A First Day Thought on "Truth on the Market"

Thom Lambert —  17 January 2006

I didn’t pick the name of this weblog, but I really like it. It encapsulates, I believe, much of what the blogosphere is about.

As Bill noted, the truth-on-the-market defense essentially prevents a finding of securities fraud based on a defendant’s misstatement or omission if the truth has effectively entered the market. The doctrine thus reflects an optimistic confidence that in a confrontation between truth and falsity (or half-truth), truth will win. But there’s a caveat: For the defense to apply, the truth must have been “transmitted to the public with a degree of intensity and credibility sufficient to effectively counterbalance any misleading impression created by an insider’s one-sided representations.” Provenz v. Miller (9th Cir. 1996).

For years, many of us have sat around frustrated as we’ve watched professional journalists tell and re-tell the sorts of compelling stories that generate advertising revenue — e.g., the corporate “raiders” intent on taking over the underperforming company are just seeking to line their pockets at the expense of jobs for working folks (the government should intervene!), cost-cutting apple producers are using chemicals that are sure to harm children’s health (the government should intervene!), etc. We’ve known that many of these stories are half-truths (which are, in the world of securities fraud, tantamount to lies). We’ve also known that these half-truths have a way of adversely affecting public policy. But what could we do? While we may have had “intensity” and “credibility,” we had no effective means of transmitting the other half of the story to the public.

Now we do. Our old friend Technology has once again made the world a better place by reducing costs — this time, the costs of communicating ideas. Folks who detect fraud on the market(place of ideas) now have a means of transmitting a counterbalance of truth. I’m confident that if we provide the requisite intensity and credibility, truth will prevail.

That is not to say that we are arbiters of what’s true. Indeed, one of the hallmarks of a market liberal is a belief that important information (truth?) is not given to anyone in its entirety. See, e.g., F.A. Hayek, The Use of Knowledge in Society. Our role is therefore to transmit, with intensity and credibility, what we believe to be true, confident that, if so communicated, truth will prevail.

Thom Lambert


I am a law professor at the University of Missouri Law School. I teach antitrust law, business organizations, and contracts. My scholarship focuses on regulatory theory, with a particular emphasis on antitrust.

5 responses to A First Day Thought on "Truth on the Market"


    I have a one word optimistic response: Markets. Ok, Hayek said it first. And my dad has been clamoring in the wilderness lately about the topic (see http://busmovie.typepad.com/ideoblog/2006/01/more_from_henry.html and his earlier post linked there). But as long as there is a mechanism for aggregation, the information will be processed. I admit that much of the information of the sort we’ll provide here will find its way into relevant markets through attenuated channels, but it will make it there nonetheless. I take the Sunstein-esque point that there is a danger of compartmentalization, but I think that concern seriously underplays the massive amounts of connectedness in our society; information-sharing exchanges may take place in surprising ways. Perhaps more on this later . . .

    In the end, the real “truth” about markets is that they are truly remarkable in their success, for all the talk about their failures.


    Congratulations on getting this blog off the ground. Based on my prior interactions with these bloggers, I expect lots of intellectual energy emanating from this forum. (And the fact that all are untenured is, IMHO, a plus.)

    However, to properly kick-off the site, I have question at least one premise offer up by Thom Lambert.

    Sure, sophisticated readers can finally one-up the MSM and pursue more rigorous and original lines of inquiry. But is it possible that the proliferating blogosphere could make truth more relativist?

    For example, the LA Times, due to declining circulation, recently scrapped their national edition, and elite newspapers like the NY Times and the Wall Street Journal are also dealing with stagnant or declining print readership–the stuff that pays the bills.

    Obviously, blogs (which often riff on MSM content) are supplanting some of this readership. Law Professors and other part-time pundits are willing to write original analysis for free — let’s be candid, there is a perception that blogs can generate external career benefits — while the media machine that does the expensive footwork of actually gathering (and CHECKING) facts struggles to reinvent its business model.

    In the intense battle for eyeballs on the screen, public discourse can be fragmented. The risk is that everyone is talking — and, because of shoestring budgets, shooting from the hip — while nobody is really listening. Perhaps “truth” can be distilled from these disparate exchanges, but with so many agendas, will it get acted on?

    Can someone at TOTM spin out an optimistic response?


    Glad to see your blog in the PJ Media pantheon! Your criticism of the public sphere is spot on–the *massive* ignorance of economic fundamentals only reinforces the existing dysfunctionalities in the collective (i.e., political) decision process.

    Coming attraction: Marquette Books has a book on the way called _Watching the Watchdog_; the last chapter is about the public sphere. It’ll get into the dynamics you mentioned in grafs 3 and 4.

    (OK, OK, that’s shameless self-promotion. I’ll ‘fess up. But it sure is nice to see you getting into some of contrarian thoughts I’ve been having.)

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