Walk into an ordinary supermarket on an ordinary Tuesday and you are standing inside one of the more remarkable achievements of human civilisation, though nobody behind the till would put it that way, and most of them would look at you strangely if you tried. Forty thousand items, give or take, depending on the size of the shop and the ambitions of its category managers: bananas from Costa Rica, salmon from a fjord in Norway, a dozen kinds of paprika, three brands of oat milk competing for shelf space with the dairy they were invented to replace, a wall of toothpaste offering whitening, sensitivity relief, and the vague promise of confidence. Each of these items arrived by a route nobody planned in its entirety. The banana grower in Costa Rica has never met the shipping line that carries the fruit north, nor the refrigeration engineer who keeps it at the right temperature through the crossing, nor the logistics manager who books the container slot, nor the shelf-stacker who rotates old stock to the front, nor you. None of them needed to. Somehow the bananas are there, at a price low enough that a family on a modest income can afford a bunch without a second thought, and they are there in more or less the quantity the neighbourhood wants, no more and no less, week after week, without anyone in a central office issuing an order that says: ship four hundred kilograms of bananas to the shop on the corner of this street.
No single mind, however brilliant, holds the plan for how this happens. There is no plan. There is no ministry of bananas. There is a vast, leaderless, largely invisible system of prices, contracts, forecasts, and standing relationships that somehow gets a perishable tropical fruit from a hillside in Central America to a shelf in a temperate city, in edible condition, at a price that clears the shelf roughly on schedule, and does this simultaneously for forty thousand other products, all competing for the same limited shelf space, refrigeration, and delivery trucks. The remarkable thing is not that the system sometimes fails, producing a bare shelf or a wasted crop. The remarkable thing is that it works as well as it does, most of the time, for most of the forty thousand items, without anyone being in charge of the whole. And the supermarket is the standing exhibit for the libertarian case for optimism, which is a wager: a bet that decentralised ingenuity, guided only by the feedback of prices and profits, will outrun centralised caution over any distance worth measuring, and that the committee, however clever and however careful, will always arrive late. Its critics answer that the race is only ever run on the track that prices can see, and that whatever lives off that track, the unowned air, the unpriced care of one person for another, simply does not appear in the results. On the record so far, the wager has earned enough to deserve respect, and remains incomplete enough to forbid worship.
Consider, for a moment, what would have to happen if a government agency decided to take charge of the supermarket's supply instead, in the earnest and not unreasonable belief that a coordinated plan could do better than the chaos of competing suppliers. The agency would need to know, for every one of the forty thousand items, the current stock, the rate of sale, the state of the harvest or the factory that produced it, the condition of the roads, the price of diesel, the mood of the shoppers, and it would need to know all of this again tomorrow, because by tomorrow most of it will have changed. This is not a hypothetical difficulty invented to make the point. It was tried, at vast expense and with the dogged labour of enormous bureaucracies, across a third of the twentieth-century world, and the shelves in those countries were, with grim and well-documented regularity, bare, or stocked with the wrong things in the wrong quantities, queues forming for goods that had been manufactured in the correct total volume but delivered to the wrong shops, while warehouses elsewhere sat full of goods nobody wanted. The totals, in fairness, balanced. The problem was never a shortage of intelligent, hardworking planners. The Soviet planning agency, Gosplan, employed tens of thousands of economists, statisticians, and engineers, working with the best mathematical tools of their era, and it still could not do reliably, for one country, what an unplanned market does every day, without anyone noticing the achievement, for the world.
Hayek and the problem nobody can solve by thinking harder
Friedrich Hayek was born in Vienna in 1899 into a family of scholars (his father was a botanist and physician, his cousin, on his mother's side, was Ludwig Wittgenstein) and trained as an economist in the years after the First World War, in a city that was, improbably, one of the great intellectual capitals of the century even as the empire around it collapsed. He came up through the Austrian School under the shadow of Ludwig von Mises, working for a time in Mises's own private seminar, and in 1931 moved to the London School of Economics at the invitation of Lionel Robbins, largely to provide an intellectual counterweight to the rising influence of John Maynard Keynes in Cambridge. What followed was one of the great public arguments of twentieth-century economics, conducted through lectures, pamphlets, and a famous, bruising exchange of reviews, and Hayek lost it. Keynes's General Theory, published in 1936, swept the field. By the 1940s Hayek was regarded in most economics faculties as a man who had backed the wrong argument, and for the following three decades he worked largely outside the mainstream of his own discipline, in something closer to internal exile. It is one of the odder rehabilitations in the history of ideas that Hayek's reputation would revive so completely from the 1970s onward that he ended up sharing the Nobel Memorial Prize in Economics, an award he accepted graciously while remarking, at the banquet, that had anyone consulted him he would have advised against creating it.
But Hayek's most important idea was never really about whether government spending could smooth a recession, which was the ground on which he and Keynes fought. It was about something quieter and, in the long run, more consequential. In 1945 he published a short essay, "The Use of Knowledge in Society," which contains in about a dozen pages an argument that has outlasted almost everything else written in economics that decade. The argument is this. Suppose you wanted to plan an economy centrally, to decide how much tin should go into how many cans, how many workers should staff which factories, how much wheat should be planted where. To do this well, a planner would need to know an enormous number of facts: not just the total supply of tin in the world, which is knowable in principle, but the thousand small, local, constantly shifting facts that determine whether a particular delivery of tin should go to a canning plant in Sheffield this week or a shipbuilder in Glasgow, facts about a machine that has just broken down, a shipment that has just been delayed, a customer who has just changed their mind and is under no obligation to explain why. This is the difficulty that has since come to be called the knowledge problem, and Hayek's point was not that planners are lazy or foolish. It was that this kind of knowledge, what he called knowledge of the particular circumstances of time and place, simply cannot be collected in one place. It exists only in fragments, in the heads of the people directly involved.
The price system, Hayek argued, solves a problem that no planning office ever could, and it solves it without anyone needing to understand the problem at all. When the price of tin rises, a factory manager in Sheffield does not need to know why. He does not need to know that a mine collapsed in Bolivia, or that a new use for tin has been discovered in electronics manufacturing, or that a strike has closed a smelter. He needs to know only the number, and the number tells him to economise on tin, to look for a substitute, to pass the higher cost on to his customers if he can. Multiply this by every commodity, every good, every service in an economy, and you have what Hayek described, in the essay's central image, as "a kind of machinery for registering change," or "a system of telecommunications": a network that transmits to each participant only the signal he needs, stripped of everything he does not, compressing an almost unimaginable quantity of dispersed, shifting, largely unspoken information into a single number that anyone can read and act on. Hayek added, and meant it without irony, that if the price system had been the product of deliberate human design, it would have been acclaimed as one of the greatest triumphs of the human mind. We fail to marvel at it, he thought, only because nobody designed it and everybody grew up inside it. No central office administers the machinery. It runs on the self-interested, uncoordinated decisions of millions of buyers and sellers, and it produces, out of that apparent chaos, a rough and constantly self-correcting order. This is Hayek's case for markets, and notice what it is not. It is not a moral case. It is not an argument that self-interest is virtuous, or that greed is good, a slogan Hayek would have found crude and beside the point. It is an argument about information: about where knowledge actually lives in a society, and about which mechanisms can make use of it and which cannot.
A second, quieter part of the 1945 essay gets less attention than the headline argument, and it sharpens the point considerably. Hayek was not simply saying that a planner has too little data. He was saying that a great deal of the relevant knowledge in an economy is not the kind of thing that can be transmitted as data at all, even by a willing informant with unlimited time to explain himself. The dockworker who knows, without being able to say quite how he knows it, that a particular crane operator is having a bad week and should not be trusted with the delicate cargo; the buyer at a clothing chain who senses, from years of watching customers browse, that a colour is about to fall out of fashion before any sales figures confirm it; the farmer who reads a change in the weather in the colour of the sky before any forecast catches up. The philosopher of science Michael Polanyi, whose brother Karl stands on the opposite flank of this whole argument, gave this kind of knowing its lasting name, tacit knowledge, and its most compact formulation: we know more than we can tell. Hayek's point was that no questionnaire, however cleverly designed, and no central database, however large, could ever fully extract such knowledge, because it does not exist in a form separable from the person who holds it and the situation they are standing in.
Hayek made a companion argument in a book that reached a far wider audience than any economics essay usually does. The Road to Serfdom, published in 1944, was written during the war for a British readership anxious about what sort of country would be rebuilt once the guns stopped, at a moment when economic planning, which had organised the war economy with genuine success, looked to many thoughtful people like the obvious model for peacetime too. Hayek's warning, addressed as much to well-meaning social democrats as to any totalitarian, was that economic planning has an internal logic that tends, however gradually and however good the planners' intentions, toward political coercion. The argument runs like this: if a government undertakes to plan the economy centrally, it must decide what gets produced and in what quantities, which means it must decide, in effect, what people's lives will be organised around, since so much of a life is organised around work and consumption. A government that decides these things for millions of people who disagree about what they want will eventually need coercive power to make its plan stick, because a plan that anyone can opt out of is not really a plan. Hayek was not arguing that every reformer who believed in a welfare state was a closet totalitarian. He was arguing that central economic planning, pursued far enough, closes off the space in which people can pursue different, incompatible versions of a good life, and that this closing-off happens by the logic of planning itself, not because planners are wicked. The book became an unlikely wartime bestseller, was later condensed for the Reader's Digest and reached millions of readers who would never otherwise have opened an economics text, and decades afterward became something close to a foundational document for both Margaret Thatcher, who by one much-repeated account once interrupted a Conservative policy discussion by pulling a volume of Hayek from her handbag, banging it down on the table, and declaring that this was what the party believed (tellings differ on which book it was, most versions naming The Constitution of Liberty, but the point of the story survives the uncertainty, and the handbag remains the most rigorous citation format the Conservative Party has yet devised), and Ronald Reagan, who named Hayek among the thinkers who had most shaped his own views.
Keynes is supposed to have remarked of Hayek's 1931 lectures at the LSE, later published as Prices and Production, that they were an extraordinary example of how, starting with a mistake, a remorseless logician could end up in Bedlam, which is the kind of sentence one wishes one had thought of first and did not. Whatever the fairness of the jibe, it captures something real: Hayek's technical business-cycle theory has not aged especially well, and most economists today, including many broadly sympathetic to his wider philosophy, regard the Hayek-Keynes debate on its own narrow terms as one Keynes essentially won.
Hayek's later work, in The Constitution of Liberty (1960) and the three-volume Law, Legislation and Liberty that followed through the 1970s, generalised the argument about prices into something larger: a theory of what he called spontaneous order. His observation was that a great many of the institutions that make a complex society possible were never designed by anybody. Language was not invented by a committee and handed down; it evolved, over centuries, out of the accumulated usage of countless speakers, each making small adjustments, none of them intending to create a language, and no minutes kept. Common law, in the English tradition, was not written from first principles by a legislature; it accumulated, case by case, out of judges settling particular disputes and later judges drawing on those settlements, so that the law that emerged embodied a kind of collective, distributed wisdom that no single legislator could have produced by sitting down and thinking hard. Markets, Hayek argued, belong to this same family of institutions: evolved orders, not designed ones, which is precisely why they can process more information than any designed institution can. This is a different kind of argument from the case for prices in "The Use of Knowledge in Society," and notice that Hayek was reaching here for something closer to biology than to engineering: an order that grows the way a coral reef grows, by the accumulated activity of countless small organisms, rather than an order that is built the way a bridge is built, from a plan.
In 1974 Hayek shared the Nobel Memorial Prize in Economic Sciences with Gunnar Myrdal, the Swedish social democrat and architect of much of that country's planned welfare state, a pairing the Nobel committee seems to have intended as a kind of balance between opposing schools of thought. Neither man was especially pleased by the company. Myrdal later suggested the prize should be abolished altogether, partly, one suspects, because he did not relish being permanently yoked in the public mind to a man whose entire life's work had been devoted to showing that people like Myrdal were mistaken about how societies should be run.
The optimism in Hayek's argument is easy to overstate. Hayek was not an optimist about outcomes in the way a technologist promising a cure for disease is an optimist about outcomes. He made no promise that markets would produce equality, or contentment, or even, in any given year, growth. His optimism concerned a process rather than a destination: the conviction that a system built to make use of dispersed knowledge will, over time and on average, outperform any system that tries to concentrate that knowledge in a planning office, no matter how well-staffed or well-intentioned that office might be. It is a comparative claim, not an absolute one, and comparative claims of this kind can be true even when the outcomes they permit are unjust, unequal, or occasionally disastrous. Hayek's wager is that the alternative, central planning, is worse, not that markets are good in any simple sense. That is a more modest claim than it is often given credit for, and also, as we shall see, a more defensible one. It is also the purest available statement of the wager itself. The claim was never that the market knows best. The claim was that nobody knows best, and that an economic order built on that admission will beat every order built on its denial.
Schumpeter and the permanent gale
If Hayek's optimism is about information, Joseph Schumpeter's is about something closer to temperament: about a certain kind of restless, disruptive human character, and about what that character does to an economy over time. Schumpeter was born in 1883 in Triesch, in what was then Moravia, into a family of textile manufacturers, and trained in law and economics in Vienna under Eugen Böhm-Bawerk, one of the towering figures of the Austrian School. His career afterward reads like something scripted for maximum irony. He held professorships at Czernowitz and Graz while still remarkably young, styled himself, by his own later account, as a man who wanted to be the greatest economist, the greatest horseman, and the greatest lover in Europe, and admitted he had only ever fully succeeded at the first of the three, and possibly not even that. He never released his data on the horses. In 1919 he was appointed Austrian Finance Minister at a moment of genuine crisis, the empire having just collapsed, and lasted seven months before being dismissed, having presided over policies that satisfied nobody. He then took a position on the board of a private bank in Vienna, the Biedermann Bank, which collapsed a few years later amid the general wreckage of Austrian finance in the 1920s, leaving Schumpeter personally in debt for years. He arrived at Harvard in 1932, a European exile with a chequered practical record but an already formidable body of theoretical work, and remained there until his death in 1950, watching from Cambridge, Massachusetts, as Keynesianism, a rival school he never much respected, became the orthodoxy of the age he was living through.
Schumpeter's first major book, The Theory of Economic Development, published in German in 1911, made a move that set him apart from most economics of his time, which tended to treat the economy as a system tending toward equilibrium, a kind of machine that, left alone, would settle into a steady, balanced state where supply matched demand and prices held still, a restful picture with no obvious room in it for anybody doing anything. Schumpeter thought this picture, however elegant mathematically, missed the most interesting thing about capitalism, which is that it never actually settles down. What disturbs the equilibrium, in his account, is the entrepreneur: not the ordinary businessman running an existing firm efficiently, but the particular kind of person who introduces something truly new, a new product, a new method of production, a new way of organising a business, a new source of supply, a new market. This entrepreneurial act, Schumpeter argued, is the true engine of economic growth, and it is inherently disruptive, because a new way of doing things makes the old way obsolete, throwing existing firms, existing skills, and existing capital into crisis even as it creates new wealth elsewhere.
He gave this process its most famous name in his most widely read book, Capitalism, Socialism and Democracy, published in 1942 at Harvard, in the middle of a war that made the whole question of which economic system would prevail seem more urgent than academic. Capitalism, Schumpeter wrote, is by nature a form of economic change and never can be stationary, and the fundamental impulse that sets and keeps the capitalist engine in motion comes from new consumers' goods, new methods of production, new markets, new forms of industrial organisation. This process, he wrote, incessantly revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one. He called this creative destruction, and the phrase has since escaped the academic literature entirely and gone to work in boardrooms and start-up pitch decks, generally shorn of the melancholy that surrounded it in Schumpeter's own use. His point was not simply that new things replace old things, which is a banality. It was that the destruction is not an unfortunate side effect of capitalism's dynamism, a cost to be regretted and minimised. It is the source of the dynamism. The wealth is generated by the same process that destroys the typewriter factory, the horse-drawn cart maker, the corner video rental shop. You cannot, on Schumpeter's account, have the gains without the casualties, because they are the same event seen from two different chairs.
Consider what this actually looked like within a single working life, since the phrase can otherwise float free of any real image. The automobile displaced an entire economy built around the horse within a few decades: not merely the carriage makers and the harness sellers but the farriers, the ostlers, the men who swept the streets of manure, a trade nobody has since campaigned to bring back, and the vast acreage once given over to growing oats for draught animals, all of it rendered economically pointless, while an entirely new economy of petrol stations, motor mechanics, road builders, and insurance underwriters sprang up to replace it, employing, in the end, a great many more people than the one it destroyed, though not always the same people, and not always in the same towns. This is the pattern Schumpeter had in mind: not a tidy handover but a violent reallocation, in which whole trades, and the men and women who had built their lives around them, are simply left behind by a process that, from a distance, looks like unambiguous progress and, from inside the collapsing trade, looks exactly like ruin. Schumpeter did not flinch from this. He thought an economist who wanted only the gains and none of the destruction had failed to understand what he was looking at.
The book contains a second argument, less quoted than creative destruction but arguably more prescient, concerning what happens to innovation once it is captured by the large corporation. In the earlier, more heroic phase of capitalism, Schumpeter argued, the entrepreneur was typically an individual or a small partnership, operating outside or against the established firms of an industry, financed by outsiders willing to gamble on an unproven idea. By the time he was writing, in the early 1940s, he saw innovation increasingly migrating into the research departments of large, already dominant firms, staffed by salaried scientists and engineers who treated invention as a manageable, budgeted process rather than a wild personal wager. Schumpeter called this the routinisation of innovation, and he thought it represented a real loss even as it represented, by most measures, an efficiency gain: a corporate laboratory could produce a steadier stream of incremental improvement than any lone inventor, but it could rarely produce the same magnitude of disruptive leap, because a large firm has every institutional incentive to protect the business it already has rather than fund the invention that might destroy it. A great many technology companies of the present era have spent enormous sums trying to prove this wrong, generally by buying the disruptive start-up rather than risking the internal upheaval of inventing the disruption themselves, which is itself a rather Schumpeterian irony: the large firm's most reliable innovation strategy turns out to be acquiring, at a large premium, the very creative destruction it could not quite manage to generate from within.
What makes Capitalism, Socialism and Democracy a great book, rather than merely a slogan factory, is the argument Schumpeter builds on top of this observation, an argument that runs directly against the grain of everything a reader expects from the century's foremost anatomist of capitalist growth. The book's central section opens with a question and an answer of startling bluntness. Can capitalism survive? No, Schumpeter wrote, I do not think it can. And he was careful to add that a prognosis is not a preference: a doctor who predicts that his patient will die presently does not thereby desire the death. The disease he diagnosed was not economic failure but success so complete that it corrodes the system's own foundations. The routinisation of innovation described above was one symptom, and Schumpeter drew its social consequence out plainly: an economy of salaried research departments has less and less need of the heroic entrepreneur, and a social function that is no longer needed loses, over a generation or two, the prestige and the political protection that kept it alive. Capitalism, he argued further, burns away the older social timber it had always quietly leaned on, the aristocratic habits of loyalty and command that once lent the bourgeois order its political cover, the multigenerational family firm, the bourgeois household saving for grandchildren not yet born, all of them pre-capitalist inheritances that the market's own rationalising acid steadily dissolves. Most corrosively of all, capitalism mass-produces its own prosecutors: an ever-expanding class of educated, articulate, often underemployed intellectuals, made possible by capitalist wealth and made numerous by capitalist universities, whose professional trade is criticism and whose most natural target is the hand that feeds them. The result, he predicted with unease rather than satisfaction, would be a slow drift from vigorous, chaotic capitalism toward something he called, provocatively, socialism, by which he meant less a revolutionary seizure of the means of production than a gradual bureaucratisation and managerial capture of an economy that had once run on individual daring.
Most people who deploy the phrase creative destruction have never met the paradox behind it: the great theorist of capitalist dynamism was a pessimist about capitalism's survival, and the book that gave the modern market economy its most famous compliment was written as its obituary. Schumpeter's later admirers in Silicon Valley, who reach for creative destruction as a working slogan for whatever disruption their venture happens to be attempting this quarter, rarely let on that the man who coined the phrase expected the system it celebrated to be undone by the very prosperity it generated, and in most cases, one suspects, they do not know. A reader who takes only the phrase "creative destruction" and leaves the rest of the argument on the shelf has taken the slogan and left the melancholy, which is rather like quoting the chorus of a song about heartbreak at a wedding because the tune is catchy.
Subjective value and the argument that planning cannot even, in principle, add up
Beneath both Hayek and Schumpeter lies a philosophical claim about value that marks a real break with the economics that came before it, and that explains why the Austrian School, to which both men in different ways belonged, arrived at such deep suspicion of central planning in the first place. Adam Smith and David Ricardo, working in the eighteenth and early nineteenth centuries, had generally explained the value of a good by reference to the labour that went into producing it: a coat is worth roughly what it costs, in effort, to make a coat, and the classical economists spent a great deal of energy working out theories along these lines. In 1871, an Austrian economist named Carl Menger published a short, dense book called Principles of Economics that helped launch what became known as the marginalist revolution, a shift in thinking that displaced this labour-based account of value almost entirely. Menger shares the credit, by one of those coincidences that suggest an idea's hour had simply arrived, with William Stanley Jevons in England and Léon Walras in Lausanne, who reached much the same insight independently within three years of one another.
Menger's argument was that a good has value not because of the labour embedded in it but because of the particular satisfaction it offers a particular person at a particular moment, weighed against the next best alternative use of the same resources. A glass of water is worth almost nothing to a person standing beside a lake but a great deal to the same person lost in a desert, and the labour required to fetch either glass may be identical. What has changed is not the water but the circumstance of the person valuing it. Economists came to call this kind of reasoning marginal utility: the value of one more unit of something, judged not in the abstract but at the margin, in the specific situation of the person deciding whether to acquire it. This sounds like a small technical adjustment, but it has large consequences, because it means that value is not a fact about an object waiting to be discovered by careful measurement of the labour and materials that went into it. Value is a judgment, made by a particular mind, in a particular moment, and it can differ from person to person and from hour to hour even for an identical object, which is inconvenient for anybody hoping to tabulate it.
Ludwig von Mises, Hayek's teacher and the dominant figure of the Austrian School through the interwar years, took this idea and turned it into a devastating argument against socialism, one considerably sharper and more absolute than Hayek's later, gentler point about dispersed information. In a 1920 essay and later in a full-length book, Mises argued that a socialist economy, one in which the state owns the means of production and prices are set by decree rather than by exchange, could not merely plan inefficiently. It could not calculate at all, in any economically meaningful sense. His reasoning went like this: a price, on Mises's account, is not an arbitrary number attached to a good. It emerges only from actual exchange between people who own the goods being traded and who are free to say no to a proposed trade. It is this real possibility of refusal, backed by genuine ownership, that gives a price its informational content, because a price reflects the point at which a buyer's judgment of a good's worth to him crosses a seller's judgment of its worth to her. Without private ownership of the means of production, Mises argued, there is no market in capital goods, no exchange, and therefore no genuine prices for factories, machinery, or raw materials, only bureaucratic numbers assigned by fiat, which look exactly like prices and behave nothing like them. And without real prices for capital goods, a planner has no way even in principle to know whether it is more economically rational to build the new steel mill with more concrete and less steel, or more steel and less concrete, because there is no reliable exchange ratio between concrete and steel to compare. The planner is not merely under-informed, the way Hayek would later describe a planner starved of dispersed local knowledge. The planner is, on Mises's account, flying blind in a much stricter sense: attempting a calculation for which the necessary numbers do not and cannot exist, however good the planner's intelligence-gathering.
This argument, launched in the 1920s, set off what economists still call the socialist calculation debate, a running argument through the interwar decades between the Austrians and a group of economists, most prominently the Polish economist Oskar Lange, who argued that a socialist planning board could in principle simulate market prices, adjusting them by trial and error the way a market does, without needing actual private ownership at all. Lange's proposal, worked out in detail in the late 1930s, imagined a central board announcing a set of trial prices, watching whether shortages or surpluses appeared, and adjusting the prices up or down accordingly, exactly as an auctioneer might call out prices at a market until supply and demand come into balance, except that the auctioneer here would be a government bureau rather than the accumulated bids of real buyers and sellers. It was an elegant proposal on paper, elegant enough that a good many economists at the time considered it a decisive answer to Mises, and it earned Lange a reputation as the man who had beaten the Austrians on their own ground. Lange proposed, apparently without mischief, that a statue of Mises should occupy an honourable place in the great hall of the future planning ministry, in recognition of services rendered to the debate. Mises's opinion of the statue is not recorded. Hayek's rejoinder, developed through the 1930s and 1940s and eventually folded into "The Use of Knowledge in Society" itself, was that Lange's simulated market missed the entire point: a planning board adjusting trial prices in response to reported shortages is always working from yesterday's data, announced after a delay, digested through a bureaucracy, and stripped of the local, tacit knowledge that a real buyer or seller brings to an actual transaction. A simulated auctioneer, however cleverly designed, is not the same thing as millions of people spending their own money on their own judgment, and the difference, Hayek argued, is not a matter of degree but a matter of kind. The debate was never conclusively settled on paper, and for much of the twentieth century the practical argument seemed, to a great many economists, to have been won by the planners, or at least by the mixed economies that combined substantial state direction with private enterprise. Mises himself spent much of his American career on the margins of the profession, never holding a proper tenured chair at a major economics department, teaching instead at New York University on a position largely funded by outside sympathisers.
The Austrian revival, when it came, owed a great deal less to victory in academic seminar rooms than to a historical event: the visible, comprehensive collapse of Soviet central planning between 1989 and 1991. To many observers, sympathetic and otherwise, the failure of the Soviet economy, its chronic shortages, its wildly misallocated investment, its final implosion, looked like exactly the outcome Mises had predicted seventy years earlier, and Mises's calculation argument, largely dismissed for decades as an interesting but overstated polemic, was read anew as a prediction that history had, at length, honoured. This is a serious point in the Austrians' favour. It also needs a serious qualification. The Soviet economy failed for reasons that were not purely a matter of missing price signals: political terror, catastrophic agricultural collectivisation, a military spending burden that consumed a crippling share of output, and a political system that punished honest reporting of failure all played their part, and disentangling how much of the collapse was Mises's calculation problem in its pure form and how much was the ordinary pathology of an unaccountable dictatorship is no simple matter. Critics of the Austrian School, and there are serious ones, also press a further point: that the tradition's deep hostility to empirical testing, its preference for reasoning from first principles about human action rather than testing hypotheses against data, has in some of its later adherents hardened into something that functions less like an economic theory open to revision and more like a closed system of belief, no more falsifiable in practice, whatever the difference in content, than the central planning doctrines it opposes, exactly the kind of theory an honest economist ought to be suspicious of, including, if he is being consistent, an Austrian one.
Before leaving Hayek and Mises for Friedman, note the moment at which this scattered, largely defeated tradition began to organise itself into something more durable than a shared set of convictions among isolated professors. In April 1947, Hayek convened a meeting of thirty-nine economists, historians, and philosophers at a hotel on Mont Pèlerin, above Lake Geneva, to discuss what its founding statement called the preservation of a free society against the drift toward collectivism that most of the attendees believed had gripped both Europe and America since the war. Mises was there, by most accounts already impatient with colleagues he considered insufficiently pure on the question of state intervention; a young Milton Friedman was there too, thirty-four years old and not yet the figure he would become; so was Karl Popper, the philosopher of science, whose presence signals that the society's founders understood their project as much a defence of a certain kind of open, falsifiable, undogmatic reasoning as a defence of any specific economic policy. The Mont Pelerin Society, as the group came to be called, met regularly for decades afterward, seldom anywhere without a view, liberty being apparently best defended at altitude, and functioned as a kind of incubator, unfashionable and unfunded by comparison with the Keynesian economics departments that dominated the era, in which the ideas that would eventually reshape Anglo-American policy in the 1980s were kept alive, argued over, and refined during the long years when almost nobody outside the room was listening. The ideas had been sitting in a Swiss hotel, more or less patiently, for over thirty years before politicians found a use for them.
Friedman and the case made plain
Milton Friedman's role in this story is different in kind from Hayek's or Schumpeter's. Friedman did not, on the whole, develop new philosophical arguments about the nature of knowledge or value. What he did, across a long career at the University of Chicago from 1946 until his retirement in 1977, was build an extremely disciplined empirical case for market-based policy on narrower, more testable ground, and then carry that case to an audience of millions who would never read Hayek or Mises, and had not, in most cases, intended to read an economist at all.
His most important piece of academic work, A Monetary History of the United States, 1867 to 1960, published in 1963 with Anna Schwartz, took direct aim at the Keynesian orthodoxy of the postwar decades, which generally treated the Great Depression as proof that capitalism, left to its own devices, could collapse into prolonged mass unemployment and required active government spending to pull it out. Friedman and Schwartz argued, on the basis of painstaking historical reconstruction of the money supply, that the Depression was made far worse than it needed to be by a series of avoidable contractions in the money supply carried out, in effect, by the Federal Reserve's own mistakes, not by any inherent instability in market capitalism itself. This was a serious scholarly intervention, not a polemic: it shifted where a great deal of the blame for the Depression settled, from the market system as such to a specific set of institutional decisions, and it helped lay the groundwork for the monetarist school of thought that would shape central banking practice for decades afterward. The argument eventually received the most direct institutional concession an economist can hope for. In 2002, speaking at a conference in honour of Friedman's ninetieth birthday, Ben Bernanke, then a governor of the Federal Reserve and later its chairman, closed his remarks by addressing Friedman and Schwartz directly on behalf of the institution their book had indicted: regarding the Great Depression, you're right, we did it, we're very sorry, and thanks to you, we won't do it again. Central banks do not often apologise, and they almost never apologise for the Depression.
Friedman's wider public reputation, though, rests less on the monetary history than on two books written explicitly for a general audience: Capitalism and Freedom, published in 1962, and Free to Choose, published in 1980 with his wife Rose Friedman and paired with a television series of the same name, in which Friedman explained price theory to camera, from factory floors and Hong Kong harbours, with the unhurried composure of a man presenting a nature documentary. These books took the case for markets that had, in Hayek's and Mises's hands, often been argued in fairly abstract philosophical terms, and translated it into plain, punchy, deliberately accessible prose, applied to concrete policy questions: school vouchers, the abolition of licensing requirements that Friedman regarded as protecting incumbents rather than the public, floating exchange rates, the case against rent control. Whatever one thinks of the conclusions, the prose itself is a model of the plain style, and it did more than any Austrian treatise to put the case for markets into ordinary conversation. The most memorable moment of the television series compressed Hayek's entire 1945 essay into a single prop. Friedman held up an ordinary pencil and observed, borrowing an old essay by Leonard Read, that not one person on the face of the earth knows how to make it: the wood from one country, the graphite from another, the rubber from a third, thousands of strangers who speak different languages and practise different religions, cooperating through nothing but the price system to put a pencil in a schoolchild's hand for pennies. It is the supermarket argument in miniature, and Friedman could deliver it in under three minutes to an audience that would never read a word of Hayek. The pencil itself has since acquired the standing of a minor relic in free-market circles, invoked with a reverence not normally extended to stationery.
Friedman is so often flattened into a caricature of unbending market zealotry that the record gets forgotten: his actual policy proposals were sometimes considerably more heterodox than his reputation suggests. He proposed, as early as the 1940s and again in Capitalism and Freedom, a negative income tax: a scheme in which the state would top up the income of the poorest citizens automatically through the tax system, rather than through a maze of separate welfare programmes, precisely because he thought a single, simple cash transfer respected people's own judgment about how to spend money better than a bureaucracy handing out food, housing, and other benefits in kind, chosen for them by somebody who had never met them. A domesticated descendant of the idea survives in the American earned income tax credit, one of the larger anti-poverty programmes in the country, which owes its mechanism, if not its every detail, to Friedman's proposal. This is not the proposal of a man who believed government should do nothing. It is the proposal of a man who believed that where government does act, it should act through the simplest, least paternalistic mechanism available, which is a considerably more nuanced position than the shorthand version of Friedman, tax cuts and deregulation and little else, that has come down through decades of political sloganeering on both sides of the argument.
Friedman's legacy carries a sharper, more contested edge as well, one that shaped the corporate world as much as any government policy did. In 1970 he published an essay in the New York Times Magazine with the blunt title "The Social Responsibility of Business Is to Increase Its Profits." His argument, stated without much hedging, was that a corporate executive is an employee of the shareholders who own the company, and that when an executive spends the company's money on some broader social aim, reducing pollution beyond what the law requires, say, or supporting a local charity, he is in effect imposing a tax on the shareholders and deciding how to spend the proceeds, a decision that in a democratic society belongs properly to elected legislatures, not to a manager who happens to hold the corporate chequebook. This doctrine of shareholder primacy, as it came to be called, shaped the corporate-governance settlement of the 1980s profoundly, feeding directly into the rise of hostile takeovers, debt-financed buyouts, and an entire culture of shareholder-value maximisation that treated any corporate spending not clearly aimed at profit as, at best, a distraction and, at worst, a betrayal of fiduciary duty. It also became, decades later, precisely the doctrine that a generation of reformers defined themselves against: those who argue that a corporation owes something to its employees, its town, and the air around its factories as well as to its owners came to treat Friedman's essay as the founding text of a narrow, short-sighted conception of the corporation that needed correcting.
Something gets lost when market optimism is treated as a single, unified creed. Even among the tradition's own champions, there is real disagreement about what markets are actually for, and what a market institution like the corporation owes to the wider society it operates within. Hayek's argument was fundamentally an argument about information processing, agnostic about who ultimately benefited from a well-functioning price system. Friedman's shareholder-primacy argument is a much narrower, more specifically distributive claim about who has the right to decide how a company's resources are spent, and it does not follow automatically from Hayek's epistemic case for prices at all. A person can believe wholeheartedly that markets are unmatched at aggregating dispersed knowledge and still think Friedman's 1970 essay draws exactly the wrong lesson about what a corporate manager's obligations are. The libertarian wager, in other words, is not one bet but a family of related bets, and the family members do not always agree with each other.
Julian Simon's bet, and the abundance it seemed to prove
A different, more explicitly optimistic strand of this tradition emerged from an economist who spent much of his career arguing, in effect, that markets do not merely tolerate scarcity more gracefully than planned economies do. They actually reverse it. Julian Simon, born in 1932 and trained at Harvard and the University of Chicago before settling at the University of Maryland and later becoming a fellow of the libertarian Cato Institute, made his case most fully in a 1981 book called The Ultimate Resource. His central move was to reframe what a growing human population actually is. The conventional worry, running from Thomas Malthus in 1798 through the population-control literature of the 1960s and 1970s, treated each additional person as one more mouth competing for a fixed stock of finite resources, so that population growth pressed inexorably against ecological ceilings. Simon's reframing was that a human being is not principally a mouth. A human being is principally a mind, and a mind that is free to trade, invent, and respond to price signals is a resource-creating machine, not merely a resource-consuming one. Copper is not a fixed quantity buried in the earth waiting to run out. What counts as a usable resource is itself a moving target, set by human ingenuity: fibre-optic cable made copper wire less essential for telephone lines; new extraction techniques turned rock once considered worthless into economically viable ore, the same rock throughout; a shortage that raises a price is, on Simon's account, not a crisis but an invitation, calling forth substitution, new discovery, and more efficient use, precisely because a rising price is the market's way of telling millions of people simultaneously that here is a problem worth solving, and a great many of them will try to solve it, for the ordinary and unglamorous reason that whoever solves it stands to profit.
Simon set this argument directly against the Malthusian revival of his own time, most visibly Paul Ehrlich's 1968 book The Population Bomb and the Club of Rome's 1972 report The Limits to Growth, both of which forecast, with considerable confidence, that rising population and finite resources would collide within a few decades in famine, resource exhaustion, and civilisational crisis. In 1980, in what has become one of the great parables of modern economic argument, Simon put his theory where his mouth was. He challenged Ehrlich publicly to name any raw material Ehrlich believed would grow scarcer, and therefore dearer, over the following decade, offering to bet that its price, adjusted for inflation, would in fact fall. Ehrlich, together with the scientists John Holdren and John Harte, selected a basket of five metals: copper, chromium, nickel, tin, and tungsten, each purchased notionally at 1980 prices in a fixed dollar amount, the bet being settled on whether the same dollar amount of each metal would cost more or less, in real terms, a decade later. No metal changed hands at any stage; the contest was conducted entirely on paper, which spared both parties the storage of tungsten. By 1990 all five metals had fallen in price, some of them substantially. Ehrlich mailed Simon a cheque for the difference, a little over five hundred dollars, without, by most accounts, much change of heart about the underlying argument.
Simon's confidence was not merely rhetorical bravado. It rested, as he documented at length in The Ultimate Resource, on a pattern he could point to across the whole of recorded economic history: whale oil, the principal fuel for lighting in the nineteenth century, grew so scarce and expensive by the 1850s that a genuine crisis loomed, whole industries depending on illumination after dark, and then a substitute, first coal gas and then refined petroleum, arrived within a few decades and rendered the scarcity moot, not because anyone had rationed whale oil more carefully but because the rising price had made the search for an alternative profitable enough that someone found one. Simon's argument was that this pattern, scarcity, rising price, incentive to substitute, discovery, is not a lucky accident that happened once with whale oil but the ordinary, repeatable operation of a market system responding to a signal, and that population growth, far from working against this pattern, feeds it, because more people means more minds working on the problem, more potential inventors, more customers whose demand justifies the cost of research in the first place. An economy of one thousand people generates fewer new ideas, on average, than an economy of one billion, simply because ideas come from people, and this, for Simon, was the single most important fact left out of the Malthusian reckoning.
The wager has since become something close to a foundation myth for the optimist camp, and on its own narrow terms the myth holds: it really happened, the prices really fell, and it really did puncture a specific, falsifiable claim that resource scarcity was about to bite within a decade. But its champions have sometimes let the parable do more work than the evidence supports. A ten-year window and a basket of five metals is a thin reed on which to hang an entire cosmology about the trajectory of the planet. Choose a different decade, the 1970s rather than the 1980s, when the oil shocks sent commodity prices sharply upward, and the bet would very plausibly have gone the other way. This is not merely a debating point: researchers who later re-ran the wager on paper, across every ten-year window of the twentieth century for which prices could be reconstructed, found the outcome flipping back and forth with the commodity cycle, with Ehrlich's side winning a substantial share of the decades. Simon happened to place his bet across a stretch of falling prices; he was right about the long trend, on the evidence assembled since, but the ten-year window that made him famous owed a good deal to timing. The economists' bet is a genre in which it helps to be right and is essential to be right on schedule. Choose a different basket of five commodities, water rights in a drought-stricken region, or certain rare earth elements at particular moments of geopolitical tension, and the direction could again reverse. And metal prices, however instructive about the workings of substitution and innovation, say nothing whatsoever about the state of the atmosphere or the biosphere, categories of cost that do not show up in any commodity exchange because nobody owns the atmosphere and nobody can be charged, in an ordinary market transaction, for degrading it. The wager proved something real and specific. It did not prove everything its retellers have sometimes wanted it to prove.
The argument has been generalised and updated more recently in Superabundance, a 2022 book by Marian Tupy and Gale Pooley, published under the Cato Institute's auspices with a preface by the technology writer George Gilder. Tupy and Pooley's contribution is a measurement device they call the time price: rather than comparing the money cost of a good across decades, which runs into the usual headaches of inflation, currency changes, and shifting definitions of the price index, they measure the cost of a good in the hours of labour an ordinary worker must supply to earn enough to buy it, calculated by dividing a commodity's nominal price by the nominal hourly wage of the time. This measure has a genuine elegance to it, because it sidesteps a great deal of the technical argument about how to adjust historical prices for inflation, and it produces a number that means something intuitively: not what did a pound of butter cost in 1850 dollars, a number nobody can feel in their bones, but how many minutes of work did a labourer in 1850 need to earn a pound of butter, compared with a worker today.
Measured this way, Tupy and Pooley report, a very long list of resources, metals, staple foods, energy, and raw materials of every kind, has grown dramatically cheaper across roughly two centuries, even as the world's population multiplied several times over, precisely the opposite of what the Malthusian tradition would have predicted. A labourer in 1850, by their reckoning, might have needed several hours of work to buy a pound of sugar or a yard of cloth; a labourer today buys the equivalent in minutes. Tupy and Pooley extend the exercise further still, calculating what they call personal resource abundance: the number of hours of work required to earn a given basket of commodities divided into the growth of world population over the same period, on the theory that if resources are growing cheaper even as there are more people to share them, then abundance per head must be growing faster than population itself, a multiplier effect they present as the deepest possible rebuttal to the Malthusian intuition that more people must always mean less to go around. They take this as a sweeping empirical vindication of Simon's whole thesis, and they give the resulting picture a name with a certain evangelical flourish: superabundance, the idea that the planet, understood correctly and measured properly, is not a fixed pie to be divided among a growing population but an expanding one, growing precisely because the population is growing, since more minds mean more inventors, more traders, more people discovering new substitutes and new efficiencies. Plain abundance was evidently not felt to be sufficient. It is a striking body of data, assembled with real diligence. Whether it deserves the name its authors have given it, and whether the leap from the data to the name is itself sound, is a separate question, one the next section takes up directly.
The case against, taken seriously
The strongest criticism of the whole tradition described above does not come from people who think markets are useless, which would be an easy position to knock down, but from serious scholars who accept that markets do certain things extremely well and argue that the tradition's champions have systematically mistaken a partial truth for a complete account of how a society actually works. The sharpest version of this criticism in recent years comes from Fred Block and Margaret Somers's 2014 book The Power of Market Fundamentalism, which reads the Hungarian-born economic historian Karl Polanyi's 1944 book The Great Transformation as, in effect, a working manual for understanding the last four decades of Anglo-American economic policy, written seventy years before the fact, which is either prescience or a poor reflection on the four decades.
Polanyi's central claim, stripped of its more technical apparatus, is that an economy is never a free-standing mechanism operating according to its own internal laws, separable from the society around it the way a car engine can be lifted out of a car and examined on a bench. An economy, Polanyi argued, is always embedded in the wider fabric of social life, its legal system, its customs, its family structures, its sense of obligation, and it cannot be properly understood, let alone properly governed, if that embeddedness is ignored. He made a related, more provocative claim about three categories of things that a modern market economy treats as though they were ordinary commodities produced for sale: labour, land, and money. Polanyi called these fictitious commodities, because none of them was actually produced to be sold in a market the way a shirt or a table is. Labour is simply human life and activity, not a product manufactured for the purpose of being traded; land is nature, not a factory output; money, in most of its historical forms, is a social convention for enabling exchange, not a good someone manufactures to sell. Treating these three things as if they were ordinary commodities, subject to nothing but the discipline of supply and demand, Polanyi argued, produces real and serious harm, because a human being who cannot sell his labour does not simply sit unsold on a shelf like an unsold coat. He starves, or his family does, and land treated purely as a tradable commodity gets stripped of whatever ecological limits or communal claims might otherwise have protected it. Polanyi did not put the point mildly. To allow the market mechanism to be the sole director of the fate of human beings and their natural environment, he wrote, would result in the demolition of society, a sentence that sounds like rhetorical excess until one recalls what the man had watched happen to Europe while he was writing it.
Polanyi's most important and most frequently misunderstood claim, though, concerns the origin of the free market itself. The nineteenth-century self-regulating market, the one that libertarian economists since have often described as though it were the natural, spontaneous state of affairs that emerges whenever government simply gets out of the way, was not, Polanyi argued, spontaneous at all. It was built, deliberately and often forcibly, by state power: enclosure acts in England that converted common land into private property enforceable by courts and, when necessary, by troops; new poor laws that compelled the able-bodied poor into wage labour by removing older forms of communal support; a vast apparatus of contract law, property registration, and colonial administration that had to be constructed, piece by piece, by governments willing to use coercive authority to bring a national market into being. "Laissez-faire was planned," Polanyi wrote, and then completed the thought with the twist that made the sentence one of the most quoted in economic history: "planning was not." The line inverts the standard story twice in six words. The free market was not what remained after government stepped back; it was something government had to build, actively and often brutally, and then keep maintaining through law, policing, and administration, since a market left to nobody's maintenance does not spontaneously assemble itself out of thin air. And the protective regulation that later hemmed the market in was, on Polanyi's reading of the parliamentary record, not an ideological programme at all but a series of improvised, piecemeal responses to visible local damage, factory acts and sanitation boards and inspection regimes enacted, as often as not, by legislators who considered themselves perfectly sound believers in laissez-faire and would have been offended to be told otherwise. The doctrine of the self-regulating market was designed; the society that resisted it was merely reacting, the way a hand pulls back from a flame without first consulting a theory of fire.
Polanyi's final major claim was that unrestrained marketisation reliably provokes a social reaction, which he called the double movement: a first movement toward disembedding markets from social control, followed, almost as a matter of historical regularity, by a second movement in which society, through trade unions, factory legislation, tariffs, social insurance, and eventually the modern welfare state, reasserts protective limits on how far commodification is allowed to go. Polanyi did not regard this second movement as an aberration or an interference with the natural order. He regarded it as the predictable, almost physiological response of a society defending itself against a process that, left unchecked, would grind down the human and natural fabric it depends on.
Polanyi wrote The Great Transformation in the early 1940s, in American exile, trying to explain to himself and his readers how the liberal, prosperous, apparently stable European order of the late nineteenth century had ended in fascism, mass unemployment, and a second world war within a single generation. His answer was that the self-regulating market of the nineteenth century, precisely because it had disembedded land, labour, and money from any social restraint, had generated intolerable strains, mass dispossession in the countryside, chronic insecurity for industrial workers, currency crises that wiped out savings overnight, and that fascism, whatever else it was, was in large part a monstrous and pathological version of the double movement: a society lurching to protect itself from market discipline by the most catastrophic means available, having been denied gentler ones. This is not a comfortable argument for anyone, on any side of the present debate, because it means Polanyi was not simply a critic of markets in the ordinary left-wing sense. He was equally alarmed by a society that suppresses the market's demands through totalitarian control, and his real subject was the danger of extremes at either end, an unrestrained market on one side and an unrestrained suppression of the market on the other, with the achievement of the postwar mixed economy, imperfect and untidy as it was, standing as the best available answer he could see to both dangers at once.
Block and Somers take this apparatus and sharpen it into what they call the always-embedded economy, aimed squarely at the market-fundamentalist policy consensus that dominated American and British economic thinking from roughly the Reagan and Thatcher years onward. Their point is a simple one with large consequences: even the most thoroughly deregulated, liberalised market rests, and must rest, on an extensive scaffolding of law, property rights, courts to enforce contracts, a currency backed by a central bank, and a shared set of beliefs about what counts as fair dealing. There is, in other words, no such thing as a market simply left alone. The real political choice a society faces is never between regulation and its absence, a framing that market-fundamentalist rhetoric relies on constantly, but only between different arrangements of regulation, some benefiting one group, some another. "Leave it to the market," on this reading, is a much less meaningful instruction than it sounds, since the market that results from leaving it alone is itself the product of a prior and thoroughly deliberate set of legal and political choices about who owns what and under what conditions they may trade it. The wider profession rediscovers this point roughly once a decade, each time with an air of surprise, and there is by now a conference circuit devoted to the rediscovery.
Block and Somers add a further, more pointed observation about why market fundamentalism, as they call the belief that the freest possible market always produces the best outcome, has proved so durable an idea across four decades of visible, repeated failure: financial crises, deregulated markets producing monopoly rather than competition, deregulated banking producing the 2008 collapse rather than efficient allocation of capital. Their explanation is that market fundamentalism functions as what they call a closed loop of causal reasoning, structurally immune to disconfirmation. If a deregulated market produces a good outcome, this is offered as proof that deregulation works. If a deregulated market produces a bad outcome, a banking collapse, a monopoly, a bubble, this is explained instead by pointing to whatever regulation, however minor, remained in place, or to some other lingering distortion introduced by government, never by the deregulation itself. Either result, in other words, confirms the theory, which means the theory is very hard to lose an argument with and correspondingly hard to test against the world in the way a scientific claim should be testable. This is a serious methodological charge, not a rhetorical one, and it sits squarely beside the parallel charge against the Austrian School, whose own hostility to empirical testing has hardened in places into an equally unfalsifiable creed. Both traditions, on this reading, are vulnerable to the same intellectual vice: a story elegant and self-confirming enough that no observation could ever, even in principle, be allowed to count against it.
Block and Somers's most striking piece of evidence for how a mistaken idea about markets can quietly govern policy for centuries concerns a small, specific historical episode: the Speenhamland system of poor relief, adopted by magistrates in Berkshire in 1795 and subsequently spread across much of rural England. Faced with wartime grain price inflation that was pushing agricultural labourers toward starvation, the Berkshire magistrates devised a scheme that supplemented low wages with a cash allowance tied to the price of bread and the size of a labourer's family, administered through the parish poor rate. It was, whatever its faults, a genuine attempt to keep working families from starving without abolishing wage labour altogether. Thomas Malthus, and later the royal commissioners who investigated the Poor Laws in 1834, told a very different story about what Speenhamland had done: that by guaranteeing a minimum income regardless of how little a labourer earned, it had destroyed the incentive to work, encouraged early and improvident marriage, driven down wages generally as employers exploited the subsidy, and produced exactly the demoralised, dependent, idle poor that the system had supposedly been designed to protect. This account became the intellectual justification for the New Poor Law of 1834, which replaced outdoor relief with the deliberately harsh and humiliating workhouse system, on the theory that only the fear of the workhouse could restore the poor to honest labour.
Block and Somers, drawing on decades of subsequent historical research, show that the case against Speenhamland rested on remarkably thin evidence: the royal commissioners had, in large part, gone looking for testimony that confirmed a conclusion reached in advance and duly found it, relied on a small number of self-interested or ideologically motivated witnesses, and ignored or downplayed evidence that the system had, in the places it actually operated, kept desperate families fed without producing the moral collapse the story predicted. The economic historian Mark Blaug, working through the parish records decades later, found that wages and poor-relief expenditure varied enormously across the counties that had adopted some version of the Speenhamland scheme, with no consistent relationship at all between the generosity of relief and the supposed indicators of moral collapse, illegitimacy, idleness, or falling wages, that Malthus and the commissioners had confidently predicted. Yet the story proved extraordinarily durable, not because it was well supported but because it told the audience that mattered exactly what many of them already wanted to believe: that generosity toward the poor is self-defeating, that relief corrupts character, that the market, left to discipline the poor through hunger, produces better outcomes than compassion does. Block and Somers trace the same story, told in strikingly similar language, reappearing almost two centuries later in the American welfare-reform debates of the 1990s, where the claim that welfare payments bred dependency, illegitimacy, and idleness drove the Personal Responsibility and Work Opportunity Act of 1996, again resting on evidence considerably thinner than the confidence of its proponents suggested. It is a sobering case study in how a piece of bad social science, patiently repeated across two centuries by people who found it convenient rather than proven, can quietly and durably shape the treatment of the poorest members of a society, largely because nobody with the standing to be heard bothered to check the original claim against the original evidence.
The same critical instrument, applied directly to Tupy and Pooley's Superabundance, yields a specific and, I think, fair set of objections rather than a blanket dismissal. The time price is a useful instrument, wielded throughout with the brisk good cheer of men who already know how the sums will come out, and it is applied, in all fairness, to exactly the kind of goods that markets are best in the world at making cheap: manufactured commodities, agricultural staples, industrial metals, energy, the tradable stuff that responds well to competition, substitution, and economies of scale. But a measure that only looks where markets shine will only ever report that markets shine, and the book is conspicuously quiet about the goods that have in fact grown punishingly dearer, measured in exactly the hours-of-labour terms the authors otherwise favour, across the very two centuries being celebrated: housing in the cities where the jobs actually are, which in many rich-world metropolises now consumes a share of a young worker's income that would have appalled a mid-century economist; healthcare, whose costs in the United States in particular have outpaced wage growth for decades; the years of unpaid or underpaid schooling and childcare a family must supply before a young person becomes economically productive at all; and a stable climate, which no wage has ever bought, because nobody sells it, since the atmosphere is not owned by anybody and therefore has no price to fall in the first place. A measure that is silent about the very things it was never built to see cannot fairly claim to have taken the full measure of a life's costs, however meticulous its arithmetic within its own chosen boundary.
There is a second, subtler problem, one that concerns not what the book measures but what it infers from the measurement. Tupy and Pooley treat the correlation between rising population and falling time prices as though it settled the causal question in Simon's favour: more people, more inventors, cheaper resources, therefore population growth causes abundance. But the two centuries in which this correlation holds are also, not incidentally, the two centuries of fossil energy, a historically unique and, on any honest reckoning, temporary draw on an enormous stock of stored solar capital laid down over hundreds of millions of years and burned in a geological eyeblink. A great deal of the cheapening the book documents, the falling time price of food, of transport, of manufactured goods, was purchased in substantial part by that one-off draw on stored carbon, and the bill for that draw is now arriving in the form of a warming atmosphere and a thinning biosphere, costs the time-price framework has, by its own construction, no column in which to record. This does not mean the book's data are wrong. It means the inference drawn from the data, that population growth reliably and by itself causes abundance, mistakes a correlation specific to one extraordinary energy regime for a timeless law of human ingenuity.
The third objection is the most fundamental, and it concerns the rhetorical move at the very centre of the book's argument rather than any particular number in it. From the true and well-documented observation that many priced, tradable goods have grown cheaper over two centuries, Tupy and Pooley leap to describing the planet, without qualification, as infinitely bountiful. That is not a measurement. It is a metaphysical claim dressed in the clothing of an empirical one, a leap from is to is-forever that no amount of historical price data, however painstakingly assembled, can actually support, since a graph showing that copper has grown cheaper for two hundred years is a description of the past, not a guarantee about the atmosphere, the ocean, or the next two hundred years. A yardstick proves nothing about the lengths it was never laid against, and calling a genuine and important finding about tradable commodities by the name superabundance, with its implicit promise that this covers the whole of what a human life requires, is closer to an act of faith than an act of measurement.
What kind of optimism this actually is
Hayek, Mises, Schumpeter, and Simon were not promising that things would get better. They were making a comparative claim about a mechanism rather than a destination. This comparative claim can be, and often is, true even when the process it describes produces real and serious costs along the way, costs its own champions did not shy away from naming: Schumpeter's destroyed livelihoods, an admission built into the very phrase creative destruction rather than smuggled past it; Hayek's frank acknowledgment that a market economy produces significant inequality of outcome, which he defended not by denying it but by arguing that any attempt to correct it centrally would recreate the knowledge problem in a different guise; Simon's near total silence on anything that cannot be bought and sold, an omission his critics are right to call an omission rather than a rebuttal.
Notice, too, how differently each of these thinkers arrived at roughly the same policy conclusion, because the differences matter for how much weight the conclusion can bear. Hayek's optimism is essentially epistemic: markets win because they process information better than any known alternative, a claim that says nothing directly about human character and was never meant to flatter it. Schumpeter's optimism, if it can even be called that without qualification, is temperamental and tragic: capitalism works because a certain restless, disruptive human type keeps reinventing it, and that same success will eventually smother the type that built it. Mises's is closer to a claim of pure logic: planning cannot calculate, full stop, a claim that would hold even if planners were angels. Simon's is closer to an article of faith in human fecundity: more minds simply means more solutions, a claim that depends, whether its author fully admitted it or not, on optimism about human beings in a much more direct and unguarded sense than Hayek ever risked. These are not four versions of the same argument. They are four different bets, arrived at by four different routes, which happen to converge on broadly similar policy conclusions, and a reader who treats them as interchangeable, as the phrase free-market economics tends to invite one to do, loses exactly the distinctions that make the tradition worth studying seriously rather than dismissing as a single undifferentiated ideology.
One further thread connects these thinkers, and it bears on a habit of mind rather than a policy conclusion. Schumpeter made an observation, tucked into his account of the entrepreneur and usually passed over: that the surplus a genuine innovation creates for the world at large, the railway that lets a farmer reach a distant market, the bicycle that gives a factory worker two extra hours of daylight leisure, the container ship that makes a toy manufactured in one hemisphere affordable to a child in another, the smartphone that puts a reference library in a labourer's pocket, generally dwarfs whatever the innovator himself manages to keep for his trouble. Most of the value a genuine invention creates escapes its inventor entirely and disperses itself among millions of strangers who will never know his name, let alone thank him for it. The entrepreneur, on this account, however self-interested his motive, however much he may resemble the caricature of the greedy capitalist his critics like to draw, tends in practice to end up mostly a benefactor to people he will never meet, simply because he cannot capture more than a sliver of the total value his invention creates before competitors, imitators, and falling prices give the rest of it away to the public for free. The economist William Nordhaus once tried to put a number on the sliver, estimating from postwar American data that innovating firms capture only a small fraction of the total social value their innovations create, on the order of a few percent, with the remainder leaking away to consumers. In any other line of work a leak on this scale would be reported as a disaster; here it is the entire case for the defence. The figure is an estimate and should be held loosely, but the direction of the finding is not seriously disputed. This idea sits closer to an observation about trade between strangers than to any simple celebration of profit as such, and it echoes the case the data optimists make for the extraordinary and largely unheralded cooperation embedded in ordinary commerce between people who share no language, no religion, and no acquaintance, only a transaction.
Deirdre McCloskey, a defender of markets from an unusual angle, came to her own position by an unusual route. Trained at Harvard and installed for over a decade at the University of Chicago, the very citadel of the price-theoretic, mathematically rigorous economics that Friedman had helped build, she made her early academic name doing exactly that kind of work, cliometric studies of Victorian British trade patterns, before turning, in her 1985 book The Rhetoric of Economics, to argue that her own profession's writing was every bit as shot through with metaphor, storytelling, and persuasion as the poetry and history departments economists liked to look down on, and that pretending otherwise, dressing plain rhetorical argument up in the borrowed authority of equations, had actually impoverished the discipline rather than sharpened it. The bourgeois trilogy that followed over the next decade, The Bourgeois Virtues, Bourgeois Dignity, and Bourgeois Equality, pressed the same instinct onto economic history itself, across the better part of two thousand pages, thrift being one bourgeois virtue she was prepared to forgo: the puzzle of why sustained, compounding economic growth began in one particular place, northwestern Europe, at one particular moment, around 1800, after millennia in which most human societies had oscillated within what economic historians call a Malthusian band, incomes rising a little in good decades and falling back in bad ones, never escaping a rough multiple of bare subsistence. Her answer proceeds by elimination as much as by assertion. Capital accumulation cannot have been the cause, she argues, because thrift is ancient and universal: medieval peasants saved, Roman merchants invested, Chinese landlords compounded their rents, and no amount of routine accumulation had ever produced more than routine growth, which is why she regards the very word capitalism, with its suggestion that piled-up capital did the work, as a misnomer for what happened. Institutions alone cannot have been the cause either, since secure property, enforceable contracts, and functioning courts existed in many times and places, imperial China and the Roman Mediterranean among them, without ever producing ignition. What was new in northwestern Europe in the eighteenth century, on her account, was a revaluation of a class of people: ordinary commoners were granted the liberty to have a go, as the English idiom puts it, and, for the first time in recorded history, a measure of dignity while they went. The engine she credits is not capital but what she calls trade-tested betterment, new ideas submitted to the ordeal of paying customers, and the fuel is nothing more mysterious than what a society is prepared to say at dinner about a man who has opened a shop. Other historians have offered other answers to the same puzzle, and it would be dishonest to pretend McCloskey's account is the only one on the table. Robert Allen has argued the crucial ingredient was a peculiar British combination of high wages and cheap coal, which made it profitable, in a way it was not elsewhere, to invest in labour-saving machinery. Joel Mokyr has argued for the slower, deeper effect of the Industrial Enlightenment, a growing cultural respect for useful, applied knowledge that connected the workshop to the laboratory in a way earlier societies had never quite managed. Kenneth Pomeranz and the California school of historians have stressed how much of the divergence between Europe and an economically comparable China was down to contingent accidents of geography and empire, coal seams conveniently near the surface, colonies supplying raw cotton and sugar, rather than anything unique in European values or institutions. McCloskey's answer sits alongside these rivals rather than refuting them outright, and the honest position is that economic historians have not settled the question and may never fully settle it. What McCloskey's account adds, whether or not it turns out to be the whole explanation, is the reminder that the libertarian wager was never purely a matter of getting the incentives and the information right. It was also, from the start, a wager about what kind of person a society is willing to hold up as admirable, and prices alone have never decided that.
A closing without a false resolution
It would be tidy to end with a verdict, optimists vindicated or optimists overreached, and tidiness is exactly what the material does not support. The honest conclusion, after this tour through Vienna and Chicago, through Berkshire poor-law records and Cato Institute time-price tables, is that the libertarians and their sharpest critics are very often arguing past each other, because they are answering different questions and mistaking each other's answers for a refutation of their own. Neither side has allowed this to slow it down.
One question, the one Hayek and Mises and, in his own more restless way, Schumpeter were asking, is whether free exchange under a price system outperforms deliberate central planning at the specific task of discovering and allocating whatever can be priced: raw materials, manufactured goods, labour, capital, the countless local facts of supply and demand that a planning office can never fully gather. On this question the historical record, culminating in the visible, total collapse of Soviet central planning, weighs heavily, and in my judgment decisively, in the libertarians' favour. Nobody who has looked squarely at the empty shelves of a planned economy and the full ones of a market economy, forty thousand items deep, replenished by nobody's order, can pretend this is a close call.
The other question, the one Polanyi and Block and Somers were asking, is whether everything that actually matters to a human life, not merely the goods that happen to be tradable, can be captured in a price at all: a home in the city where the work is, care for a dying parent, a childhood free of preventable illness, a climate stable enough that a grandchild inherits a habitable planet rather than an actuarial problem. On this question the honest answer, on the plain evidence of housing costs, healthcare costs, and a warming atmosphere that no market transaction has ever priced correctly because no market transaction can, is plainly no. These are not the same question wearing different clothes. They are different questions, different in kind, and a great deal of the noise in this argument, on both sides, comes from treating a decisive answer to one as though it settled the other. Put the two questions back into the language of the wager and the shape of the whole dispute becomes visible at once. The libertarian bet is that decentralised ingenuity, left free, will outrun centralised caution, and on the track where prices run, it demonstrably has. The critics' rejoinder is that the race is only ever run on the track that prices can see, and that everything off that track, the unpriced, the unowned, the unsaleable, is quietly treated as though it did not exist. Both statements can be true at once, and on the evidence, both are. That is precisely what makes the argument so durable, and so bad-tempered.
Return, once more, to the supermarket on its ordinary Tuesday, because it turns out to hold both answers at once, if you look at it the right way. The forty thousand items on the shelves are the triumph the libertarians are right to claim: an unplanned, leaderless system of prices that gets bananas from a Costa Rican hillside to a shopper's basket more reliably than any ministry ever managed to get bread to a Soviet queue. But walk out of that supermarket and into the surrounding neighbourhood, and the second question reasserts itself immediately and without mercy. Whether the family doing that shopping can afford the flat above the shop, whether the elderly woman two aisles over can afford the medicine she also needs this week, whether the container ship that carried the bananas across an ocean did so while adding, invisibly and without charge to anyone, a little more carbon to an atmosphere none of the parties to the transaction owns or prices, none of that is settled, or even addressed, by the fact that the shelves are full. The fullness of the shelves is real. It is also not the whole of the story, and a shopper who mistakes it for the whole of the story has stopped at the till instead of walking the rest of the way home.
The harder and more honest work left to any society, having granted the price system its due, is the case-by-case labour of deciding which parts of a good life should be entrusted to that mechanism and which parts should not, a question no economist of any school, Austrian, Chicago, or Polanyian, can finally answer on the rest of us, though several have offered. It is a question for citizens, argued out repeatedly and never quite settled, which is not a design flaw in the argument but very possibly the most honest thing that can be said about it.