There are profound methodological differences between the Austrian and Chicago schools that lead to very different characterizations of the nature and function of the market economy. I was recently reminded of this by an article entitled “The Racist Premium Is Just One Way the Market Punishes Racism” by Andrew Moran. The point that Moran makes is basically correct. In certain circumstances taking race into account in market transactions does involve a cost to the one inclined to do so.
What I take issue with is the Chicago-school approach that the author implicitly adopts and the resulting rhetoric that he invokes, namely, that the market metes out punishment to “irrational” preferences that tends to inhibit their expression. This approach is based on the fallacious Chicago view pioneered by Nobel laureates George Stigler and Gary Becker in their famous article asserting that tastes and preferences for “fundamental” consumption commodities are both uniform among individuals and stable over time. In other words, all human beings whenever they have existed or will exist are viewed as possessing essentially the same underlying tastes — or in economic jargon, the same “stable, well-behaved preference functions” — for health, nutrition, “euphoria” (derived from alcohol or drugs), safety, social prestige, and so on. With subjective and unobservable tastes banished from economic analysis, the fact that different agents at the same time or the same agents at different times may consume goods in wildly different proportions is then wholly attributable to differences in objective and observable factors, namely, the prices they confront or the real income they earn.
The Chicago school depicts the market economy in…