Why do intellectuals believe in the market?

Economics is the science of how "stuff" is produced and consumed, and by who. This may sound simple until you find out what stuff really means. Stuff includes among other things: Cars, electricity, video games, TV-shows, security, risk, sex, house cleaning, ideas, experience. The interface between producer and consumer is called "the market". This is where people exchange stuff.

Why do we study this? One reason is that we spend all our life on either side of the market. We wake up and go to work, spend eight hours producing stuff (with some small breaks for consuming food). Then we go home to consume the the stuff we are entitled to get since we produced things for other people during the day. We live all our life on either side of the interface that connects producer and consumer. A simple example may look like this:
Wake up (consumed one night on your bed)
Breakfast (consume corn flakes)
Go to work by bus (consume bus ride service)
Work (produce cars for others) (Example not applicable in Sweden anymore)
Go home (bus service again)
Relax and Recharge (Consume TV subscription.)
Eat (consume corn flakes)
Go to bed (consume one night on your bed)

Does it alarm you that your life is one big supermarket in which you work some shifts as a cashier just to be able to buy your food? I don't mean to upset with this but I think it shows why we want to study economics (well maybe not you and I, but some guy). If we understand this process we can use it to develop better public economic policy which means that we will know if we should spend our tax money on schools or bailouts. Important stuff.

The problem is that we will never be able to know this. I usually explain why this is impossible by showing an (empty) beer can with the following statement: "At least 10 people were involved in the brewing of this beer in some unknown country (usually Denmark though, Its' usually a Carlsber)g. In some way they made it because they had some value of my calculations. How did they benefit from my calculations?"
The answer is of course that no one will ever know how this happened. For some reason some guys brewed beer for me because I provided something for them. But they don't even know who I am. It's like magic.

People used to believe that there were two different ways to deal with this complex process. The first one was called communism and was based on that clever people were very able to understand this process and use it to make everyone better off. They came up with a plan for their economy and applied this plan to control what was produced and consumed. After the Berlin wall fell it became obvious that they weren't that good at doing this since eastern Berlin looked like the retarded cousin of western Berlin. This was strong evidence against a planned economy. Most sensible people now consider communism as ineffective and wasteful, although many people are still drawn to its more romantic aspects like fairness and such.

The other way of dealing with this is to say that we are too stupid to understand the market process and should hence leave it alone. The government should not intervene and try to fix the market any more than a moron should try to fix a car engine. This side is called capitalism. From this ideology it is easy to derive policy like Free trade, no taxes, no unions and no minimum wage.

Slow down, you may say. All this things are big policy decisions. How do they derive these again? I'll explain it in steps:
1) assume you have perfect engine.
2) assume a moron is standing next to it.
3) Now ask yourself: Do you want the moron to mess with the engine?
If you are reasonable you say NO and start to support all kind of economic policy that keeps that moron away from the engine.

If you are not an economist you may apply some common sense and say: Should we assume that the engine was perfect just like that? What if it is not? Maybe if it is not even working a moron may be able to make some things better. Economists have thought about this and decided to deal with it like this:

1) In the economy, the engine is made of people.
2) These people are not homogeneous. They are problematic to predict since they are different.
3) Well, assume that they are homogeneous then. At least then I can do some calculations before I go home.
4) This calculation turned out to be a pain. Let's also assume that they are extremely selfish and only want to maximize their OWN happiness, that reduces my calculational pain. (This is actually very similar to what we do in Physics: we assume that the electrons are independent and don't care about each other, then we compensate for this later. We do this because it is painful to calculate anything else.)
5) Wow! If this is true; markets are truly very efficient.
6) If markets are efficient, let them govern themselves. Keep the moron away from the engine.

Now we can conclude three things:
1) Markets are efficient and can be left alone IF our assumptions are right.
2) If the above is true it would be disastrous to let the market break down. We should only intervene if our efficient market is threatened. Banks are crucial to the efficient market since they provide liquidity, they should be bailed out.
3) If the above is true investing in schools may actually ruin the market for private education which is more efficient. No more investing in schools.

Intellectuals like capitalism for the same reason that I like my faulty model that I use to calculate how electrons interact. Because I can pretend that I know the truth and I will get numbers and funny predictions out. They will get numbers and fancy policy out.

Better hope that people are selfish and homogeneous (also that they have all the information in the world to make educated decisions, but I didn't have time to talk about that).