Peripatetics
The Market Doesn’t Ration Health Care
by Sheldon Richman
March 2009 • Volume: 60 • Issue: 2
Health care “reformers” say they have two objectives: to enable the uninsured and underinsured to consume more medical services than they consume now and to keep the prices of those services from rising, as they have been, faster than the prices of other goods and services. Unfortunately, Economics 101 tells us that to accomplish those two things directlyincreased consumption by a select group and lower pricesthe government would have to take a third step: rationing. The reformers are disingenuous about this last step, and for good reason. People don’t like rationing, especially of medical care.
But some defenders of government control acknowledge that rationing is the logical consequence of their ambition. They parry the objection by saying, in effect, “So we’ll have to ration. Big deal. We already have rationingby the market.”
For example, Uwe Reinhardt, an economics professor and advocate of government-controlled medicine, writes, “In short, free markets are not an alternative to rationing. They are just one particular form of rationing. Ever since the Fall from Grace, human beings have had to ration everything not available in unlimited quantities, and market forces do most of the rationing.”
Sadly, interventionist economists are not the only economists who talk this way. Most free-market economists would agree that where there is scarcity there must be rationing and that the most efficient way to ration is by pricethat is, through the market.
This is factually wrong and strategically ill-advised. As we’ll see, markets do not ration. Thus the health care debate is not about which method of rationingState or marketis superior.
Let me be clear: I am not denying that economic goods are by definition scarce and that at any given time we in the aggregate must settle for less of them than we want. I am also not denying that the marketplace is relevant in determining who gets how much of those scarce goods.
I am denying that this is appropriately called “rationing.”
Markets Don’t Do Anything
To see that the market does not ration one need only see that “the market” doesn’t do anything. To talk as if it does things is to reify the market. Worse, it is to anthropomorphize the market, ascribing to it attributespurposes, plans, and actionsthat only individual human beings possess. We may also see this as another instance of literalizing a metaphor, which, as Thomas Szasz has so often warned, is fraught with peril.
I’m not saying that economists don’t realize this diction is a metaphor. Of course they do, and there’s no harm in using this shorthand among those who understand it as such. The problem, as I see it, is that the lay public doesn’t fully grasp the metaphorical nature of these statements. For the sake of public understanding, free-market advocates should not welcome a debate in which they begin by saying, “Our method of rationing is better than your method of rationing.”
Better to respond to the interventionists this way: The market does not ration or allocate. The market does not do anything. It has no purposes or objectives. When freed, it is simply a political-legal framework in which people pursue their own purposes with their justly acquired property and their time.
This is squarely in the Austrian conception of the market as set out by Ludwig von Mises and F. A. Hayek. The market order “has no specific purposes but will enhance for all the prospects of achieving their respective purposes,” Hayek wrote in volume two of Law, Legislation and Liberty.
The market was never set up by people to achieve a purpose. It is not a device or an invention aimed at fulfilling an intention. “Market mechanism” is a metaphor. The marketas a set of continuing transactions among peopleemerged, unplanned and unintended, from exchanges, initially barter, in which the parties aimed only to improve their respective situations. Lecturing at FEE last summer, economist Israel Kirzner recalled that one of the first things Mises said to him as a graduate student was, “The market is a process,” by which he meant “a series of activities.” This is similar to what the French liberal economist Destutt de Tracy (1754–1836) wrote in A Treatise on Political Economy: “Society is purely and solely a continual series of exchanges.”
Mises, Hayek, and Tracy help us to sort out the rationing question. I submit it makes no sense to say that an undesigned series of exchanges by individuals seeking to improve their respective situations constitutes rationing. If we were to observe a free market (wouldn’t that be nice?), what would we see? Rationing? Allocation? Of course not. We would see people exchanging thingsfactors of production, services, and consumer goodsfor money. Where would they have gotten those things? From previous exchanges or original appropriation from nature.
When a person buys five apples in a grocery store rather than ten because he wishes to use the rest of his money for other purposes, it seems entirely wrong to say the market (or even the grocer) has rationed the apples. The customer simply makes his choice on the basis of his preferences and the money available (which is the result of previous transactions).
It is true that as a result of market exchanges, goods and resources change hands and (except for land) locations. But in no sense is this rationing or allocation. The resulting arrangement of resources is simply a product of many transactions. Of course, people’s choices of what and what not to buy and sell at which prices create an arrangement of goods and resources that tends to be intelligible in terms of consumers’ subjective priorities. But that does not warrant calling the process rationing or allocation.
Those words (especially ration, which shares its root with rational) suggest conscious decision-making, as part of a plan, by an agent. In a free market there is no consciousness overseeing this “distribution”another inappropriate word when it comes to describing the market process.
I am not saying anything that a good economist or other thoughtful person doesn’t already know. I am merely pointing out that we can be more effective in the health care debate if we are more precise in our language. We do not face a choice between methods of rationing medical services. We face a choice between rationing according to a bureaucratic plan and freedom to engage in mutually beneficial exchanges.
http://www.thefreemanonline.org/columns/the-market-doesnt-ration-health-care/?utm_source=The+Freeman&utm_campaign=7ade99f667-Freeman_Mar2010_Issue&utm_medium=email --
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