Analogies have the power to reveal new relationships and to reframe how we think. Good analogies help us understand the world. They use relationships and phenomena we experience to help us understand more complex or abstract phenomena. On the other hand, bad analogies can cause grave errors.

　　When people with a generally grim view of modernity raise concerns about pollution or deteriorating families or stagnating communities, cheerful speeches about efficiency and the benefits of economic growth usually fail to satisfy. So too does answering concerns about poverty or inequality by pointing to iPhones or Netflix. Is free trade only superior to protectionist tariffs and quotas because it has less deadweight loss and results in lower consumer prices?

　　While the benefits are real, trade skeptics can always point to lost jobs or lower wage growth and attribute these ills to increased competition from abroad. Oren Cass asks: “What is the story of how the Ohio worker benefits when the local investor moves his capital to Shenzhen in search of a higher return?” Similar sentiments have been voiced by presidential candidates, senators, and high-ranking officials.

　　These comments take globalization to be an anonymous, heartless pursuit of profits at the expense of real human beings. They think trade is a “game” that a country wins or loses, and that there must be a tradeoff between the benefits of creative destruction and the well-being of (blue-collar) workers.

　　A defense of free trade requires good paradigms and mental models—otherwise, our responses will be disjointed, abstract, and ultimately uncompelling. Adam Smith popularized economic freedom, classical liberalism, and limited government by developing and defending a coherent, compelling, beautiful system of economic prosperity—one that he contrasted with the existing corrupt system of mercantilism that dominated the eighteenth-century European world.

　　Great economists have always cared about more than technical market efficiency. They often marvel at markets, and inspire students with their dynamism, beauty, and wonder. The political Right’s recent drift away from free markets largely stems from losing the grand vision of a commercial republic and instead myopically focusing on a few visible economic and social phenomena. I want to recapture part of this vision by using gardens as an analogy for markets.

　　Although there is precedent for this analogy, including a recent piece by Brian Lee Crowley and a 2014 article written by a former director of the National Economic Council—I take things in a different direction. In my analogy, policymakers are like landscapers, entrepreneurs are like gardeners, good economists are like painters, and critics are, well, critics.

　　Landscapers

　　Markets, like gardens, can be large or small. They can be beautiful or ugly. They can be full of life, abundance, and color, or they can be sterile, drab, and anemic. They can be well-tended, or they can be overgrown with weeds. Inclement weather, poor soil, weeds, and insects can all reduce the vibrancy and health of gardens.

　　Policymakers should see themselves as landscapers with heavy equipment helping to shape the broad layout of the garden for the benefit of gardeners and the owners of the garden. They do this by building and sustaining a good institutional framework for society. Are property rights well-defined and protected? Is the currency stable? How dynamic are financial markets? Can capital flow freely to water the parts of the garden that need it? High social trust, robust norms of behavior, and limited government, like healthy soil and sunshine, all contribute to the garden’s success.

　　Gardens primarily consist of organic growth with proper cultivation by gardeners. However, policymakers should not be deeply involved in day-to-day gardening. Their tools are better suited for creating terraces, paths, irrigation, and the like, not for pulling up weeds or planting flowers. While they can create patches that may be more conducive for some kinds of plants than others (flower beds versus tomato vines for example), they should leave the specific decisions of what to plant to voluntary choices in the market.

　　When countries stagnate and decline, it’s almost always caused by deteriorating institutional conditions. The landscapers in these countries have run roughshod over the garden economy and made a mess of the landscape. Japan was an industrial juggernaut in the 1970s and 1980s—to the extent that many worried it would surpass the United States as the largest economy in the world. Since its enormous housing bubble popped, however, Japan has seen decades of decline. Instead of initiating market reforms and allowing gardeners to repair the damage, the Japanese central bank decided to bring in heavy machinery to shore up the economy. The result has been stagnant economic growth and significant monetary distortion for decades—resulting in Japanese government debt climbing to over 250 percent of Japan’s GDP.

　　Many countries in Europe have stagnated for a decade or more as thickets of regulations choke economic activity and environmental restrictions block sunlight from reaching new plants. The legacy German car company, Volkswagen, laying off ten thousand workers is one sign of trouble. The collapse of the most recnet German government is another. The Western hemisphere has its own stark reminders of the importance of institutional conditions: Cuba’s stark poverty, for instance, and Venezuela’s descent into tyranny when property rights were undermined and the price system was suppressed. 

　　Occasionally someone has to make tough decisions like what kinds of plants and what color of flowers to cultivate. They may decide to pare back or remove a beautiful but high-maintenance plant to make room for other plants requiring fewer resources. Although we may want to think about the overall beauty of the garden as being driven by Smith’s “Invisible Hand,” we can also think about there being gardeners who make choices based to some extent on their own decisions and tastes, but who primarily exercise their judgment to please the one who hired them—all of us.

　　Gardeners

　　These gardeners are entrepreneurs.

　　Good gardeners are alert to opportunities to improve the garden, just as entrepreneurs are alert to profit opportunities. In a garden, alertness can look different depending on the time frame. Day to day, it involves noticing whether some plants could use more water or fertilizer, whether they are being choked by weeds or eaten by insects, etc. From season to season, though, alert gardeners may notice empty patches or have ideas for rearranging the landscaping more efficiently or replacing some plants with others. Entrepreneurs similarly find all kinds of ways to improve society—noticing arbitrage opportunities, creating new technologies, reorganizing existing resources and processes more efficiently, and noticing gaps in the market.

　　Strong legal institutions, especially well-developed common law, provide better tools for the gardeners. Similarly, trade provides a greater variety of seeds and plants for the gardeners to work with. Trade and specialization also increase the quality of our ideas and technology. Rather than framing policies in terms of “free trade” and “protectionism,” perhaps we should simply ask to what degree they will foster or reduce international trade.

　　How well do our policies encourage trade and the benefits that come with it? Gardeners benefit from a greater variety of plants, or more robust plants with better genetics that help them resist drought, pests, and weeds. New seeds will not degrade the quality of the garden because entrepreneurs have an incentive to use what is better, not what is worse. They may err, of course, but they also have strong incentives, once the seed they planted sprouts (or fails to sprout), to correct their error.

　　Traditional market failures like externalities, tragedy of the commons, and public goods can be opportunities for improvement. Even the term, “market failure,” should be questioned. Failure implies brokenness: that something doesn’t work. Maybe it can be fixed, but maybe it needs to be scrapped and replaced. That’s not the approach one takes to weeds in a garden.

　　You don’t use a backhoe to remove a weed. Nor do you burn the whole garden to the ground because of a few insects. Flowers are not bad because weeds exist. Nor do flowers create weeds. When gardening, you clearly identify weeds, but you try to remove them without damaging the other plants. Some weeds you might even leave if they are relatively benign or if removing them could harm valuable plants.

　　Adam Smith famously described the critic turned landscaper as the “man of system” so enamored of his own grand plans that he has few qualms about taking a bulldozer or backhoe to beautiful flower beds.

　　Sometimes plants will attract pests—rosebushes and Japanese beetles, zucchini and squash bugs—and these have to be managed as well. In rare cases, a gardener may opt not to grow a plant because the pest problem it invites is too great. More frequently, though, gardeners will find ways to mitigate or manage the pest problem.

　　Ronald Coase, in “The Problem of Social Cost,” made this kind of argument. In Britain, locomotives invited the “pest” of negative externalities when their stray sparks burned down adjacent farmland. While many economists had suggested that governments should get rid of such negative externalities through taxation, Coase pointed out that such taxes would often do more harm than good, because the “market value” of goods damaged can differ significantly from the “social value” of producing the goods in the first place.

　　Coase also pointed out that every externality involves a reciprocal relationship and that the parties involved have incentives to negotiate an efficient outcome based on “who can avoid the harm” at the lowest cost. Even when negotiation is too costly, the market incorporates positive and negative externalities in the form of compensating differentials in pricing. Apartments next to Central Park command a high premium because the park creates huge positive externalities. On the other hand, houses near an airport often sell at a discount because of the negative noise externality.

　　Similarly, jobs that are difficult and unpleasant, such as commercial fishing or combat, offer increased pay as a compensating differential. Other jobs that are less risky, such as being a barista, do not command as high of wages. Over time, most externalities can and will be incorporated into prices to some extent due to their effects on demand. What’s more, the size of negative externalities diminishes and the size of positive externalities increases through self-selection. The more important problem with externalities is the initial loss created, rather than its ongoing costs.

　　Gardeners use their knowledge to improve local patches of the garden—pruning, planting, and weeding—accounting for a variety of plants and conditions. They also think about how to improve the beauty, efficiency, and abundance of the garden over time.

　　Painters

　　Besides gardeners, there are also painters who examine the garden from many angles and perspectives. They create pictures of the garden to share with others. When they do their job well, their work highlights people’s enjoyment of the garden and showcases the handiwork of the gardeners. Their portrayals can also reveal elements of the garden that could use work. But this is usually not their primary objective but rather an indirect consequence of their work.

　　Friedrich Hayek painted one of the most important pictures of markets in his 1945 paper “The Use of Knowledge in Society.” Hayek described the price system as a marvel that requires no oversight or central planning to coordinate the activities of billions of strangers. Prices and private property allow people to utilize their unique local knowledge of time and place—including their skills, tastes, and values—while pursuing their individual ends.

　　The price system leads to socially beneficial mutual adjustment. When resources become relatively more scarce, prices rise and people adjust their plans to use less of that resource, thereby leaving more for others. And when goods become relatively more abundant, or have little shelf life left, prices fall and people shift to using more of those resources. Prices encourage this kind of social consideration.

　　When the price of eggs rises, most people cut back on how many and how often they buy eggs. This is a “pro-social” response. The higher price signals greater relative scarcity of eggs. Perhaps more people want eggs or egg production has become more expensive. Hayek emphasizes that the exact reason doesn’t matter for consumers, and that it is important that the reason doesn’t matter.

　　Rather than having some person or politician ration who gets eggs and who doesn’t, the decentralized price system allows mutual adjustment among millions of people by considering all the variations of their circumstances, opportunities, and goals. Furthermore, profit and loss encourage value creation and discourage value destruction. When companies deliver more value than they use, they receive profits. This encourages them to continue their business and enables them to expand. Losses do the reverse.

　　Its as if a gardener were observing how different plants were growing. Some flowers might grow really well—the gardener will likely plant more of those—and other plants might struggle to take root. Gardeners will not put more of the struggling plant into the garden. In fact, eventually, they will likely remove it. Inefficiencies that choke plants or steal nutrients will be weeded out of a healthy garden.

　　Critics

　　Critics tend to focus on flaws. They notice every weed, every bare spot. They explain how the garden fails to live up to their ideals—too much color here, not enough there, too few flowers, too many trees, etc. The critics, unlike the gardeners, rarely know what would be required to fix the problems they see or to transform the garden into their idealistic vision. Not being gardeners themselves, they rarely appreciate how much work their suggestions entail. Nor do they share in that work. This creates problems when critics are given power to direct what the gardeners can, can’t, or must do.

　　Critics concern themselves with many problems that don’t affect them directly. This can skew the critic’s perspective in an overly negative direction leading him to recommend sweeping systemic changes to the garden. Unfortunately, many of these suggestions are not like improvements in soil quality, access to water, more sunshine, or other environmental improvements that will universally benefit the garden. Their proposals are more often attempts to micromanage the activities and second-guess the decisions of the gardeners. The CHIPS Act, for example, did not focus on how to make the US economy more conducive to semiconductor manufacturing. It just threw a ton of money at certain gardeners and said: “Plant more of these seeds and fewer of those seeds.” Similarly, the Inflation Reduction Act did not increase the water in the garden, it merely redistributed it from some plants to other plants.

　　Adam Smith famously described the critic turned landscaper as the “man of system” so enamored of his own grand plans that he has few qualms about taking a bulldozer or backhoe to beautiful flower beds. The man of system imagines “that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess–board. He does not consider that the pieces upon the chess–board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess–board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it.”

　　To put this in contemporary terms: the Federal Reserve, Congress, and the President cannot “manage” the economy. Their decisions are not simply the equivalent of turning dials or fine-tuning a machine. Sometimes they try to micro-manage the gardeners—supplanting the gardeners’ judgment with their own designs and tastes. The result is usually a very ugly garden.

　　Markets Are Beautiful

　　Analogies are tools of thinking, but they are never perfect. Conceptualizing the market as a garden illustrates several important ideas. The institutional “environment” matters a lot. Policymakers have an important role to play as landscapers who create structures for the garden that entrepreneurs can use. The rule of law, clear property rights, low taxes, and limited government spending can all enrich the garden.

　　Entrepreneurs “take care” of the market much like gardeners take care of gardens. The presence of weeds or pests is not a black mark or sign that a garden has failed. Instead, they represent something alien to the garden that should be removed with as little disruption to garden plants as possible. And trade, especially international trade, contributes to the vitality of the garden over time.

　　Good economists try to convey an accurate picture of the beauty and structure of the garden while critics focus on the problems—leading to heightened cynicism. Although critics can offer helpful ideas, we should not confuse them with those who actually do the work of planting, pruning, and weeding. And if we give critics authority to re-landscape the garden, we set ourselves up for trouble by creating the man (or woman) of system Smith warned us about.

　　Humility and restraint are much the better posture when it comes to making public policy regarding markets.