!ision aking in this vein

of the dis!overy pro!ess, g#ided by profit and loss, for reali8ing the eans, interventionis la!ks this e!hanis in any

ost

s#!h as (dis.interventionis - la!ks the instit#tions and in!entives re6#ired to drive a spontaneo#s pro!ess e bodying so!ietyCs dispersed kno$ledge & 9n a senten!e then, interventionis - and its irror - la!ks a spontaneo#s dis!overy pro!ess for syste ati!ally #n!overing and in!entivi8ing the !orre!tion of its past errors to the benefit of so!iety& Disinterventionis as a poli!y ne!essarily !onfronts the kno$ledge proble , b#t this by itself is not eno#gh to sink the ainstrea "!r#de" disinterventionist
position& /fter all, arkets and the pri!e syste ro#tinely over!o e this proble everyday and do so re arkably $ell& >et the ore spe!ifi! point 9 a arg#ing is that there is no tenden!y in pie!e eal

disintervention to s#!!essf#lly liberali8e via !orre!tly dis!overing the proper order, rate, or even $hat and $here to disintervene& 1e0t, 9 f#rther develop y arg# ent that disinterventionis !onfronts the kno$ledge proble , and the !onne!ted arg# ent that disinterventionis la!ks a dis!overy pro!ed#re& The alternative fails and wrecks the economy -- market!lace com!le)ity guarantees unforeseen conse%uences. &'onnell, ((. P#r!hase College, (U1> 3&/& :!ono i!s ? %istory& (@yle, APlanning the :nd of Planning: Disintervention and the @no$ledge Proble B, P#r!hase College, May 5+)), http:**$$$5&g!!&ed#*dept*e!on*/((C*Papers5+)+5+))*OCDonnellD5+-D5+/((C&pdf, Callahan.
%aving established y theoreti!al !riti6#e of disinterventionis and $hy it tends to$ards fail#re, 9 $ill briefly des!ribe $hat this fail#re a!t#ally is or ay appear as& Of !o#rse, positively identifying so e per!eived negative o#t!o e as the res#lt of disintervention is a !o ple0 iss#e that ne!essarily treads a thin line bet$een arket and govern ent fail#re& 9f keeping in ind the dyna i! arket pro!ess vie$point ho$ever, then arket fail#re is not possible $herever free arkets e0ist& /s s#!h, any "proble s" arrived at thro#gh the arket pro!ess, $hen #n!overed, a#to ati!ally in!entivi8e entreprene#rs to find a sol#tion (@ir8ner 5+++!.& "ho#gh that is not to say that arkets are "perfe!t" by any eans& 9n fa!t, arket sol#tions ay take years, even de!ades, to

arise& >et be!a#se these sol#tions, $hen they do o!!#r, are based on a pri!e syste
kno$ledge, they $ill be

$hat 9 a really $arning against are not te porary less-than-opti al o#t!o es, b#t a !as!ading series of negative #nintended !onse6#en!es that $ill tend to$ards the selfdestr#!tion of the original disinterventionist goals in 6#estion & Partial disintervention $ill generally tend to prod#!e greater negative #nintended !onse6#en!es, espe!ially if !o ple entary se!tors of the !atalla0y still fa!e heavy intervention& 3ottlene!ks in e!ono i! a!tivity are -#st one potential negative #nintended !onse6#en!e that ight res#lt fro disintervention (9keda ),,I.& 9f all pri!e, 6#ality, and o#tp#t !ontrols $ere re oved fro !orn far ers $hile negle!ting to re ove the !o ple entary !ontrols on the far e6#ip ent and fertili8er ind#stries, this $o#ld likely be proble ati!& /gain, even if the ost benevolent of disinterventionist

refle!ting dispersed ore likely than govern ent intervention to provide so!ially opti al o#t!o es& "hen

planners #nderstood this possibility, they $o#ld still fa!e the !onstraints posed by the kno$ledge proble , and the la!k of an spontaneo#s and syste ati! !orre!tive pro!ess& Partial disintervention, the ost typi!al and #ndane for $itnessed, ay even do ore har than the interventionist stat#s-6#o& (o long as disinterventionis is li ited in its o#tlook and ai s to$ards spe!ifi! poli!y goals it $ill fa!e the !onstraints and fla$s des!ribed& / si ilar effe!t !an be seen if disinterventionis disr#pts an artifi!ial "e6#ilibri# " !reated by #ltiple offsetting interventions& "o go ba!k to y previo#s e0a ple of the #ltiple see ingly #n!oordinated interventions regarding prod#!t / and others, ass# e that arket a!tors have adapted to this interferen!e and that a so e$hat stable arket has e erged that largely refle!ts !ons# er preferen!es& / $ell intentioned politi!al a!tor #pon seeing this sit#ation, believes that he kno$s ho$ to #ndo these past errors and then atte pts to liberali8e this arket& >et -#st as 9 have arg#ed, he #st de!ide $hat, and in $hat order to best disintervene& (o he goes to the p#blished register of all !odes and t#rns to the se!tion regarding this parti!#lar arket& %e is i ediately !onfronted by a labyrinth of pages filled $ith !ross-referen!es to do8ens of different r#les, reg#lations, and !o#rt de!isions interpreting those !odes in -#st this one arket& 1ot only that, b#t even $ith the help of all his legislative aides none of the reali8es that they bypassed
an entire se!tion of reg#lations ger ane to their $ork filed #nder a different heading in another vol# e& /nd any of the ost da aging interventions are a!t#ally not in!l#ded in either se!tion sin!e they are a!t#ally #!h ore $ide-rea!hing than the s#b-se!tioned dire!tory sho$s& Of !o#rse they still ay try their best,

de!ide #pon a single !o#rse of a!tion, and re ove a sle$ of distortionary ta0es& Unfort#nately for their $ell-intentioned plan, and d#e largely to their li ited kno$ledge, none of the reali8e that a n# ber of these ta0es a!t#ally held in !he!k a #!h older and overlooked s#bsidy progra even ore distortive than the ta0es, and previo#sly ignored #ntil no$ d#e to its s#perfl#o#s nat#re& 2ro a sit#ation
$here the allo!ation of reso#r!es $as largely held in !he!k by a !ir!#lar intervention, partial disintervention has no$ !reated a ne$ potential for isallo!ation to o!!#r& "he ideal sol#tion ay have been to go

even f#rther $ith the disintervention, yet $itho#t perfe!t kno$ledge the disinterventionists fa!e a serio#s !onstraint& Disintervention is generally #ndertaken in order to !orre!t the da age fro past interventions and regain the benefits of the arket pro!ess& "ho#gh this essay has largely ass# ed a$ay fro analy8ing the tr#e otivations for #ndertaking the disinterventionist !o#rse of a!tion, it !an be generally inferred that the preferred ends are i proved e!ono i! gro$th, a!tivity, effi!ien!y, and in!reased prosperity& (o regardless of ho$ politi!ians or the p#bli! have !o e to p#sh to$ards disintervention, 9 !an infer that if the !o#rse appears to fail to a!hieve these goals it $ill very likely fa!e stiff resistan!e & Ehether or not the disinterventionist eas#res in 6#estion have
a!t#ally failed is al ost beside the point as $ell, $hat ore or less atters ay be ho$ the effe!ts are per!eived& (in!e disintervention fa!es the fla$s 9 have entioned, along $ith the interest gro#p

press#res 9 have ostly ignored, one !o#ld reasonably s#spe!t interventionis to ree erge& '#st as the interventionist !o#rse ay breed ore interventionis #p to a t#rning point before reversing !o#rse, a si ilar dyna i! ay arise o#t of disintervention (9keda ),,I.& 9n this $ay, disinterventionis - espe!ially partial or pie!e eal types - !an be seen to fall 6#ite easily into the /#strian fra e$ork of the dyna i!s of interventionis & "his !oin!ides $ith y overall arg# ent that disintervention and intervention are really t$o prod#!ts of the sa e ideology and indset&

*ovt $ntervention +olves

*overnment intervention in the market!lace can be effective -- lots of recent e)am!les. Taylor and ,edder ("- Professor of e!ono i!s at Central Mi!higan University& Disting#ished professor of e!ono i!s at Ohio University and ad-#n!t s!holar at the / eri!an :nterprise 9nstit#te ('ason and 7i!hard, "(ti #l#s by (pending C#ts: Lessons 2ro ),J<&" Cato& May*'#ne 5+)+ $$$&!ato&org*p#bs*poli!yKreport*v45n4*!pr45n4&pdf. 7e!ent e0a ples of this pheno enon !an be seen in the ne$ly passed health !are legislation and the proposal for a !ap-andtrade environ ental regi e& "he ne$ health !are legislation $ill enor o#sly in!rease labor !osts, as $o#ld !ap and trade &

1ervo#s e ployers, $anting to avoid the possibility of taking on sharply rising labor e0penses, de #r in hiring $orkers that they $o#ld in a ore ne#tral poli!y environ ent& 2#rther ore, the #ltitrilliondollar defi!its to finan!e the sti #l#s as $ell as govern ent bailo#t oney fro "/7P have to be finan!ed, and the possibility that the 2ederal 7eserve $o#ld engage in inflationary finan!ing of this ne$ federal debt has !learly #nnerved any

(in!e the 1ove ber 5++F ele!tion, the pri!e of gold has risen G+ per!ent be!a#se of gro$ing inflationary fears& >et another e0a ple is the govern entLs !ontin#al e0tension of #ne ploy ent benefits beyond the !#sto ary a0i # 5< $eeks ( ost re!ently at the beginning of Mar!h.& Ehile ost $o#ld agree that #ne ploy ent ins#ran!e provides shortter relief to those $ho #st seek ne$ $ork, any st#dies !onfir $hat !o on sense says $e sho#ld e0pe!tMthe longer the ti e fra e people are eligible for s#!h benefits, the longer it takes for #ne ploy ent rates to fall& 9n 5++, the
investors& average d#ration of #ne ploy ent nearly do#bled, and today, $ell over J+ per!ent of those #ne ployed have been o#t of $ork over si0 onths&

Ehile the poor labor arket is to bla e for #!h of this -# p in d#ration, there !an be no do#bt that in!entives to obtain ne$ e ploy ent have been, and $ill !ontin#e to be, te pered by govern ental a!tion $hi!h has e0tended #ne ploy ent ins#ran!e to any thro#gh the end of 5+)+&

-erm +olvency .thics/'emocracy

0ollaboration between the !ublic and !rivate s!heres is necessary for checking market and government forces -- its critical to ethical democratic orders. oo!man "#- Professor of Philosophy at the University of Oregon (Colin, "Morals and Markets: Liberal De o!ra!y "hro#gh De$ey and %ayek&" "he 'o#rnal of (pe!#lative Philosophy& )*)*+,& Pro-e!t M#se&.**"D 7et#rning to y opening the e of the relations bet$een orals and arkets, $e !an no$ see $hy one of the ost !riti!al 6#estions $e fa!e in !onte porary politi!s !on!erns ho$ $e ight transition o#r !#rrent !apitalist pra!ti!es into ore de o!rati! for s & "he prag atist response to this 6#estion is that de o!ra!y today re6#ires that $e look beyond the distin!tion bet$een p#bli! and private spheres in order to grasp the f#ll range of !onte0ts in $hi!h o#r de o!rati! energies !an be p#t to #se& "his shift in orientation ight enable #s to begin bringing ethi!al !o it ents to bear in both arket-based ven#es and state-based ven#es in order to p#rs#e de o!rati! synergies bet$een individ#ation and asso!iation that have hitherto been fore!losed & 9f this is right, then De$ey !an help #s learn $hy arket-based strategies, alongside state-based strategies, ay yet be!o e both profitable and ethi!al for!es for de o!ra!y& Market entities s#!h as !orporations !an, and any already do, e0pli!itly !onne!t their self-interest to the interests of others by !on!eiving of their profits in ter s of benefits to $ider so!ial !onstit#en!ies (organi! and fair-trade agrib#siness !orporations are -#st t$o fa iliar fa ilies of e0a ples.& Ehether or not s#!h arket entities $ill s#rvive and gro$ in the long r#n depends entirely on the !ontingent efforts of those s#pporting the !orporationsC ethi!al val#esMshareholders, dire!tors, e ployees, and espe!ially !ons# ers&
Unfort#nately, s#!h arket-based opport#nities for ethi!al innovation have been !onsistently ignored thro#gho#t the history of liberal de o!rati! politi!al theory, and they are only -#st no$ being taken serio#sly in !onte porary liberal de o!rati! pra!ti!e&J, /llo$ e to !on!l#de, then, by !onsidering so e of these opport#nities as they ight appear in the present o ent& 7e!ent (as of the ti e of ;:nd Page )I+= $riting in the late onths of 5++F. t#r oil in the finan!ial arkets and its s#bse6#ent o#t$ard spread to other e!ono i! se!tors offer an o!!asion for refle!tion on these possibilities& 9 believe that s#!h philosophi!al refle!tions sho#ld take the for of a !onsidered diagnosis of o#r !#rrent proble s as preparatory for an event#al a eliorative re!onstr#!tion of o#r sit#ation& 9 !an here only sket!h bare o#tlines of $hat s#!h a philosophi!al diagnosis and re!onstr#!tion sho#ld look like& "hat is be!a#se this sket!h is ore of an atte pt to e0pli!ate the #pshot of the pre!eding dis!#ssion than it is a serio#s atte pt at a poli!y proposal or a politi!al predi!ation& 9 do not ake predi!tions, and poli!ies re6#ire far ore $ork than 9 here have spa!e for& 9t is #ns#rprising that

re!ent arket t#r oil has given rise to the rene$al of fr#itless debates over the iss#e of the pros and !ons of reg#lation& "hese debates reiterate that #!h-loved great debate in the t$entieth !ent#ry bet$een pro-planning egalitarian-leaning fig#res like @eynes or 7oosevelt and anti-planning libertarian-leaning fig#res like %ayek or 7eagan& 3#t the 6#estions f#eling these debates are really
red herrings& "he 6#estion $e sho#ld be asking is not "$hether reg#lationH" b#t "ho$ reg#lationH" On a De$eyan

o#r proble s !an be seen as ste ing fro an overplayed di!hoto y bet$een p#bli! and private that has be$it!hed those on both Left and 7ight& 3y thinking in the ter s offered by this di!hoto y $e have failed to serio#sly rethink 6#estions abo#t ho$ $e ight reg#late & / !lassi!al !on!eption of reg#lation th#s pro!eeds
vie$ part of

#n6#estioned& Leftists like @eynes, 'ohnson, and 7a$ls and 7ightists like %ayek, 7eagan, and 1o8i!k are all in agree ent that reg#lation is a atter of #sing the p#bli! po$er of the state to infl#en!e the private po$ers of the arket& On their vie$ p#bli! and private are opposed s#!h that reg#lation generally takes one of t$o for s& 9n one for the state opposes arket a!tion by pres!ribing li its that p#t a !he!k on arket agents& 9n another for the state is !o-opted by arket for!es seeking s#bsidies, bailo#ts, and other s#!h privileges& 3oth of these for s of reg#lation are proving inade6#ate as tools for addressing the proble s of the present& /nd yet fe$ politi!ians, !o entators, and theorists have anaged to think beyond these d#alis s idst the present t#r oil& %en!e the s#pposedly needed reiteration of the isleading "$hether reg#lationH" 6#estion& 9f these are the only for s that reg#lation ight take, then $e rightly o#ght to $onder $hether $e sho#ld do so ething drasti! or do nothing at all& 3#t are there other tools for reg#lationH On a De$eyan vie$ $e !an begin to !onsider this i portant 6#estion fro

a standpoint no longer ;:nd Page )I)= beholden to the rigid separation of p#bli! and private spheres& On De$eyCs vie$ $e !an affir that reg#lation is already present in both state and arket

!onte0ts& On this vie$ states and arkets represent different sets of p#bli!s in $hi!h o#r lives are al$ays already being organi8ed& 9f $e $ant o#r lives to be organi8ed other$ise than they are, then $e #st ore energeti!ally parti!ipate in $hatever p#bli!s are organi8ing #s& /t ti es this ay take the for of playing one p#bli! off of another (#sing states to oppose arkets or #sing arkets to dire!t states, t$o for s $e are already 6#ite fa iliar $ith., b#t at other ti es it ight take other for s s#!h as intervening in !ertain aspe!ts of o#r state p#bli!s and arket p#bli!s in !on!ert& "he De$eyan vie$ th#s a!kno$ledges that the fa iliar reg#latory tools of state li itations on arket a!tions and arket #ses of state po$ers are in so e !onte0ts 6#ite #sef#l& 3#t the vie$ goes on to s#ggest that there are other !onte0ts $here $e need ne$er reg#latory pra!ti!es that are not $ell fra ed in ter s of the separation of p#bli! and private spheres& 9n these other !onte0ts $e ight do better to think of both states and arkets as p#bli! ven#es in $hi!h $e !an effe!tively deploy o#r de o!rati! energies& 9n these other !onte0ts $e $o#ld do $ell to ake si #ltaneo#s #se of both states and arkets, both govern ents and !orporations&

-erm +olvency +!ontaneous &rder

1ayek agrees that the !ermutation is the only way to solve -- coo!eration between !ublic and !rivate actors is key to the success of the s!ontaneous order. lein 2k- Professor of e!ono i!s at (anta Clara University (Daniel, "Planning and the "$o Coordinations, Eith 9ll#stration in Urban "ransit&" Depart ent of e!ono i!s, (anta Lara University& 5+++$$$pa &#s!&ed#*vol# e)*v)i)a)print&ht l.**"D "he e phasis that Mises and %ayek pla!e on lo!al kno$ledge is not erely a re!ognition of the free arketCs f#n!tion to distill dispersed kno$ledge into a pri!e ve!tor, in a anner like the "3ig 3oard" (the 1e$ >ork (to!k :0!hange.& "hey also re!ogni8e the i portan!e of fle0ibility in private !ontra!t, to s!#lpt private arrange ents to fit the parti!#lars, to !ope $ith !hange, and to !oordinate $ith others & /ltho#gh %ayek
!oordination is distin!t fro (),I4, J<. (!helling !oordination, its pro!ess is not apart fro

(!helling !oordination& "he pro!ess

%ayek says, ";t=he fa ily, the far , the fir , the !orporation and the vario#s asso!iations, and all the p#bli! instit#tions in!l#ding govern ent, are organi8ations $hi!h in t#rn are integrated into a ore !o prehensive spontaneo#s order ;or eta!oordination=&" (5.
in!l#des the pra!ti!e of vol#ntary planning, by !onsent and !ontra!t, to a!hieve (!helling !oordination&

More evidence -- government intervention isnt always negative. 3illiams ##- PhD fro Man!hester University (Nareth, "%ayekCs Criti6#e of Constr#!tivis : / Liberatarian /ppraisal&" Liberatarian /llian!e& ),,, $$$&libertarian&!o&#k*lap#bs*e!onn*e!onn+FG&pdf.**"D
provide i proved !onditions for the #se of kno$ledge&

"he general r#les $hi!h aintain odernity and enable f#t#re develop ent and progress are not of a fi0ed !hara!ter, b#t rather !an, and sho#ld, be adapted to fa!ilitate the gro$th of a !o ple0 order $hi!h !an alone

%ayek re-e!ts assertions that s#!h general r#les !an be !hara!terised as private property and freedo of !ontra!t, as e0ponents of laisse8-faire believe, b#t approves of a role for govern ent to aintain a fra e$ork for the arket, arg#ing: O#r proble s begin $hen $e ask $hat o#ght to be the !ontents of property rights, $hat !ontra!ts sho#ld be enfor!eable, and ho$ !ontra!ts sho#ld be interpreted or, rather, $hat standard for s of !ontra!t sho#ld be read into the infor al agree ents of everyday transa!tions & 55 %e goes on to
say that the f#n!tion of govern ent: &&& is so e$hat like that of a aintenan!e s6#ad of a fa!tory, its ob-e!t being not to prod#!e any parti!#lar servi!es or prod#!ts to be !ons# ed by its !iti8ens, b#t rather to see that the e!hanis $hi!h reg#lates the prod#!tion of these goods and servi!es is kept in $orking order& 54 /ltho#gh this

"he sa e organi8ation that is !harged $ith keeping in order an operating str#!t#re $hi!h the individ#als $ill #se for their o$n p#rposes, $ill, ho$ever, in addition to the task of enfor!ing the r#les on $hi!h that order rests, #s#ally be e0pe!ted also to render other servi!es $hi!h the spontaneo#s order !annot prod#!e ade6#ately& 5J 9n !on!eding that the state sho#ld, in addition to providing the str#!t#re to aintain !ivilisation, also provide Oother servi!esL, %ayek akes it !lear that his theory is not designed rigidly to li it the role of the state& 9nstead the theory so far developed serves only to oppose a false theory of !onstr#!tivist
position is later $atered do$n $hen he states that:

rationality $hi!h seeks to take overall !ontrol of so!iety, and design it in a!!ordan!e $ith rationalist prin!iples& 9n si ilar vein %ayek notes, $ith regard to la$, that: /ltho#gh #ndo#btedly an order for ed itself spontaneo#sly be!a#se the individ#als follo$ed r#les $hi!h had not been deliberately ade b#t had arisen spontaneo#sly, people grad#ally learned to i prove these r#lesP and it is at least !on!eivable that the for ation of a spontaneo#s order relies entirely on r#les that $ere deliberately ade& 5G

9t is here that $e !an dete!t the !onfli!t %ayekLs theory is not designed to li it

$ithin %ayekLs tho#ght,

bet$een the hostility to rationalist planning and the nat#re of the positive role

that he dee s appropriate for the state& /s earlier sho$n,

the state either in ter s of e0pendit#re as a fi0ed share of the national $ealth, nor in ter s of being li ited to !ertain tasks& >et, as parts 5 and J $ill highlight, %ayek !onsiders the state to have ass# ed too any responsibilities& %e advo!ates that the state do only the right things, that is, to #ndertake li ited a!tion to !orre!t for !ertain arket fail#res, b#t not to engage in planningP his !riti6#e of !onstr#!tivis is designed to ens#re that the state does not
!ontin#e along this istaken path& >et proble s still e0ist $ith this theory& 2irstly it s#pposes that the state !an be !onstrained to only those tasks $hi!h are appropriate to it& (e!ondly, and ore i portantly, it negle!ts the fa!t that the f#n!tions of the state are not open to the sa e kind of sele!tion pro!ess $hi!h %ayek #ses to e0plain the origin of so!ial instit#tions& "he first proble !o#ld be responded to $ith an assertion that the theory is designed to de onstrate the prin!iples $hi!h sho#ld g#ide state a!tion, and as s#!h stands, irrespe!tive of its ability to li it state a!tion to the prin!iples entioned& "his !o#ld be a!!epted as an ade6#ate response& %o$ever at vario#s points 5< %ayek does atte pt, thro#gh referen!e to prin!iples, and ore s#bstantially thro#gh the design of a odel !onstit#tion, to de onstrate ho$ the state !an be prevented fro engaging in !onstr#!tivis & Ehile val#e does e0ist in these atte pts it re ains the !ase that instit#tions develop their o$n inertia $hi!h !hanges their nat#re fro that originally intended&

A2 -redictions Fail/.!istemology
$ts !ossible to make accurate !redictions about the world without com!lete knowledge -- e)!ertise and reasoned arguments are sufficient 4ustification for action. Foss "5- Professor at the Copehagen 3#siness (!hool (1i!olai, ""he li its to designed orders: /#thority #nder Cdistrib#ted kno$ledgeC !onditions&" (pringer (!ien!e& 5++<& Pro6#est&.
A1arro$ a#thorityB is the vie$ of a#thority asso!iated $ith (i on (),G).& "he arg# ent that has -#st been s# ari8ed holds that s#!h a#thority is f#nda entally !o pro ised by distrib#ted kno$ledge& %o$ever, it is not al$ays the !ase that s#ppressing distrib#ted kno$ledge is inefQ!ient & 2or e0a ple, %a ond and Miller (),FG: ). arg#e that A& & & kno$ledge abo#t any parti!#lar proble is seldo !o plete, and in a !o petitive or !hanging environ ent there ay be advantages to aking so e de!ision, ho$ever i perfe!tly gro#nded on e0pertise, rather than none at all & & & 9n the absen!e of e0pert kno$ledge so e !hief e0e!#tive is given a#thority to i pose his o$n best -#dg ent on the atter &B 9t is not entirely transparent $hat %a ond and Miller ean here, b#t a later treat ent by 3olton and 2arrell (),,+. provides a !l#e& 3olton and 2arrell $ish to identify the deter inants of !entrali8ation* de!entrali8ation de!isions& 9n order to isolate the !osts and beneQts of !entrali8ed and de!entrali8ed de!ision- aking in a spe!iQ! setting, they st#dy a !oordination proble $ith private infor ation in the setting of a nat#ral onopoly arket& "he !oordination proble !on!erns $hi!h Qr sho#ld enter the arket $hen !osts are s#nk and are private infor ation& Under de!entrali8ation, $hi!h is represented as a (pringer5<F @& 2oss, 1& '& 2oss t$o-period in!o plete infor ation ga e of ti ing (sink !osts*enter or $ait another period., ea!h Qr is #n!ertain abo#t $hether the other Qr $ill enter& %o$ever, the in!entive to enter depends on the height of a given Qr Ls !ost, lo$-!ost Qr s being less $orried that their rival $ill enter (and vi!e versa.& 9f !osts are s#fQ!iently dispersed, the opti al o#t!o e prevails, that is, the lo$est-!ost prod#!er enters and pree pts the rival(s.& %o$ever, if !osts are e6#al or are high for both, inefQ!ien!ies ay obtain, sin!e Qr s $ill then enter si #ltaneo#sly (inefQ!ient d#pli!ation. or $ill $ait (inefQ!ient delay.& :nter a !entral a#thority $hose -ob is to no inate a Qr for entry& 9n the spirit of %ayek, 3olton and 2arrell ass# e that this !entral a#thority !annot possess kno$ledge abo#t !osts& 9n their odel, s*he no inates the high !ost prod#!er half of the ti es, $hi!h is !learly inefQ!ient& %o$ever,

this !ost of !entrali8ation sho#ld be !o pared against the !osts of de!entrali8ation (delay and d#pli!ation.& 3olton and 2arrell sho$ that A& & & the less i portant the private infor ation that the planner la!ks and the ore essential !oordination is, the ore attra!tive the !entral planning sol#tion isB (),,+: F+G.& Moreover, the de!entrali8ed sol#tion perfor s poorly if #rgen!y is i portant& Centrali8ation is ass# ed to not involve delay and therefore is a good e!hanis for dealing $ith e ergen!ies, a !on!l#sion they arg#e is !onsistent $ith the observed
tenden!y of Qr s to rely on !entrali8ed a#thority in !ases of e ergen!ies& Ehile /#strians ay arg#e that the 3olton and 2arrell set-#p triviali8es distrib#ted kno$ledge, and e0aggerates the beneQts of !entrali8ation (e&g&, it is

their odel does provide a rationale for a#thority #nder distrib#ted kno$ledge (given their ass# ptions., that is, it e0plains $hy a#thority ay be preferred rather than so e de!entrali8ed arrange ent& :ven the narro$
ass# ed to not involve delays.,

#nderstanding of a#thority in Coase (),4I. and (i on (),G). ay be rendered !onsistent $ith distrib#ted kno$ledge #sing the 3olton and 2arrell arg# ent: /ltho#gh the e ployer ay be ignorant of the efQ!ient a!tion, and perhaps of ost of the e ployee a!tion, he kno$s a s#bset of the e ployeeLs a!tion set, so he !an al$ays tell to Ado so ethingRB, $hi!h in !ertain sit#ations ay be preferable to doing nothing& "he e0a ple s#ggests the ore general i pli!ation that so e overlap of kno$ledge ay be s#fQ!ient to ake !oordination by eans of a#thority $ork in the presen!e of distrib#ted kno$ledge& hi