The Unspoken Dialogue of the Market; M. Kibbe

-FREDERIC BASTIATI H OW is Paris fed? For Bastiat, the answer to this seemingly complex puzzle was simple: Freedom ensures that Paris is fed. More specifically,an individual's freedom to think, choose, act, and trade with other individuals provides the basis for individual prosperity and social cooperation under a system of law. By striving to satisfy his own needs and wants, the free individual helps others-often without ever having intended to do so. Matthew Kibbe is a doctoral student in economics at George Mason University, assistant editor of Market Process, and senior economist at the Republican Na tional Committee in Washington, D.C. This essay won the second prize in FEE's 1988-89 essay contest, "Why Choose Freedom?" This "simple" understanding of the market or der was by no means originated by Bastiat. In 1776, Adam Smith employed the now famous analogy of the "invisible hand" to describe the social process by which the individual, when left alone, is "led ... to promote an end which was no part of his intention.... By pursuing his own in terest [the individual] frequently promotes that of the society more effectually than when he real ly intends to promote it."2 The result of this pro cess is peaceful coexistence among millions of individuals; or, better yet, "cooperation in anonymity."3 However, it was not until after Bastiat's death in 1850 that a general theory of Adam Smith's "invisible hand" explanation was developed by the Austrian economists. Carl Menger demon strated how social institutions (particularly mon ey) emerge in a society as a result of each individ ual's participation in the market. The actions of "erring, bumbling man" were in turn guided by these institutions.4 Ludwig von Mises considered this interplay between purposive individuals and social institu tions to be the necessary condition for successful economic coordination in an uncertain world.

Money and mOQ.ey prices served as the indispens able "guide amid the bewildering throng of eco nomic possibilities."5 No single man can ever master all the possibili ties of production, innumerable as they are, as to be in a position to make straightway evident judgments of value without the aid of some system of computation. The distribution among a number of individuals of administra432 THE FREEMAN • NOVEMBER 1989 "On coming to Paris for a visit, I said to myself: Here are a million human ~~:'beings who would all die ,~.:' lin a few days if supplies of all sorts did not flow into this great metropolis .... How does each succeeding day manage to bring to this gigantic market just what is necessaryneither too much nor too little?" -FREDERIC BASTIAT tive control over economic goods in a commu nity of men who take part in the labor of pro ducing them, and who are economically inter ested in them, entails a kind of intellectual division of labor, which would not be possible without some system of calculating production and without economy.6 Each individual, because of this "intellectual division of labor," possesses a great deal of infor mation which is known to him alone. The steel worker in Pennsylvania, the securities broker in New York, the farmer in Iowa, the business man ager in California, and every other individual within society is privy to "the knowledge of the particular circumstances of time and place."7 In stitutions such as money prices allow the individ ual to communicate this unique, personal knowl edge to the unknown others in society. Through constant changes in price, the market enables each individual to engage in a free, unspoken dialogue with other individuals. It is this process which allows successfuleconomic coordination to take place.

Hayek'sExample F. A. Hayek, a student of Mises, told the hypo thetical story about a drop in the market supply of tin to elucidate this communicative process beTHE UNSPOKEN DIALOGUE OF THE MARKET 433 tween the individual and his unknown fellows. Suppose that either a new use for tin has been discovered or that an important producer's ability to provide tin on the market has declined. Either way, tin is now more scarce. Some consumers of tin, because of their proximity to and knowledge of the impetus of the change, are immediately in formed of the new situation. Through their sub sequent actions, these few individuals influence the price of tin. Without anyone intending to help others, the information of the new scarcity of tin is spread through the price system. Signaled by the rising price of tin, the vast majority of tin con sumers, not privy to the direct knowledge of time and place, are "told" that· they must somehow economize their own use of tin. "The marvel is that in a case like [this] of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of in vestigation, are made to use the material or its products more sparingly; that is, they move in the right direction."8 Now imagine the constant flux of a real econo my, where changes in tastes, new technological discoveries, and an almost infinite number of oth er changes-both large and small-occur every minute. Each individual is continuously engaging in an unspoken dialogue with millions of other individuals, simply by choosing and acting. The smooth complexity of such a system is both over whelming and beautiful.

Unfortunately, as Hayek points out, the oppo nents of freedom have altogether failed to appre ciate or understand the nature of this "simple" insight. "Much of the opposition to a system of freedom under general laws arises from the in ability to conceive of an effective coordination of human activities without deliberate organiza tion by a commanding intelligence."9Without an understanding of how the "invisible hand" of the market operates, complexity is mistakenly seen as chaos. The raison d'etre of Marxism is, and always has been, the replacement of production for ex change, which is directed by the "blind forces" of the market and money prices, with comprehen sive, rationally coordinated planning by a central authority. Freedom and free exchange will be re placed with direct control over the means of pro duction. Only then will the needs and wants of the people be satisfied. Or so the story goes.

But how would a central authority ever know what the constantly changing needs and wants of the people actually are? Such knowledge can only exist in a market and in m~rket prices. Polit ical orders, no matter how carefully calculated, are no substitute. Without the freedom to act and choose, there is no basis for producing anything. In a command economy, there can be no dialogue between individuals except within the strictly lim ited bounds of time and place. As Mises put it, advanced economic production would be "un workable." What all would-be planners-the mercantilists, the protectionists, and the socialists-fail to see is that the market process is not chaotic at all. Through the unspoken dialogue of prices, indi viduals in the market are able to communicate and coordinate their activities in a way that is both peaceful and prosperous. Freedom works. Or, from Frederic Bastiat's point of view, Paris is sleeping peacefully,and Paris is fed. D 1. Frederic Bastiat, Economic Sophisms (Princeton: D. Van Nostrand Company, 1964), p. 97.

2. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (New York: Random House, 1937), p. 423. 3. Richard M. Ebeling, "Cooperation in Anonymity," Critical Review, Vol. 1, No.4, Fall 1987. 4. Carl Menger, Principles of Economics (New York: New York University Press, 1976), pp. 257-85. See also Carl Menger, "On the Origin of Money," Economic Journal, Vol. 2, 1892. 5. Ludwig von Mises, Socialism (Indianapolis: Liberty Classics, 1981), p. 101. 6. Ludwig von Mises, "Economic Calculation in the Socialist Commonwealth" in F. A. Hayek, editor, Collectivist Economic Planning (Clifton, N.J.: Augustus M. Kelley, 1975), p. 102. 7. F. A. Hayek, "The Use of Knowledge in Society," Individualism and Economic Order (Chicago: University of Chicago Press, 1948), p. 80. 8. Ibid., p. 87. 9. F. A. Hayek, The Constitution of Liberty (Chicago: Universi ty of Chicago Press, 1960), p. 159.