Imagination is an important aspect of human faculties, thinking, and action. Imagination can be used for good or bad. Imagination is key to abstract thinking, that is, the ability to think about concepts that are not physical or concrete. Imagination can allow us to think about how things could be different than they are. Again, this can be good (new ideas that work well), just for fun (imagining a fictional story), harmless (e.g., imagining that it could be raining instead of sunny), or negative (e.g., imagining ways of doing evil or harm, worrying about unrealistic events, overlooking real limiting parameters that would prevent something from actually working, like neglecting the reality of gravity in imagining how humans might be able to fly).
There are plenty of good ideas and bad ideas that have been imagined. For example, it is common for people to say erroneously that, “Communism works in theory, but not in practice.” In other words, it works in the world of imagination if realities of human nature, human action, economic calculation, the dispersion of real-time human knowledge, and general laws of economics do not apply. However, while many have imagined it to—to the detriment of millions of human lives—socialism and communism neither work in theory nor in practice.
Imagination and Economics
Economics, as the so-called “dismal science,” often has to put a damper on the imagined ideas of what people think is possible, especially political elites. In The Fatal Conceit, Hayek famously articulated,
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. To the naive mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralizing decisions and that a division of authority will actually extend the possibility of overall order. Yet that decentralization actually leads to more information being taken into account. (emphasis added)
In this quote, Hayek deals with the simultaneous overestimation and failure of imagination. On the one hand, elites and those who support them, constantly overestimate “what they imagine they can design” were they in charge. On the other hand, such minds can only “conceive of order as the product of deliberate management”; they cannot imagine how order and prosperity could possibly come from decentralization and free and peaceful social cooperation.
Imagination and abstraction are key tools for economics. Since we necessarily exist in a changing world of present and historical variables, in which humans choose and act, we have to use sound logic, praxeology, and thinking in terms of counterfactuals in order to develop economic laws. Mises writes,
In order to trace back the phenomena of the market to the universal category of preferring a to b, the elementary theory of value and prices is bound to use some imaginary constructions. The use of imaginary constructions to which nothing corresponds in reality is an indispensable tool of thinking. No other method would have contributed anything to the interpretation of reality. But one of the most important problems of science is to avoid the fallacies which ill-considered employment of such constructions can entail. (emphasis added)
Imagination is essential, but we have to be cautious because imagination can also be subject to errors and fallacies. For example, Mises developed the imaginary concept of the evenly-rotating economy (ERE) as a theoretical tool to consider a counterfactual “long run” economy in order to derive real economic laws, however, while this was useful for theoretical development, it would be a mistake to assume the ERE is either real or ideal. However, economists have abused this imaginary construct and others to develop erroneous, unrealistic views about how the real economy ought to look, such as “perfect competition.” Rothbard called this the fallacy of “conceptual realism.” The value of an imaginary construct is “the aid it gives to thought in deducing the causal laws operating in real markets.” Mises delimited conditions for useful of imaginary constructions,
The main formula for designing of imaginary constructions is to abstract from the operation of some conditions present in actual action. Then we are in a position to grasp the hypothetical consequences of the absence of these conditions and to conceive the effects of their existence.
Imagination is also a prerequisite for human action as one’s “mind imagines conditions that suit him better” before he acts. Further, imagination is necessary for entrepreneurship. Though plenty of people have ideas, an entrepreneur acts to rearrange what he believes are underpriced factors and offer them on the market to consumers for a profit (or loss). Technologically, people must imagine new “recipes”—plans or ideas—for production. Therefore, imagination is indispensable.
Imagine Failure Fallacy and the State
Because of the default paradigm of the modern nation-state for several centuries, there is a prevalent and understandable status quo bias toward both the existence of the state system and the services that the state provides. (This does not condone the state system, but we can appreciate the fact that people are used to it to a large extent.) This is probably why the provision of certain goods and services without the state is inconceivable to most people.
This imagination failure fallacy is a subset of statist non sequitur fallacy. It makes one of three related mistakes: 1) assuming the impossibility of something in absence of the state; 2) assuming that one’s failure to imagine how a good/service might be provided without the state necessitates that the state must provide it; and/or, 3) assuming that, absent the state, some important good/service would necessarily be underproduced.
The way such arguments are usually framed is, “I cannot imagine how X would be possible absent government provision, therefore, it must be impossible without government and/or the government must provide it” or, “Without the state, X would be impossible.” Probably the most common expression of this is the dreaded, “But without government, who would build the roads?”
Recognizing the fallacy allows advocates of the free market—who do not have the answer to every possible question or the solution to every problem—to simply reason that just because one cannot imagine how something would work, that the state must provide it. Rothbard illustrates,
The libertarian who wants to replace government by private enterprises in the above areas is thus treated in the same way as he would be if the government had, for various reasons, been supplying shoes as a tax-financed monopoly from time immemorial. If the government and only the government had had a monopoly of the shoe manufacturing and retailing business, how would most of the public treat the libertarian who now came along to advocate that the government get out of the shoe business and throw it open to private enterprise? He would undoubtedly be treated as follows: people would cry, “How could you? You are opposed to the public, and to poor people, wearing shoes! And who would supply shoes to the public if the government got out of the business? Tell us that! Be constructive! It’s easy to be negative and smart-alecky about government; but tell us who would supply shoes? Which people? How many shoe stores would be available in each city and town? How would the shoe firms be capitalized? How many brands would there be? What material would they use? What lasts? What would be the pricing arrangements for shoes? Wouldn’t regulation of the shoe industry be needed to see to it that the product is sound? And who would supply the poor with shoes? Suppose a poor person didn’t have the money to buy a pair?”
Neither the failure to imagine how a good or service might be provided on the free market, nor the assumed impossibility of the provision of a good or service on the free market, nor even the inability to answer all the questions, logically necessitates that such goods and services must or ought to be provided via the state. There are lots of things people cannot imagine or which they believe to be impossible, but that does not mean that a monopoly of coercion is necessary.
The Mythical Lighthouse
One long-lasting, but mythical, “public good” employed in textbooks was the lighthouse. Paul Samuelson (quoted in Rothbard) wrote, “A businessman could not build [a lighthouse] for a profit, since he cannot claim a price from each user.” Knowing the history, however, Rothbard was not intimidated by this argumentation. Not only was it fallacious theoretically, but it was unhistorical—the lighthouse owners simply employed people to collect tolls at harbors and/or shipping companies pooled resources to construct them to prevent loss. Regarding the failure of imagination fallacy, Rothbard cites another economist in an amusing footnote,
Lighthouses are a favorite textbook example of public goods, because most economists cannot imagine a method of exclusion. (All this proves is that economists are less imaginative than lighthouse keepers.)
Textbooks highlight several made-up “public goods” that have always been provided for through the free market. Just because they were inconceivable to some theorists of public goods theory—lacking historical knowledge of the subject—they presumed that these would be impossible absent government provision. To fail to imagine would be one thing, but allow me to make the fallacy clearer: because some economists couldn’t imagine lighthouses on the free market (and were ignorant of the relevant history), the state is necessary to provide, not only lighthouses, but all manner of goods and services.
Failure to imagine a peaceful and voluntary alternative neither necessitates nor justifies state provision of goods and services. In fact, observe that the default is not to assume non-aggression, private property, and free exchange until a better solution is found, instead, the default is government coercion until a better solution is found. Allegedly, free and voluntary solutions that people fail to imagine bear the burden of proof and statism does not. In conclusion, allow me to rephrase and repurpose a pithy quote from Rothbard:
It is no crime to be ignorant of economics, history, or unable to imagine free-market solutions—outcomes of entrepreneurial action, international division of labor, a developed capital structure, how goods have been provided and problems solved historically, or how goods would or might be provided (or problems might be solved) on the free market in the future. Indeed, it is no crime to be ignorant of most things since knowledge is vast, dispersed, specialized, particular. Often lack of knowledge allows us to specialize and exchange with one another and benefit from dispersed knowledge throughout society. That said, it is totally irresponsible to allow ignorance, not understanding how something would be possible, or failure to imagine in order to leap to the alleged necessity of state monopoly provision.
