Miracle of the Market

Day in and day out we give little thought to the vast and complex array of economic processes, which if they were to stop or severely malfunction would mean hardship or even disaster for many of us. The supermarkets are daily replenished with wide varieties of fruits, vegetables, meats, canned and packaged goods, dairy products, and many other items. We crowd the shopping malls and find them filled with practically every conceivable commodity we can imagine, with each of them offered in attractive and diverse varieties. Just think of the wide spectrum of shoes and clothes placed at our disposal in those malls as an example of this. And if we do not want the inconveniences and irritations of crowded shopping areas, a growing number of us now do an increasing amount of our shopping over the internet with the mere click of the “mouse.”

Even if we wanted to fully understand how all those goods are actually brought to the marketplace for our various wants and desires, virtually none of us would be able to trace through all the intricate ways by which our demands are satisfied. Back in 1958, Leonard Read, the founder of FEE, wrote a famous essay titled “I, Pencil.” He outlined a history of manufacturing a simple old-fashioned wooden pencil, from a tree being cut down in a forest and the mining of the graphite in a faraway country to its assembly and finished form so that it might be readily available for purchase by any of us in some neighborhood store. Read’s central insight was to remind us that no one individual or even wise and informed group of us possesses all the knowledge or information that has gone into that pencil’s manufacture.

Furthermore, it is not necessary for anyone to fully understand the processes involved in making that pencil for it to be available to us and our uses for such a writing instrument. Indeed, if it were required for some mastermind to know all that is needed to know to make all of the goods offered to us everyday on the market, the variety of goods available to us would be both fewer in number and poorer in quality.

How are the activities of an increasingly larger group of individuals successfully coordinated, so that all the multitudes of demands and supplies are brought into balance and harmony? The Austrian economist and Nobel Laureate Friedrich Hayek showed how all of the knowledge and information in society can be encapsulated in the price system of the free-market economy. In our roles as both consumers and producers we communicate to one another what we think goods, resources, capital, and labor services are worth to us in their various and competing uses through the prices we are willing to pay for them. These “price signals” serve as the means for all of us to decide and coordinate what we want and are willing to do together with other members of society.

Thus, and indeed quite miraculously, it is not necessary for an “economy czar” to rule over and command us in our everyday market activities to assure that a vast quantity of food gets to the supermarkets or that thousands of different varieties of goods are constantly available in the shopping malls or other stores and businesses throughout the land. Each individual finds his own corner of specialization—guided by those opportunities, expressed in market prices, that seem to offer the greatest likelihood of earning an income that will enable him to buy from others all of the goods he himself desires.

Competition in these voluntary interactions of the market helps us to discover where each of us can best serve our fellow men within the system of division of labor while pursuing our own personal interests. The competitive process tests us through the reward of profits and the penalties of losses. Profits lure us into those production activities that our neighbors, as consumers, want us to do more of. Losses warn us that we have undertaken production actions that those same neighbors think are not worth the costs of our continuing to do them in the same way.

No overseer’s whip is needed to prod people to do more of some things and less of others. No paternalistic planner is needed to assure that everything that is wanted is produced and in the most economically cost-efficient way. No restraining regulations and controls are needed to hamper the free choices and actions of the multitudes of millions in society—other than the crucial and general legal rules against murder, theft, and fraud in our dealings with one another.

Mutual agreement and voluntary consent are the bases of these market relationships. It is not the police power of the government, with its use or the threat of violence and force, which compels the cooperation and collaboration of humanity.