Former New Jersey attorney general John Farmer Jr. wrote an op-ed inlast Sunday's Star Ledger ("A culture that doesn't think values are worth the effort") that is obtuse and factually incorrect. In his essay Mr. Farmer states the "In business it [skepticism]has led us to abandon the idea that anything has intrinsic value in favor of a dogmatic belief in the free market." Huh? There is no "intrinsic value" in society. As the Austrian economist Ludwig von Mises observed: Value is not intrinsic, it is not in things. It is within us; it is the way in which man reacts to the conditions of his environment. Neither is value in words and doctrines, it is reflected in human conduct. It is not what a man or groups of men say about value that counts, but how they act.
Consumers determine the value of a good or service by their actions. The venerable law of supply and demand sets prices in the marketplace. In the free market, consumers rule, not business, not labor unions, not politicians, and certainly not lawyers.
When we observe so-called market failure in society, it is because government intervention has created moral hazards. The current financial meltdown is a prefect example of this phenomenon. Unfortunately, Farmer and the critics of the free market ignore the government's role in creating the housing bubble that has led to the biggest bust in American history.
Instead, Farmer compounds his muddled view of the market economy by asserting that "self- interest" has failed "with catastrophic economic consequences worldwide. Huh? To "prove" his point Farmer quotes Alan Greenspan, the former chairman of the Federal Reserve, who recently stated that the failure of "self-interest" by the managers of the lending institutions to protect shareholders' equity has caused him to change his view of how the business world works.
Self-interest drives civilization. From the basement inventor to the Peace Corps worker to the community organizer to the high powered executive to the self employed entrepreneur, individuals engage in pecuniary actives or in what some may call "selfless acts" that reflect their values, that is, their self-interest. Unless people are forced by the government to act in ways they would not otherwise, everyone–even people are work for charities and religious institutions– are acting in their self-interest. In short, self-interest broadly defined means everyone participates in professions or activities that give them the most satisfaction.
Back to Alan Greenspan who won kudos as the "Maestro" and supposedly guided the U.S. economy for nearly two decades as head of the Federal Reserve. In reality Greenspan caused back-to-back bubbles with his easy money policies of the 1990s and in this decade. Money manger and MSN.com commentator William Fleckenstein chronicles Greenspan's performance in Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve. Read it Mr. Farmer.
Fleckenstein's detailed analysis of the Greenspan Fed is a sweeping indictment of central banking and interest rate manipulation. Fleckenstein also cites the mendacity of Greenspan and his supporters in the financial world, the Congress and the media. Never have so many people been wrong about an issue than the sycophants who made fawning comments about the Fed's easy money policies and still hold Greenspan in such reverence.
To further compound his errors Farmer asserts that the medieval Catholic notion of just price is based on "objective" value. Farmer claims that the just theory of price argues that the cost of production plus a small profit was advocated by scholastic philosophers like St. Thomas Aquinas. However, Murray Rothbard writes in Volume I of his history of economic thought: "…there are many indications that Aquinas adhered to the common view of the Churchmen of his and previous times that the just price was the common market price." In other words, the just price is what a buyer and seller agree to in the marketplace.
As freelance writer and accounting instructor Laurence Vance points out: It would be left to the Thomistic Spanish Scholastics of the sixteenth-century to emphasize that there was no objective way of determining price. The jurist Francisco de Vitoria and his disciples in the School of Salamanca maintained that price was simply based on supply and demand, without regard to labor costs or expenses. The inefficiency of producers, the misfortune of speculators, and any other negative consequences of incompetence or bad luck were to be borne by sellers and buyers alike. Even the seller of luxuries, superfluities, and frivolities could, in the absence of "fraud, deceit, or coercion," accept any price that a buyer was willing to pay. Contrary to Jean Gerson, chancellor of the University of Paris, who had earlier "suggested that price fixing be extended to all commodities, on the ground that no one should presume to be wiser than the lawmaker," followers of the School of Salamanca like Martin Azpilcueta and Luis de Molina "opposed all price regulation because it was unnecessary in times of plenty and ineffective or harmful in times of dearth."
Where Farmer gets the idea that the scholastics were advocates of the view than costs determine prices is a mystery when the historical record is as clear as can be. As an attorney Farmer's "case" against the free market is wanting at best and disingenuous at worst. Farmer needs to immerse in the writings of Mises, Hayek, Rothbard, Bastiat, Hazlitt and others, otherwise his credibility as pundit leaves much to be desired.