Thus far the typical libertarian response to the growing clamor has been to challenge the science behind it. Now it really is the scientific consensus that global warming occurred during the twentieth century. What is not so obvious is that (1) humans caused this warming and (2) this warming is necessarily bad.

Although it is interesting to explore the question of whether science has been perverted in the cause of environmentalism, there is a danger for libertarians in pinning their entire case on this strategy. After all, every serious student of science knows that when it comes to empirical claims, we never achieve certainty. For example, even if today one thinks that there are insurmountable problems facing the theory of manmade global warming, one still must accept the possibility that new evidence or theoretical advances could indicate that the environmentalists are perfectly right. Another possibility is that there is some other, similar disaster lurking unsuspected.

For these reasons, I believe it is crucial to accept provisionally, for the sake of argument, the scientific claims behind the case for manmade global warming. In the present article I will demonstrate that it still would not follow that the taxes and other regulations typically proposed by greens are the best way to address the problem. Just as the free market is still the optimal economic arrangement, regardless of how many citizens are angels or devils, so too does the free market outperform government intervention, regardless of the fragility of Earth’s ecosystems.

When trying to determine if the free market is to blame for possibly dangerous carbon emissions, a logical starting point is to list the numerous ways that government policies encourage the very activities that Al Gore and his friends want us to curtail.

The U.S. government has subsidized many activities that burn carbon: it has seized land through eminent domain to build highways, funded rural electrification projects, and fought wars to ensure Americans’ access to oil. After World War II it played a key role in the mass exodus of the middle class from urban centers to the suburbs, chiefly through encouraging mortgage lending.

Every American schoolchild has heard of the bold transcontinental railroad (finished with great ceremony at Promontory Summit, Utah) promoted by the federal government. Historian Burt Folsom explains that due to the construction contracts, the incentive was to lay as much track as possible between points A and B—hardly an approach to economize on carbon emissions from the wood- and coal-burning locomotives. For a more recent example, consider John F. Kennedy’s visionary moon shot. I’m no engineer, but I’ve seen the takeoffs of the Apollo spacecraft and think it’s quite likely that the free market’s use of those resources would have involved far lower CO2 emissions. While myriad government policies have thus encouraged carbon emissions, at the same time the government has restricted activities that would have reduced them. For example, there would probably be far more reliance on nuclear power were it not for the overblown regulations of this energy source. For a different example, imagine the reduction in emissions if the government would merely allow market-clearing pricing for the nation’s major roads, thereby eliminating traffic jams! The pollution from vehicles in major urban areas could be drastically cut overnight if the government set tolls to whatever the market could bear—or better yet, sold bridges and highways to private owners.

Of course, there is no way to determine just what the energy landscape in America would look like if these interventions had not occurred. Yet it is entirely possible that on net, with a freer market economy, in the past we would have burned less fossil fuel and today we would be more energy efficient.

Even if it were true that reliance on the free-enterprise system makes it difficult to curtail activities that contribute to global warming, still the undeniable advantages of unfettered markets would allow humans to deal with climate change more easily. For example, the financial industry, by creating new securities and derivative markets, could crystallize the “dispersed knowledge” that many different experts held in order to coordinate and mobilize mankind’s total response to global warming. For instance, weather futures can serve to spread the risk of bad weather beyond the local area affected. Perhaps there could arise a market betting on the areas most likely to be permanently flooded. That may seem ghoulish, but by betting on their own area, inhabitants could offset the cost of relocating should the flooding occur. Creative entrepreneurs, left free to innovate, will generate a wealth of alternative energy sources. (State intervention, of course, tends to stifle innovations that threaten the continued dominance of currently powerful special interests, such as oil companies—for example, the state of North Carolina recently fined Bob Teixeira for running his car on soybean oil.)

Private insurers have a strong incentive to assess the potential effects of global warming without bias in order to price their policies optimally—if they overestimate the risk, they will lose business to lower-priced rivals; if they are too sanguine about the dangers, they will lose money once the claims start rolling in. Individuals finding their homes or businesses threatened by rising sea levels will find it easier to relocate to the extent that unfettered markets have made them wealthier. Industrial manufacturers, as long as they are held liable for the negative environmental effects of their production processes—a traditional common-law liability from which state policies intended to “promote industry” have often sought to shield manufacturers—will strive to develop technologies that minimize the environmental impact of their activities without sacrificing efficiency. Government interventions and “five-year plans,” even when they are sincere attempts to protect the environment rather than disguised schemes to benefit some powerful lobby, lack the profit incentive and are protected from the competitive pressures that drive private actors to seek an optimal cost-benefit tradeoff.

If the situation truly becomes dire, it will be free-market capitalism that allows humans to develop techniques for sucking massive amounts of carbon out of the atmosphere, and to colonize the oceans and outer space. Beyond these futuristic possibilities, the obvious responses to global warming—such as more houses with AC, sturdier sea walls, and better equipment to evacuate flooded regions—are again only feasible when the free market is unleashed.

It is the poorest people and nations that stand to suffer the most if the worst-case scenario for global warming is realized, and the only reliable way to alleviate their poverty, and thus help protect them from those effects, is the free market.

Can the Market Meet the Threat Head-On?

In the first section I summarized some of the ways governments inadvertently contribute to the very activities that allegedly cause dangerous global warming; in the second I sketched some of the ways that free markets allow humans to better adapt to climate change. However, I haven’t really tackled the problem directly. Am I conceding that with a worldwide problem the market—which is just dandy for one-on-one interactions—can’t match the concerted “will of the people” working through their elected representatives for a common solution?

Of course not. Even when economic transactions generate so-called negative externalities (activities that shower harms on third parties), I still contend that the free market is the best institution for identifying and reducing the problems.

One way negative externalities can be addressed without turning to state coercion is public censure of individuals or groups widely perceived to be flouting core moral principles or trampling the common good, even if their actions are not technically illegal. Large, private companies and prominent, wealthy individuals are generally quite sensitive to public pressure campaigns.

To cite just one recent, significant example, Temple Grandin, a notable advocate for the humane treatment of livestock, asserts that McDonald’s is the world leader in improving slaughterhouse conditions. While many executives at the fast-food giant genuinely may be concerned with the welfare of cattle, pigs, and chickens, undoubtedly a strong element of self-interest is also at work here, as the company realizes that corporate image affects consumers’ buying decisions.

But that self-interest does not negate the laudable outcome of the pressure McDonald’s has applied to its suppliers to meet the stringent standards it has set for animal-handling facilities. Similarly, to the degree that the broad public regards manmade global warming as a serious problem, companies will strive to be seen as “good corporate citizens” that are addressing the matter. And this isn’t ivory-tower speculation on my part—I can see the “green friendly” ads already.

Critics of libertarianism sometimes denigrate it as a political program of “market fundamentalism” that, if put into practice, would reduce all human values to the price they can fetch as mere commodities. But that is a caricature of the social arrangements advocated by any sensible libertarian. The great figures of classical-liberal and libertarian thought have always recognized the vital contributions that nonmarket institutions, such as churches, families, charities, social clubs, communities of scholars and their students, art foundations, conservation groups, neighborhood associations, and youth athletic leagues, make to the healthy functioning of a free society. What libertarians offer as an alternative to statism is not a social order that judges every human interaction solely on a miserly calculation of profit or loss, but a society in which every desirable form of voluntary association is allowed to flourish, free from coercive interference by the state.

Customary Law

Besides the samples listed above, most libertarians recognize private or customary law as another important, nonmarket source of social order. A historical case in point is the Anglo-American common-law tradition in which legal norms evolved spontaneously from the customs of the people to whom it applied, rather than through legislation and state planning deliberately aimed at achieving some “public good.” The many centuries during which the common law sustained civic order in the face of inevitable divergences between individual citizens’ own interests demonstrate that a successful legal order does not inevitably require state sponsorship. The common law has shown itself to be fully capable of dealing with a number of issues that, while not exhibiting the worldwide scope of global warming, are still similar to our present concern in arising from the cumulative effects of many individual actions, each of which, regarded in isolation, appears to be unproblematic and not subject to legal sanction. For instance, the salmon-fishing streams of Scotland are a valuable natural resource, and the communities along them have developed quite successful institutions for ensuring the value of the streams is maintained, including private policing and legal penalties for overfishing and for polluting the water.

The many cases in which voluntary solutions to problems of collective choice have worked pose an empirical embarrassment for those who argue that “public goods” must be provided by the government. Most advocates of compulsory solutions to pollution abatement, for example, would assert that voluntary efforts will be vitiated by “free riding.” If individuals are not forced to contribute their fair share toward addressing these problems, this argument runs, each person rationally will hold back and hope others will pay for the proposed solution, since any free riders would gain the benefits (such as clean air) anyway. Since almost no one likes to be “the sucker,” it follows that the amount of resources devoted to the provision of the public good will fall woefully shy of the total that would be available if each person gave the amount he’d be willing to give if only he could count on everyone else pitching in equally. The sole solution that can be imagined is for the members of a society to create a “social contract” by which they are forced to pay for pollution abatement.

However, Anthony de Jasay notes in his book The State that this argument is severely flawed. If people cannot solve public-goods problems through voluntary cooperation, how can they rely on politicians’ promises to do so? There is no external authority to enforce those promises. There is only public opinion, the same thing that would enforce voluntary solutions. Moreover, government is itself a “public good” in the sense that free riders benefit from the efforts of those who try to get the government to produce public goods such as clean air.

Is Temperature a Public Good?

Another consideration is that the earth’s temperature isn’t such a public good after all. That is, certain people really do have more at stake, particularly if the warming is moderate. For example, if Manhattan became submerged because of rising sea levels, that calamity would not affect every human being equally. The residents of Manhattan and the owners of its skyscrapers would be hurt far more than people living in inland China. Because all the various potential dangers of global warming affect particular people more intensively than others, it is these groups that (in a free market) would have the incentive to reduce CO2 concentrations. For example, if rising sea levels would cause $10 trillion in damage to a comparatively small group of wealthy individuals, that’s a huge “pie” that the wealthy can offer others to motivate them to reduce emissions.

Despite my optimism about the potential to deal with environmental problems through voluntary means, I don’t wish to be misunderstood: If the official global-warming story is true, it presents a serious problem that humanity will find difficult to solve through voluntary means. But this isn’t a strike against voluntarism—of course a difficult problem will be difficult to solve! By the very same token, the government doesn’t do a terrible job at collecting stray dogs, because that’s a very simple task. When it comes to harder assignments, such as stopping terrorism or reducing teen pregnancy, the government’s record is quite a bit worse.

The very features of the official global-warming scenario that hamper purely private solutions would apply equally to government efforts. For example, even if the U.S. government passed draconian measures at home, that alone wouldn’t be enough if China and India don’t follow suit. And just as private companies in a free market may have an incentive to pollute if they can get away with it, so the state, under the influence of special-interest groups and run by leaders always tempted to ignore the public good in favor of increasing their own power and wealth, can have incentives to allow more pollution than is optimal. (It should be clear the “best” amount of pollution is not zero, because even using fire to cook generates some pollutants, and I doubt that anyone but the most misanthropic, fanatical nature worshippers want to reverse all of the last 40,000 years of human progress.)

As in all debates over public versus private choice, it’s inappropriate to measure a realistic free-market response to global warming against an idealized government program. We must try to envision what real people would do if their property rights were respected and compare that scenario with the probable outcome of actual politicians in today’s world being given a blank check in the name of saving the earth.

Government programs don’t ameliorate world poverty or sickness, and no libertarian would deny that these are serious problems. So even if manmade global warming is a real threat, why should we expect governments to get it right on this issue?

Therefore, it is vital to be able to recognize the common ways that everyday speech distorts arguments about freedom versus intervention. To that end, we offer a list of some of the most frequent “mind-benders” we’ve come across.

One firm that has often been in the sights of market critics is Wal-Mart. A common complaint is that it “drives” mom-and-pop stores out of business. In fact, what happens is that Wal-Mart opens a store and consumers choose to patronize it rather than the smaller stores they had been using. Of course, the consumers do not “force” the mom-and-pop stores out of business in any meaningful sense. (Indeed, the mom-and-pop stores are perfectly free to stay in business if they want; but most choose to close after their customers have abandoned them.) However, to the extent that anyone should be “held responsible” for their demise, it is the consumers and not Wal-Mart.

The New York Times of August 14, 2003, reports that “community opposition to building Wal-Mart stores has been vociferous.” It is no doubt true that there are many people who object to Wal-Mart’s opening a store in their area. But what does it mean to call this “community opposition”? Clearly, if no one in a community wanted Wal-Mart in town, Wal-Mart would not dream of building there. That’s not because of altruism on Wal-Mart’s part, but because it only wants to build stores in places where they will have shoppers.

Generally speaking, many people, namely those who will shop and work there, welcome a new Wal-Mart. The opposition to new stores comes mostly from two groups: those who own stores with which Wal-Mart will compete and upper-income people who prefer fancy boutiques and quaint country stores to Wal-Mart’s low prices. To call these special-interest groups “the community” severely distorts reality.

Turning our attention from Wal-Mart, we sometimes hear the claim that, while government subsidies for particular industries may be inefficient for the overall economy, at least they “protect jobs.” For example, the PBS television special The Commanding Heights noted: “Seventy-five percent of Britain’s coal mines were losing money. It took government subsidies of $3 billion a year to keep them going.” But “[t]he union leaders argued that the government subsidies were money well spent if they kept 180,000 miners at work and able to feed their families.”

As radical socialist Ken Capstick said in the program, “We were faced with an enemy, and that enemy was out to destroy our livelihoods. . . . Grimethorpe [one of the mines] had considerable reserves of coal when it was closed, plenty of work for those miners to continue to do to keep their families.”

Capstick is confused. It was not the mines but the subsidies that were allowing miners “to continue . . . to keep their families.” The mines, without the money extracted from British taxpayers, would not have enabled anyone to support a family. Simply because there is more coal in them does not mean it makes sense to keep extracting it — the huge losses indicated that the resources necessary to do so were more useful elsewhere. The acid test is this: If the mines had simply been turned over to the miners’ union, for free, the union itself would have had to shut them down. It would have been impossible and nonsensical for union members to subsidize their own “jobs.” They were, in a sense, not workers, but welfare recipients, albeit ones who happened to have had to perform certain tasks each day to receive their welfare checks.

If one thinks of a job as a useful service performed for others in order to receive services from others in return, then subsidies don’t really save jobs at all. Rather, they allow people to persist in performing actions that are now not worth the wages being asked, in the opinion of the rest of society. In a free market it would not be profitable for a firm to hire hundreds of people to dig up the beaches looking for loose change. If the government subsidized this industry, it could certainly “create jobs,” but only in the sense that it could motivate a group of people to accept paychecks. The labor, shovels, and metal detectors used in the industry would still represent wasted resources that could have been devoted elsewhere.

Income Distribution

“Income distribution” is another fishy phrase that one often hears. It implies that there is a big pile of income sitting around somewhere awaiting someone’s decision on how to hand it out. But in a market society income distribution is not a different process from income creation. If you build a piece of software for which someone pays you $1,000, the income you receive was not first created and then later distributed. No, you received the income because you created it. Although in a more complex production scheme this process is obscured, it still remains the case that each of the factors of production for a product tends to receive the portion of the proceeds from the sale of the product that it was responsible for producing.

To think that income arises on its own, with no one in particular regarding it as his income, and then sits waiting for someone to distribute it, is to completely misconstrue the market process. To see this most clearly, suppose the government imposed a policy of complete egalitarianism, and “redistributed” income so that everyone enjoyed the same level of consumption, regardless of his or her contribution to production. It is obvious that in this scenario — where brain surgeons had the same standard of living as grocery cashiers — fewer people would endure the rigors of medical school. The “total income” to be “redistributed” would shrink to virtually zero.

On the topic of income, a curious word frequently bandied about is “deprived.” For instance, the poor are described as “our most deprived.” But when we consult our Oxford American Dictionary, it defines “deprive” as meaning “to take a thing away from, to prevent from using or enjoying.” So who, exactly, has been taking things away from the poor? Who has been preventing them from using or enjoying things, except in the same way everyone else is enjoined from using things that are not theirs without asking the owner first? It is true that the poor have fewer things than others, but who has been depriving them — other than the government, which takes away 15 percent of their earnings for Social Security and Medicare, and prevents them from taking jobs paying below the minimum wage?

Bogus Deregulation

Yet another weasel word making the rounds is “deregulation.” In the majority of cases, whether it’s in banking, electricity, or telecommunications, what really occurs is not deregulation at all. Instead, a new regulatory regime is substituted for an existing one. Rather than calling it deregulation, therefore, it would be more appropriate to call it re-regulation.

It is somewhat tragic that the case for free markets is often weakened by “free marketers” who get behind one of these reregulation schemes. The new regulations inevitably produce unintended consequences, which are used by interventionists to discredit “market fundamentalism.” For example, when California electricity markets were re-regulated, allowing the wholesale price of electricity to vary while the retail price was still controlled, the result was, quite logically, a series of shortages resulting in blackouts. To someone who understands the market process, it was clear that the shortages were due to a failure to truly deregulate the electricity market. But because the re-regulation was sold as deregulation, interventionists could claim that a free market for electricity had been tried and clearly failed.

While we’re at it, may we question the accuracy of the word “regulation” itself? If the issue is phrased in this way, people naturally will favor regulation. After all, who wants an “unregulated,” out-of-control electricity industry? (One imagines thousands of megawatt hours being shipped to a spinster’s home, while the lights go out in a hospital.) Of course, what the advocate of “regulation” really means is that the government should impose its own set of directives to counteract private regulation through the market.

We should also keep in mind that the only way government regulation is achieved is through the threat of violence; that is, if the power producers fail to heed the commands of government regulators, then armed men will literally come to their houses and put them in a dungeon (or “prison” as we prefer to call it). Looking at things this way, it would be perfectly accurate to say that anyone who proposes to “regulate” the electricity market is proposing to threaten producers. But politicians would have a harder time passing “Threat Bills” or “The Electricity Violence Act” than a “regulation” proposal.

In discussions of international trade, we frequently encounter the loaded phrases “export jobs,” “fair trade,” and “dumping.” The first term, on the face of it, is simply nonsensical: Goods are exported between countries, not jobs. Even in the ostensibly worst-case scenario, where the same firm cuts manufacturing jobs in the United States and “ships” them to Mexico, what is really happening is that the firm has decided to reduce its purchases of American labor and increase its purchases of Mexican labor. If a consumer who habitually buys California wine decides to switch to French wine, he has not “exported” or “shipped” his business from the United States to France. On the contrary, we would say that he is now importing wine (not “his business”) from France.

The second term, “fair trade,” is at least coherent. However, this phrase too is a poor one, for the simple reason that the person who says fair trade really means unfair trade. President Bush recently said that he was committed to free trade, but at the same time he was committed to “fair trade.”

What does Bush mean by this? He means that, in contrast to true free trade, the United States will not eliminate all tariffs on imported goods. Instead, Bush, the so-called free trader, will maintain taxes on foreign goods that enter this country, in order to promote the competitiveness of domestic goods. Thus if a foreign firm has lower costs and can thereby make a car for less than an American firm, the federal government will step in and make the foreign car artificially more expensive. (It may also give subsidies to the American firm, which means that it forces taxpayers to give more money to the firm than they would give voluntarily.) This is what President Bush means by “fair trade”: Favored industries get subsidies while their competitors are given an artificial handicap. In the context of a baseball game, “fairness” in this sense would mean giving the home team an extra five runs and allowing the visitors only two strikes before an out.

What Gets Dumped?

“Dumping” raises the specter of other nations getting rid of a bunch of unwanted things by shipping them to the United States. South Korea, let’s say, has a few thousand broken-down refrigerators rusting in fields, so it ships them over to here to get rid of them. Now, what are we going to do with this junk?

Of course, “dumping” is nothing like this. It simply means that some foreign firm is selling goods “too cheaply” in someone else’s view. (That “someone else” is almost always a domestic competitor.) Often, the charge is backed by evidence that the foreign firm is selling “below cost.” But that is a legitimate business practice. For example, if a firm overestimated demand and produced too much of a good, selling below cost may be the best way for it to limit its losses. In any event, the term “dumping” is misleading, inasmuch as the dumpees happily purchase the inexpensive goods that the dumpers are selling. If no one wants the dumped goods, the dumping country can’t force American consumers to accept them (nor can they deposit them in someone’s back yard in the middle of the night).

When it comes to the profit-hungry capitalist pig, there is perhaps no easier target than the “corporate raider” whose livelihood consists of seeking out firms that are vulnerable to “hostile takeovers.” These are firms where the market value of the company on Wall Street (the stock price times the number of shares) is lower than the market value of the net assets of the company, at least as estimated by the raider. In this situation the heartless corporate raider (epitomized by Danny DeVito in Other People’s Money and Michael Douglas in Wall Street) executes his hostile takeover, in which he buys enough shares to gain full control of the company, then fires everybody and sells off the physical assets to the highest bidders. Often the family that founded the company and whose members put 20 years of their lives into it are left with nothing but memories and a town full of unemployed workers.

But is this description really accurate? First let’s deal with the term “corporate raider.” In what sense is the fictitious Gordon Gekko a “raider”? He is not attacking the company; he is attempting to purchase it. Can he seize the shares and hence voting rights of the previous owners? No, he has to pay them enough so that they voluntarily sell their shares.

This leads to the next term: In what sense is Gekko’s purchase of a company a “hostile takeover”? The shareholders themselves are certainly happy about the deal: That’s why they agree to it! What a “hostile takeover” really means is that the management of the company and perhaps some of the minority shareholders disagree with the decisions made, not simply by Gekko, but by the rest of the shareholders. After all, if at least 51 percent of the shareholders disagree with the schemes of the so-called corporate raider, then he is utterly powerless to “break up the company.” It is only because of the (relative) mismanagement of the company in the first place that its assets can be more profitably transferred to other companies (with better management). The corporate raider is indeed performing a useful service: He liquidates companies that are wasting scarce resources (relative to the uses other firms are making of such resources) when the existing management either will not or cannot see that this is the most profitable decision.

Other classic examples of loaded language are the terms “underpaid” and “overworked.” We read countless stories of underpaid workers, or young mothers in the labor force who are overworked. What exactly does this mean? Are these people being forced into slave labor camps? No, they willingly sell their labor in exchange for wages. Did the overworked employees sign contracts agreeing to a certain number of hours per week and then suddenly the employer changed the rules? No, this isn’t usually the issue, because then the workers would have a breached contract and could sue. Perhaps the workers are “underpaid” because employers don’t pay them the full value of their product? Again, no, this can’t be true in general, because in a competitive industry, employers will have to pay wages roughly equal to the marginal product of labor, or else lose their employees to other, higher-paying firms.

All the critic means with such terms is that he or she believes it would be a better world if hard-working people had more money, or if they could get paid the same amount while working less. Yes, we agree: It would be a better world if labor were more productive. (This is why we are in favor of capital accumulation.) We also agree that it would be better if a given batch of consumption goods could be produced with less labor. Unfortunately, our wishes don’t translate into technological reality. In a competitive market (one free of government and violent union distortion), workers are paid in accordance with their marginal productivity (at least as far as entrepreneurs an correctly estimate it). Rather than call someone “underpaid” we could just as easily label him “underproducing.”

We could go on citing more examples, but,you get the idea. All too often a bias toward state intervention in the economy has been embedded in the way we talk. Unless we can clear away the fog of faulty language, those we are trying to convince will never see the true nature of interventionism.

Reviewed by Pierre Lemieux

In his latest book, Open Society, retired billionaire speculator George Soros continues to argue against capitalism and its justification in economic theory. The book doesn’t put a dent in capitalism, but shows that billionaire financiers don’t necessarily understand the first thing about economic systems.

Soros opens with an indictment of the concept of equilibrium. In the real world, equilibrium is compromised by what Soros calls “reflexivity.” Reflexivity (“the cornerstone of my conceptual framework”) refers to the fact that people’s opinions about social phenomena affect those very phenomena. All knowledge is therefore imperfect, and all social events unpredictable, he concludes.

The first problem is that Soros’s theorizing is confused. “Our thinking guides us in our actions,” he writes, “and our actions have an impact on what happens.” The actions of all individuals certainly have an impact on social reality, but a single individual can safely take the environment as given when making his own plans. The price of tomatoes depends on all individual demands, but an individual buyer can take prices as fixed. In cases where one individual’s actions influence another’s, strategic behavior (taking into account other people’s reactions) becomes rational, but this does not imply that the system is unstable. “Reflexivity” is much ado about nothing.

Secondly, Soros does not seem aware that many economists—the Austrians foremost among them—have developed similar critiques against orthodox neoclassical economics. Ludwig von Mises, Murray Rothbard, and Israel Kirzner, among others, have attacked the concept of equilibrium and showed the importance of entrepreneurship in market processes. It is because social reality depends on what people think that economists try to trace the unintended consequences of individual actions. Consider another example of Soros’s ignorance: “The idea that some values may not be negotiable is not recognized,” he writes about economic theory, “or, more exactly, such values are excluded from consideration.” This is patently false. Any “value” can be included in individual preferences. And when private property rights are recognized, anybody can decide that something belonging to him is not negotiable.

Criticizing the Efficient Market Hypothesis (the theory that financial prices incorporate all available information), which he confuses with rational expectations in general, he admits: “I never studied it. I dismiss it out of hand because it is so blatantly in conflict with the concept of reflexivity.” It is true that this theory doesn’t account for the entrepreneurial behavior of speculators who look for, and jump on, new information and, by acting on it, actually incorporate it in market prices. Like Mr. Jourdain speaking prose without knowing it, Soros has been a Kirznerian entrepreneur helping to stabilize financial markets through his contrarian speculation.

Soros believes that central banks regularly save developed countries from depressions, and that a similar institution is required at the world level. He proposes the creation of the “Open Society Alliance,” a new state association that would aim at coordinating existing international organizations. Like all statists, he envisions only benefits from this further centralization of power and sees none of the dangers.

The thrust of the book is an argument in favor of the “open society” and against capitalism. Soros takes capitalism to mean “the unbridled pursuit of self-interest,” while it is actually a specific set of institutions that channels self-interest toward efficient social cooperation. He defines the muddled concept of “open society” as a one where there is no monopoly on truth, but he wants state coercion to impose his own ideas, “social justice” included.

Soros deems “market fundamentalism” more dangerous than communism for the “open society,” because free-market ideas appear everywhere triumphant. This would be good news if it were true—that is, if the state had not grown virtually nonstop during the twentieth century. Soros even sees a “dismantling of the welfare state” from 1980 on, which is not borne out by official statistics. And who are these “market fundamentalists”? He cites Milton Friedman twice, and F. A. Hayek once, mistakenly identifying the latter with the Chicago School. He doesn’t seem to know the real market radicals—people like David Friedman or Murray Rothbard—much less understand them.

By backing his opinions with his money, Mr. Soros is tilting the playing field to his side. What about the “level playing field” that pops up in his discourse? Not for him, it seems. Of course, he has the right to express his opinions, but not to use state coercion to dictate how we live our lives. This is what his espousal of all politically correct causes amounts to.

“Not many people,” Soros writes with his usual good-heartedness, “share my predilection for identifying error, and even fewer share my joy in finding it in themselves.” Let him now seize the opportunities for intellectual joy as efficiently as he seized profit opportunities in correcting market errors.

Pierre Lemieux is an economist, author, teacher, and consultant.

In The Crisis of Global Capitalism, Soros rails against what he calls “market fundamentalism,” or the belief that “the common interest is best served by allowing everyone to look out for his or her own interests and that attempts to protect the common interest by collective decision making distort the market mechanism.” This dogma, he asserts, “has rendered the global capitalist system unsound and unsustainable.”

His proposed response to the present peril: “To stabilize and regulate a truly global economy, we need some global system of political decision making. In short, we need a global society to support our global economy.” Specifically, Soros recommends the creation of an International Credit Insurance Corporation, which would add up-front guarantees of foreign loans to the IMF’s current post hoc mop-ups.

To assert as Soros does that the world today is in the grip of “market fundamentalism” reveals a profoundly distorted view of events. Where are the governments today that toe a strict laissez-faire line? Where even are the opposition parties of any size that do so?

Certainly the world has moved in leaps and bounds toward more market-oriented policies over the past couple of decades, but look who has led the charge—in China, Deng Xiao-ping, a committed Communist; in India, P. V. Narasimha Rao, a product of the Congress Party that instituted Soviet-style central planning there; in Argentina, Carlos Menem, a Peronist; in Peru, Alberto Fujimori, an agricultural engineer and ideological cipher; and so on and so on. Yes, there have been reformers who made their case in ideological terms—Ronald Reagan, Margaret Thatcher, Vaclav Klaus—but they have been exceptional. By and large, the worldwide rediscovery of markets has been guided by pragmatism—a rejection of the failed dogma of collectivism in favor of something, anything, that works.

And, of course, the move toward market-oriented policies still has a very long way to go. Although collectivism may have perished as a living ideal, government interventionism remains a huge and distorting presence in the world economy. Market forces enjoy nothing like the unchallenged ascendancy that Soros claims for them; rather, they must contend with, struggle against, and slip through the loopholes of a massive and overextended public sector.

It is this uneasy coexistence between markets and statism that is the true source of instability in the global economy today. And oddly enough, Soros is not blind to this fact. The author frequently acknowledges how misguided interventionist policies—including unsustainable currency pegs and moral hazard-infected financial systems—led to the recent crises in Asia. Nevertheless, Soros urges, as a response to those crises, the creation of another layer of moral hazard in the form of international credit guarantees. Talk about the triumph of hope over experience!

Soros’s hostility to markets stems from his theory of “reflexivity”—which boils down to the common-sense observation that sometimes people act not because of what they think, but because of what they think other people think. In financial markets, this phenomenon can cause herd behavior, which in turn can cause bubbles and panics.

Let’s admit that all this is true. But what of it? The question isn’t whether markets are perfect; it’s whether markets and competition generally and in the long run work better than centralized bureaucratic control. The fact is that markets do sometimes overshoot, but there are limits: bubbles eventually burst, and panics subside. When a market trend begins to look precarious and unsustainable, there are enormous incentives—namely, the prospect of making a killing—to buck that trend and bring it down. George Soros should know: he’s made billions that way.

What are the equivalent feedback mechanisms that restrain and reverse the mistakes governments make? Are they as effective and reliable as those of the market? Let’s see what Soros himself has to say:

[M]arkets have a way of correcting their excesses; bull markets are followed by bear markets. Representative democracy seems to be less successful in this respect. It is true that governments and legislatures are regularly replaced by the electorate; that is how the system is designed. But democracy seems incapable of correcting its own excesses.

Well, well. If Soros would only take his own words to heart, he would see that opposition to his interventionist nostrums need not be a matter of dogmatic “fundamentalism.” Simple realism is all that’s required. Meanwhile, it is the continued recourse to government interference which requires blind faith that somehow, this time, it will succeed.

Brink Lindsey is director of the Center for Trade Policy Studies at the Cato Institute.