Miracle of the Market; L.E. Read

MIRACLE OF THE MARKET WE HAVE 80 million automobiles in this country, but it is impossible to find anyone who, by himself, knows how to make all of the complex parts and assemble them into the finished product. No person knows how to make even so simple an item as a penciL! That we have so many things in such profusion, without anyone's know ing precisely how to make them, is a miracle of which we ought to be aware lest we inadvertently destroy its wonder-working powers. An aspect of this miracle is that no two of some two billion adult human beings on this earth are identical. There is striking variance in such fundamentals as taste, smell, skin, hair, bone, gastric juice, amino acid and vitamins in blood, and so on. Further, each individual is a tiny islet of unique human energy, differing from all others in skill, knowledge, insight, creativeness. Thus, the solitary energy of even the most gifted person can not produce a thing as simple as a pencil. A pencil is a miraculous configuration of varying creative energies contributed by literally millions of individuals, most of 1 This fact is documented in "I, Pencil." See Essays on Liberty, Vol. VI, p. 371.

105 106 LEONARD E. READ whom are unknown to one another. Yet pencils are available in profusion, at a price of only a few cents each. The spontaneous coalescence of diverse energies in re sponse to human necessity and demand is indeed a mir acle-a gift from the Creator which no human authori tarian has even been able to approach, let alone dupli cate. The nature of this miracle was clearly spelled out more than a century ago by that remarkable Frenchman, Frederic Bastiat: On entering Paris where I came to visit, I said to myself Here are a million of human beings who would all die in a short time if provisions of every kind ceased to flow toward this great metropolis. Imagination is baffled when it tries to appreciate the vast multiplicity of commodities which must en ter tomorrow through the barriers in order to preserve the inhabitants from falling prey to the convulsions of famine, rebellion, and pillage. And yet all sleep at this moment, and their peaceful slumbers are not disturbed for a single instant by the prospect of such a catastrophe. On the other hand, eighty departments [subdivisions of France] have been labor ing today, without concert, and without any mutual under standing, for the provisioning of Paris. How can each day bring just what is necessary, nothing less, nothing more, to this gigantic market? What is the ingenious and secret power which presides over the astonishing regularity of such com plicated movements, a regularity in which we all have so im plicit, though thoughtless, a faith; on which our comfort, our very existence depends? This power is an absolute principle, the principle of freedom in exchanges. 2 This "absolute principle" is what attends to the all important configuration of varying creative human en ergies which takes place "without concert, and without 2 See Sophisms of Protection by Frederic Bastiat. (New York: G. P. Putnam's Sons, 1874). pp. 122-23.

MIRACLE OF THE MARKET 107 understanding." The principle operates as free from any over-all human direction or management as does the law of gravitation. Operating beyond the ingenuity of human action, this principle carries no price for its servicea service not within the ken of man, a service without which man could not exist. Indeed, the prime requirement is that this "secret power" be left alone, that is, free of any man-attempt to take it over. Freedom in exchanges, that is, willing-exchanges-the miraculous mechanism that Adam Smith termed "The Invisible Hand" -tends to tempt tinkers. There are many among us who entertain the foolish notion that. they could, if given the authority, construct a superior mech anism. They would put floors under and ceilings over wages, prices, production. They would subsidize some at the expense of others, and protect the ones who com plain about competition. In short, they are the ones who would interfere with creative energies and violate the principle of "freedom in exchanges."

The Sorry Alternative Here is Bastiat's warning on that score: What would be your conditions, inhabitants of Paris, if a minister, however superior his abilities, should undertake to substitute, in the place of this power [freedom in exchanges], the combinations of his own genius? If he should think of sub jecting to his own supreme direction this prodigious mechan ism, taking all of its springs into his own hand, and deciding by whom, how, and on what conditions each article should be produced, transported, exchanged, and consumed? Ahl al though there is much suffering within your walls; although 108 LEONARD E. READ misery, despair, and perhaps starvation, may call forth more tears than your warmest charity can wipe away, it is probable, it is certain, that the arbitrary intervention of govern ment would definitely multiply these sufferings, and would extend among you the evils which now reach but a small number of your citizens.

3 It is not necessary, however, to revert to nineteenth century France for examples of the enormous costs that accompany the substitution of government intervention for freedom in exchanges. We can draw on our own American experiences. The competitive open market freely coordinates our supplies and demands; the polit ically rigged process accomplishes no more than an ob fuscation of the automatic, spontaneous, miraculous market process, and at ever-increasing costs! No One Knows It All The reason? Take any government official (a citizen backed by force), however superior his abilities, and ob serve what confronts him when he sets out to rig prices and production. It would be difficult to write a fraction small enough to express his infinitesimal portion of the required knowledge. For instance, a single company in the U.S.A.-one among many-produces not less than 250,000 complex items. Not only is there no single in dividual in the company who knows how to make any one of these products, but there is no person in the com pany who knows what all of these items are! Yet, our government official who probably has never entered one of the company's many plants, who doubtless has no 3 Ibid., pp. Jl23-24.

MIRACLE OF THE MARKET 109 acquaintance with any member of the company, who more than likely knows nothing at all about metallurgy, electronics, marketing, finance, or hundreds of other relevant disciplines, would inflict by force his abysmal ignorance on this complex operationl Even when he realizes the colossal nature of his un dertaking, our official, more often than not, concludes that he could do all of the "beneficent" rigging if only he had enough help and enough facts. Thus is a bureauc racy pyramided, layer on layer, one division of frus trated labor after another, fact-gathering bureaus, gov ernmental research agencies, statistical heaps without end. 4 If we concede that the function of government is to inhibit, restrain, and penalize all fraud, violence, mis representation, predation, in short, to invoke a common justice, then we might expect that the cost of governing John Doe's grandson should have been no more in 1960 than it cost to govern John Doe in 1900-unless, of course, the grandson were more a rascal than was his grandfather.

Total expenditures of government at all levels in these United States in 1900 averaged $56 per person. In 1960, by reason of increased interventionism) the average was $615 per person. 5 Some will argue that the people have asked for more 4 See "Statistics: Achilles' Heel of Government" by Dr. Murray N. Rothbard. Essays on Liberty, Vol. VIII, p. 255. 5 These figures are expressed in constant purchasing power (1947 49 = 100). The unadjusted figures: $19 in 1900; $778 in 19601 110 LEONARD E. READ and more governmental "services." True, they have. But we are not here concerned with the causes, only with the costs of interventionism. Others will argue that wars have been largely respon sible for these increased costs. True, they have. But wars, in turn-even civil wars-are but the consequence of gov ernmental interventionism. Free peoples do not war with each other. Take Wisconsin and Illinois, adjoining states. There is no thought of armed conflict between the two. Goods and people cross the border as if it did not exist. Now erect trade barriers. and exchange controls, requiring a gendarmerie from each state at the border.

Sooner or later the gendarmes will have a go at it. "When goods do not cross borders, soldiers will." Dollars per Capita 600 )00 400 ~CAPITA GOVERNMENTEXPENDITURES-~ FEDERAL, STATE, AND LOCAL 1900-1960 The amounts shown have been adjusted to dollars of constant purchasing power In terms of the Cost of Living index (1947 - 49 =100). The population of the United States has Increased from 76 million in 1900 to 180 million In 1960, and government expendltures per person (in terms of 1947 - 49 dollars) have risen from $56 in 1900 to $615 In 1960. 3001-------+----~-----+----H_-----'l--_I_---_+___1 2001------j----I--I-t------+--......--I--+------+-------+-__1 1001-----_I_----I-_+_~~=--+----1-----+----_I_---I o1~90::.'O.........~L..J...J.-:1-:!::910:--'-l...I-l...L...1...L-1;;:-92:::0...L-J...l..J...l...I-l.~19=l:-30:1--Ww...J..J..J....I....l.-:Il94':-:l0-l..l....Ll...L.U....L.1.,L.95.LOl...L..J...J....L...L.l..1U96LlO-U MIRACLE OF THE MARKET III So much for the mounting costs of interventionism. 6 Now, it would be both interesting and enlightening if we could statistically demonstrate the accomplishments in declining costs when the free market performs the coordinating function. But statistical accuracy is out of the question. In the first place, there is no example of a product or service that does not bear the costs of govern mental interventionism. And, second, there are few ex amples of products that were the same in 1900 as in 1960. A 1960 automobile, for instance, bore little re semblance to the horseless carriage of 1900. Nor was a Cents per KWH U. S. AVERAGE PRICE ~ KWH OF ELECTRICITY FOR HOUSEHOLD USE 1900 - 1960 The prices shown have been adjusted to dollars of constant purchasing power in terms of the Cost of Living index (1947 - 49 • 100).

KWH used per residential customer have increased from 264 in 1913 to 3,815 in 1960, and the price (in terms of 1947 - 49 dollars) has dropped from 50 cents per KWH in 1900 to 2 cents in 1960. 2o1-----+--..:,,--+-----+-----!---_-+ +---j Cents per KWH (In dollars adjusted to cost of living; 1947 - 49 = 100) 10!------f-----'\-h;"""""'=---+----::;;;o..,..---+-----+-----1----l O'':":19~00:-'-''l-'-'-..........~19~10J...J...lw...L..J-I....I....1..19.1-20J...J...l'-l..1...L..J....l...L.19-L.30.w....L.-L.J..-L.l...w..19.J...40-L.1.w....L.-L.J...L...L..L1..L9S.L0 .L..LLLJ-LJ......l1 -Ll 960 6 State interventionism carries costs that defy measurement, costs far over and beyond those which can be expressed in dollar terms, the stifling of initiative and the enterprising spirit being among them.

112 LEONARD E. READ gallon of gas in 1960 like a gallon of the fuel used in the carriages of 1900. The most comparable example that comes to Inind is the kilowatt-hour (the energy to light ten 100-watt bulbs for one hour). The private power and light industry, substantial producers of kilowatt-hours, has not only borne its full share of governmental costs but also has suffered an inordinate amount of governmental inter ference, all under the ·heading of "regulation." Despite this handicapping, the KWH demonstrates the miraculous economies flowing from free market processes. In terms of 1947-49 dollars, the price per KWH for household use was 50¢ in 1900. The price in 1960 was 2¢[ I am not trying to compare two wholly different things. Yet, there is a significant fact to be observed in the accompanying charts: one price line goes up and up; the other down and down. There is one crystal clear lesson to be drawn from the abundance of evidence c:t~ying to be heard: With no reservations~ free all creative energies and their ex changes! Let government, society's formal agency of force, minimize the current rascality as best it can-this, and nothing more. Otherwise, leave these millions of varying creative human energies alone, that the "abso lute principle" -freedom in exchanges-may freely, unin terruptedly, and without cost configurate these energies that they, in turn, may manifest themselves as automo biles, pencils, bread, houses, clothing, heat, light, sym phonies, art, emerging individuals-indeed, all the things we live by.