Fair warning to readers – this post is going to be heavy on metaphors. So insert here the usual disclaimer about how all metaphors are imperfect, break them up if they’re stretched too far, etc.
Having digressed, I recently came across a metaphor that helps highlight something that separates the thinking of Austrian economists from standard textbook economic models – friction in the economy. In this post, I’m using a broad brush when I talk about economic friction, but in general, the term is often used to describe anything that hinders market activity. Transaction costs, imperfect information, or sticky prices are sometimes seen as “distortions” that hinder the market. So why in the model of perfect competition, there is a complete absence of economic friction of any kind. Perfectly competitive, conflict-free markets are considered ideal, and to the extent that real labor markets fall short of this, markets have failed and are at least open to government correction.
But important scholars of Austrian culture have resisted this way of thinking. FA Hayek, for example, wrote, “It seems to be generally assumed that the so-called theory of ‘perfect competition’ provides an appropriate model for judging the effectiveness of competition in real life and, to the extent that actual competition varies. that model, is not attractive and dangerous. ” Hayek, on the other hand, considered the theory of perfect competition useless, and “its conclusions are useless as policy guidelines.” This problem was not limited to the model of perfect competition in Hayek’s mind. He also argued that the concept of perfect competition “not only supports the analysis of ‘perfect’ competition but is equally conceived in the discussion of various ‘imperfect’ or ‘autonomous’ markets,” so those models, too, were small. the value of understanding economic activity or policy making.
In another way of thinking, the kind of thinking behind the perfect competition model, conflict is an obstacle to progress. But for some thinkers, the existence of these “imperfections” or “conflicts” in various markets is not only disruptive to markets, it is essential for markets to function. Therefore, a conflict-free state of affairs is not a good thing to hope for or strive for.
The analogy that came to me is as follows. Let’s say you are trying to travel from point A to point B. Lucky for you, you’ve found yourself in a place that isn’t difficult at all! This is the perfect place to reach your goal, right? Well then. A hard place can’t generate any purchase (oblique pun only slightly intended.) No matter how hard you try to walk, you won’t be able to make any progress towards your goal. To be able to move yourself forward, you need friction – something to hold on to or hold on to, something that can be used as a means of generating movement.
A hard surface can be good in one situation. As long as you need to travel in a straight line, without any change in your speed, there is no need to correct the course, just go on forever, and somehow have the momentum built for you. ex nihilothen in that particular case, it would be better to walk in a conflict-free environment. And this, Hayek argues, is more or less what the model of perfect competition is supposed to be. It simply assumes that a certain state exists and calls that state “competition,” when in fact you need an ongoing process of competition to create a certain state of affairs.
If you have to choose your own destination, make your own movements, speed up or slow down at intervals, and change direction when the environment changes, you need absolute friction. In this understanding, friction does not prevent movement – it is important to produce movement. (If I wanted to stretch this metaphor further, I would add another way of saying that in this way of thinking, the real obstacle isn’t conflict – it’s barriers. But I’ll leave that thread undrawn for now.)
Source link