ȁǿ Partʺ: Economicsp.ȄȄ). Or if such constants do exist, an economist could earn a great rep-
utation by demonstrating a few of them. No amount of cleverness with
econometrics can make the nonexistent exist after all.
One reason why no enduring “structural parameters” characterize the
economic system is that how people behave in markets, as in other aspects
of life, depends on their experiences and expectations and on what doc-
trines they have come to believe. (Here is one area of overlap between
Austrian economics and the rational-expectations school.) Ļese circum-
stances are inherently changeable. One implication warns against policies
whose success presupposes unrealistic kinds or degrees of knowledge. It
warns against overambition in attempting detailed central control.
Subjectivist economics points out, for example, what is lost when pol-
icy makes simplistic distinctions between necessities and luxuries or when,
unlike voluntary transactions, policy fails to take account of subtle differ-
ences between the circumstances and tastes of different people. (I leave
personal rights aside not because they are unimportant but because the
present topic is rather different.)
Examples abound, in Ļird World countries and elsewhere, of at-
tempts to conserve scarce foreign-exchange earnings for “essentials” by
exchange controls, multiple exchange rates, import quotas, and selective
import duties designed to limit or penalize the waste of foreign exchange
on “luxury” or “nonessential” imports.
Ļe arguments offered for such controls, like arguments for consumer
rationing in wartime, are not always sheer nonsense. But subjectivist con-
siderations severely qualify them. It is impossible to make and implement
a clear distinction between luxuries and essentials. Suppose that a gov-
ernment tightly rations foreign exchange for pleasure cruises and travel
abroad but classifies oil as an essential import. Some of the oil may go
for heating at domestic resorts operating on a larger scale than if the
cruises had not been restricted. Ļe restrictions may in effect divert factors
of production from other activities into providing recreation otherwise
obtainable at lower cost through foreign travel. Because of poor climate
at home, it may well be that the marginal units of foreign exchange spent
on imported oil go to satisfy wants of the same general sort—while satis-
fying them less effectively—as wants otherwise satisfied by foreign travel.
Restricting travel and supposedly nonessential imports is likely to pro-
mote imports of their substitutes and also divert domestic and imported
resources or materials into home production of substitutes. Ļe diversions
may also impede exports that earn foreign exchange.