To: Paul Krugman, NYTimes
From: Jude Wanniski
Re: The Efficient Market
This is a repeat of a memo I sent you on May 4, 2000, a day after you made fun of the silly market for selling off the euro in the foreign-exchange market. You insisted it would strengthen when the market came to its senses. The euro was worth $0.8895 back then and last time I checked it was $0.8785. I take it you believe the market has not yet “come to its senses.” The reason I pester you again with Aristotle is that he understood the efficiency of the marketplace even though he did not have a Ph.D. in economics from the Massachusetts Institute of Technology. As you know by now, I never formally studied economics at all, but my belief in the efficiency of markets, financial and political, goes back to my student days at UCLA. There I studied the history of political ideas and found that Aristotle had figured all this out 2300 years ago. What I am going to append to this note are the actual words I read in my college textbook, written by a fellow named George Sabine. I’d sold the original textbook, but bought a used copy at a charity book sale two years ago, for fifty cents, and just for the fun of it, read it over again. It was a humbling experience, as I realized that almost everything I now know about political theory I more or less learned back in 1956-58. I guess they don’t teach this stuff at MIT anymore, because MIT is more “up to date,” hip as some would say. Aristotle is passe. Still, it might give you something to chew on, while you are otherwise making fun of the silly marketplace.
PS. I do appreciate the fact that you have opinions that you present for all to see. As Aristotle would say, "It takes all kinds to make a market."
* * * * *
A History of Political Theory
by George H. Sabine
Published 1937 by Holt, Rinehart and Winston, Inc.
Aristotle: Political Ideals
It is possible to argue, Aristotle says, that in the making of law the collective wisdom of a people is superior to that of even the wisest lawgiver. He develops the argument still farther in connection with his discussion of the political ability of popular assemblies. Men in the mass supplement each other in a singular fashion, so that by one understanding one part of a question and another another part, they all together get around the whole subject. He illustrates this by the assertion (perhaps not quite obvious) that popular taste in the arts is reliable in the long run, while experts make notorious blunders at the moment. To somewhat the same effect is his marked preference for customary as compared with written law. He is even prepared to admit that possibly Plato’s plan for abolishing law would be an advantage if only the written law were at stake. But he holds it clearly impossible that the knowledge of the wisest ruler can be better than the customary law. The rigid distinction between nature and convention, with the extreme intellectualism or rationalism to which this distinction had committed Socrates and Plato, was thus broken down by Aristotle. The reason of the statesman in a good state cannot be detached from the reason embodied in the law and custom of the community he rules.
At the same time, Aristotle’s political ideal was quite at one with Plato’s in setting up an ethical purpose as the chief end of the state. He never changed his opinion on this point, even after he had enlarged his definition of political philosophy to include a practical manual for statesmen who have to do with governments which are very far from ideal. The real purpose of a state ought to include the moral improvement of its citizens, because it ought to be an association of men living together to achieve the best possible life. This is the “idea” or meaning of a state; Aristotle’s ultimate effort at a definition turns upon his conviction that the state alone is “self-sufficing,” in the sense that it alone provides all the conditions within which the highest type of moral development can take place. Like Plato, also, Aristotle confined his ideal to the city-state, the small and intimate group in which the life of the state is the social life of its citizens, overlapping the interests of family, of religion, and of friendly personal intercourse. Even in his examination of actual states there is nothing to show that his connection with Philip and Alexander enabled him to perceive the political significance of the Macedonian conquest of the Greek world and of the East. The political failure of the city-state did not, in his eyes, take from it the character of an ideal.
Aristotle’s theory of political ideals, therefore, stands upon ground which he had clearly occupied because of his association with Plato. It follows from an effort to adopt and take seriously the chief elements of the theory developed in the Statesman and the Laws, with such changes as were required to make that theory clear and self-consistent. This applies particularly to the distinctive feature of Plato’s later theory, that law must be treated as an indispensable constituent of the state. This being true, it is necessary to take account of the conditions of human nature which make it true. Law must be admitted to include real wisdom, and the accumulation of such wisdom in social custom must be allowed for. And the moral requirements which make law necessary must be incorporated as part of the moral ideals of the state. True political rule must therefore include the factors of subordination to law and of freedom and consent on the part of its subjects. These become factors not of a second-best state but of the ideal state itself.