THE STATE OF EQUILIBRIUM: Historical Antecedents of Suppl!

Side
Econo"ics# in t$e Austrian Sc$ool % &art '
Supply-side economics treats all taxation as a distortion of the free market economy because
they amplify the re-distributive role of the State (just as detrimental welfare effects of capitalist
industry are seen as externalities instead of internalities) !ere is the first instalment of a
much lar"er study # am conductin" on the !obbes-Smith-Schopenhauer-$ohm$awerk-%iet&sche-
'eber-!ayek-Schumpeter theoretical "enealo"y and( on the other side( on the )ousseau-
)icardo-!e"el-*arx-+enin-,eynes line 'ish me luck-
#n classical and neoclassical economic theory the capitalist economy was seen as founded
entirely on the operation of the self-re"ulatin" market #t was the market which( by assumin"
the formal e.uality of all economic a"ents( ensured the orderly( balanced( e.uilibrium (also in
/erman( /leichwichti"keit 0e.ual-wei"ht1) of the economy by allowin" the e.ui-valence of
producers1 supply with consumers1 demand #n this institutional universe( "rowth was seen as a
.uantitative phenomenon reliant on the hori&ontal expansion of the market 2he factors of
"rowth were seen as external data or disturbances (Storun"en) that could jolt the economy
out of its e.uilibrium but only temporarily #mplicit in this vision of e.uilibrium was the
assumption that the market price mechanism would ensure the return of the economy to the
pristine state of e.uilibrium with optimal allocation of resources which is what made the
market mechanism self-re"ulatin"
3ven scientific-technolo"ical processes were interpreted as exo"enous factors( as independent
and autonomous pro"ress extraneous to the functionin" of the capitalist economy and therefore
outside the purview of economic analysis
4lassical 5olitical 3conomy had stressed the .uantitative importance of wealth-creation by
focusin" on the subservience of the market to the process of production and distribution of
objective (yet ultimately metaphysical6essentialist) value in the classical labour theory of value
$ut the neoclassical revolution shifted the focus of economic en.uiry even further away from
the sphere of production by substitutin" value with the subjective exchan"e of endowments
throu"h the market mechanism that alone( by definition (tautolo"ously( in !ayek1s definitive
analysis) ensured the optimal allocation of these endowment6resources accordin" to
(metaphysical) mar"inal utility
2he formal le"al e.uality of market participants and the effectiveness of the market price
mechanism to indicate their free consumer choices allowed the homolo"ation of the 3conomic
(scientific-technolo"ical 7ivilisation reflected in the productive process and its division of labour)
with the 5olitical (the e.uitable allocation of value-resources throu"h the self-re"ulatin" market)
2his homolo"ation was the supreme social synthesis of 5olitical 3conomy and the e.uivalence
of its +aw of 8alue whereby market prices ensured that the values produced were cleared in
the market and allocated optimally to its participants
#t was also the foundation of the political philosophy of liberalism whereby the neutrality of the
State of +aw ()echtsstaat or 0ni"ht-watchman state1) restricted its political functions to
"uaranteein" the individual property ri"hts of its bour"eois members as the basis of free
competitive exchan"e in the (therefore) 0self-re"ulatin"1 market and to preserve the freedom of
expression and faith of its citi&ens
2he market was self-re"ulatin" and therefore in a state of e.uilibrium so lon" as the property
ri"hts or endowments of its free competitive participants and( as a corollary( free competition(
were respected and protected for the simple reason that the market mechanism with its free
competition would then ensure the settlement of the exchan"e of endowments at market-
clearin" prices
9ssumptions: pre-State le"al ri"hts and apportionment of property ri"hts to new
production6contribution 4iti&ens seen as individuals both in their psycholo"ical subjectivity
as expressin" free will (an assumption shaken by psycholo"ical and psychoanalytic as well as
ethno"raphic and sociolo"ical research) and( more important( in their productivity re"ardless of
the obvious fact that these individuals are necessarily linked throu"h the division of labour (a
fact that is pivotal to *arx1s 0criti.ue1 of 5olitical 3conomy) (9 corollary difficulty is the State1s role
in that part of the division of labour that provides educational services to individuals for the
purpose of later joinin" the labour market)