I felt that Gordon’s rebuttal of Free Market Madness was a bit weak. I have not read the book, but based on Gordon’s description, it seems that FMM argues that the free market is good but, since people are bad at deductive, probabilistic and other kinds of reasoning, they cannot be fully trusted with freedom of exchange (but a special class of these poor reasoners can be trusted with freedom to regulate and “oversee”). In short, people are not rational because they are bad at many kinds of reasoning.
I think Gordon could have made a much stronger critique of the book from the fact that deductive skills and probabilistic reasoning skills are not required for the free market to work. The author has played a trick of language, in essence, by confusing economic rationality (self-interest) with other kinds of rationality. Self-interest, as far as we know, does not even require an objective or accurate picture of the physical world. We cannot perceive ultrasonic sounds or infrared colors (our perceptions of the physical world are incomplete), we can experience all kinds of illusions ranging from bad eyesight to synesthesia (the perceptions of the physical world we do have can be grossly inaccurate), we cannot prove most mathematical truths (Chaitin’s incompleteness), etc. Notwithstanding all these limitations, we are as capable of acting rationally (acting in our self-interest) as any of the humbler creatures.
In fact, evolutionary biology assumes self-interestedness (rationality). Each creature on this planet is clawing at the resources in its niche in a way that maximizes its reproductive success. Those creatures who are not fail to pass on their lackadaisical genes. Similarly, there is nothing about the free market that presupposes intelligence, deductive capacity, probabilistic reasoning ability or any other academic metric of human achievement. Perhaps people are over-educated, perhaps there is too high a level of specialized, academic knowledge. Who knows? If freed from the threat of state violence, people will find the right level of deductive, probabilistic and other reasoning capabilities. But people will always act in an economically rational way because those who do not will fail to pass along their genes.
Clayton -