Group IIIThe Failures
The four ways the invisible hand misfires: when one side holds too much power, when a cost slips past the price, when one party knows what the other cannot, and when the thing in question belongs to no one. The market has a theorem that promises efficiency — this group is its fine print.
The first group weighed the prices; the second counted the quantities, and found the most important of them strangely hard to count. This group turns to a graver trouble — not whether the numbers can be measured, but whether the mechanism that makes them works at all. There is a theorem, the finest the discipline owns, that says it does: that a competitive market, left to itself, turns the pursuit of private gain into public efficiency, as though by an unseen hand. These four volumes are the fine print on that promise.
For the theorem holds only on conditions, and each volume is one condition the world declines to supply. That every trader be too small to move the price — and not, as in The Power, large enough to bend it. That every cost fall upon a party to the bargain — and not, as in The Externality, drift onto a stranger who never agreed to it. That both sides know the same things — and not, as in The Asymmetry, one hold what the other cannot see. And that every good be owned and rival — and not, as in The Commons, lie open to all and so belong to none. Strike any one, and the hand falters: too little of the good thing, too much of the bad, a price that misinforms, a market that empties or never opens at all.
Against each failure a century of ingenuity has raised a remedy — the antitrust suit, the corrective tax, the costly signal, the village's own book of rules. The finding that orders the group, and the one most often hurried past, is that a market failure is not, in itself, an argument for anything. To name it is only to open a comparison among imperfect remedies, each carrying a failure of its own. The numéraire of honesty here is the refusal of the easy slide — from the market is imperfect to therefore the state, and just as firmly from the state is imperfect to therefore the market — and the patience to ask, each time, imperfect beside what?