Salvation Through the Internet; D. Boudreaux

Production and consumption opportunities that would otherwise remain unexploited lie within the grasp of almost anyone on earth. Global competition and cooperation intensify and wealth increases. Marvelously, the cost of using this communication system is near zero. This communications network is centuries old. It is the price system. If not as novel as the electronic Internet, free-market pricing is far more agile, accurate, and effective at sending crucial messages to all who want them. The Japanese want more houses? No prob lem. Japanese homebuilders order more lum ber. Lumber inventories in Japan fall, pushing lumber prices in Japan higher. Japanese boat builders are persuaded to use less wood and more fiberglass or aluminum. The price sys tem is the network over which some Japanese inform other Japanese that the value of using lumber to build homes has risen. The price system also speeds messages beyond national borders. Japanese importers respond to higher lumber prices by ordering more lumber from America. Americans ex port more lumber to Japan. The world price of lumber rises, telling lumber firms every where to increase production-and telling Dr. Boudreaux is associate professor of law and economics at Clemson University, Clemson, South Carolina.

consumers everywhere to economize on lum ber use. Without the swift and sure communication of economic information supplied by the price system, every industrial economy would col lapse. But while the price system labors in relative obscurity-so effectively does it do its job-the Internet has inspired bounteous and often utopian speculations about how this high-tech marvel will transform democracy and worldwide cooperation. The Economist recently opined that representative democ racywillbe substantially improved (if not fully replaced) by direct collective decision-making made possible by the Internet. The Advantages of the Market Despite such effusive praise, the Internet is bumbling in comparison with the market. However spectacular its mode, verbal com munication can never govern people and allocate resources as effectively as does the price system. (Intellectuals dispute this claim because they are word merchants. Intellec tuals have incentives to magnify the impor tance of anything that promises to increase their own influence.) The market enjoys two significant advantages over the Internet.

First, messages sent over the Internet must be interpreted. Recipients must understand the context of the sender's remarks, as well as any special meanings that the sender attaches to particular words or phrases. Though often effective, attempts at verbal communication among large numbers of people can too easily misfire. As evidence, notice how easily de719 720 THE FREEMAN • NOVEMBER 1996 signers of opinion polls elicit diametrically different responses with only small changes in the wording of questions. Price signals, in contrast, are more easily interpreted than words. Japanese boat build ers see the price of lumber rise 10 percent relative to the price of fiberglass. The mean ing of this price rise is clear: it pays to use less lumber and more fiberglass. Second, market signals are much more trustworthy than opinions sent over the In ternet. The market punishes lying as well as uninformed expressions of opinion. If share prices of lumber companies rise, you can bet that someone is genuinely optimistic about the lumber industry's future. For me to issue an opinion through the price system about this industry's prospects requires that I spend my own money either buying or selling shares in corporations whose business is lumber.

If I lie or am rash in formulating my opinion, I will likely lose money. People risking their own wealth in the market can be trusted to make the most informed decisions, thereby sending out accurate market messages to others. Not so on the Internet. Imagine if lumber production were decided by a nationwide "town meeting" over the Internet. Not only would no single message or vote delivered in this debate likely be decisive, but few partic ipants would have a direct and personal stake in the outcome. Thus, few participants would bear personal costs from expressing one opin ion rather than another. Environmentalists would exaggerate the ill effects of lumbering, lumberjacks would exaggerate the ill effects of conservation, and masses of other people with nothing at stake and knowing precious little about this issue would solemnly come down on one side or the other. With the personal consequences of expressing opinions virtually nonexistent, plenty of uninformed opinions and votes would flood the Internet.

As a forum for conversation, the Internet is dazzling. As a forum for making collective decisions, it is a formula for disaster. Happily, free markets remain available to elicit in formed opinions from nearly everyone world wide, distilling this information into easily understood prices for the entire world to read. D r-------------------------------------, THENEWJOURNALONLIBERTY T he INDEPENDENT REVIEW is the new, quarterly, journal devoted to the political economy of liberty. Transcending the all toocommon politicization and superficiality in contemporary scholar ship and policy debate, The INDEPENDENT REVIEW is superbly written, provocative, wide-ranging, and based on solid scholarship. Featuring path-breaking studies by many of the world's finest econo mists and other scholars, The INDEPENDENT REVIEW boldly challenges the collectivization and bureaucratization of our world. Probing the most difficult and pressing of social and economic ques tions, articles range across economics, political science, law, history, philosophy, sociology, and related fields. Edited by Robert Higgs, The INDEPENDENT REVIEW features in-depth examinations of current policy issues viewed in comprehensive historical, ethical, and economic perspectives, and written in clear, vigorous English. Undaunted and uncompromising, this is the journal that will pioneer future debate!

"Excellent,diverseand wide-ranging." Figures. Tables •Annual Index •600 Pages per Volume ifu:~~~n~~Y?t~n:.~~~~~~~sor,RutgersU. Individual: $27.95/year (#1350)· $52.95/two year (#1354) "Excellentandprofoundlyimportant." Institutional: $49.95/year (#1352) • $94.95/two year (#1356) -TOM PETERS . I d dd $28 b"" & h" "Co-Author,In SearchofExcellence Internatlona or ers a per su scnptIon lor SIppIng Z:ENDENT~ INSflTUTE The Independent Institute, Dept. 4B, 134 Ninety-Eighth Avenue, Oakland, CA 94603 USA..L _ THEFREEMAN IDEAS ON LIBERTY Home, Home on the Internet by Thomas Boustead S ometimes, all you really need is a better fence. While that advice seems sensible for an 1880s cattle rancher, it might appear less relevant to a pioneer on a novel frontier like today's Internet. After all, straying cattle hardly compare to the data so cleverly routed over the Internet. And rusting barbed wire scarcely resembles modern fiber optics. Still, barriers and fences, even if composed of algorithms rather than steel strands or wooden rails, have a part to play in the evolution of the Internet-a role based in the economic nature of the Internet and the often subtle relationship between well de fined private property and economic activity.