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Quotation of the Day…

… is from page 557 of Armen Alchian’s insightful 1979 essay “Words: Musical or Meaningful?”, published for the first time in The Collected Works of Armen A. Alchian (2006), Volume 1 (“Choice and Cost Under Uncertainty”):

Competition is here defined as any activity which is intended to improve one’s situation relative to another person.  It is difficult, indeed impossible, to imagine a world of scarcity in which competition – a striving to improve one’s circumstances – does not occur.

Those people who accuse free markets of unleashing “greed” or competition mistake form for cause.  The market is an institution that channels, in particular ways, individuals’ striving to improve their circumstances.  The market does not create the desire in, or otherwise cause, individuals to want to improve their circumstances.  Such a desire is inherent in humans.  And in a world of scarcity – which our world unavoidably is and will always be – no one can improve his or her circumstances costlessly: someone (or someones) must be denied something for such improvement to occur.  (Note that to be denied something does not necessarily mean to be made worse off.  I enjoyed a yummy meal last evening with George Selgin at a fine D.C. restaurant.  I made myself better off by purchasing that meal – but the restaurant did not give the meal to me free of charge.  I had to pay for it.  While I would have preferred to get the meal for free, I’m still better off for having had that meal despite my having to deny myself whatever else it is that I would have purchased with the money that I spent on the meal.)

The only question is how competition for resources will be channeled.  Markets channel that competition by, first, denying to everyone the ability to simply take others’ physical resources.  The result of this denial is that to get resources now owned by others, a market participant must figure out ways to make the owners of those desired resources better off: a market participant can make himself or herself better off only by making other people better off. The market, therefore, channels competitive efforts into creative activities designed to make others – including strangers – better off.

Markets (almost needlessly to say) aren’t ‘perfect.’  Property rights, for a variety of reasons – some more excusable than others – aren’t always well-enough defined or enforced.  All people err, at least occasionally.  Some people are devious.  People have psychological quirks.  Economists (especially over the past 80 or so years) have had a grand time identifying these weaknesses of markets – these ‘market failures.’

But too many of these economists have failed, and continue to fail, to ask that all-important economist’s question: “As compared to what?”  The assumption too-often made is that centralized government authorities will miraculously ‘correct’ these market ‘imperfections’ – an assumption itself built on the implied assumption that real-world political processes are either perfect or less-imperfect than are market processes.  There is, of course, absolutely no basis for this assumption.  When policies based upon it are adopted, competition does not disappear, or even diminish; competition is simply channeled from private efforts to improve one’s circumstances into political efforts to improve one’s circumstances.

Such political efforts, compared to market efforts, might be more easily costumed-up to make them appear to be something other than a competitive struggle – recall the sappy Normal Rockwell painting of the common man speaking at a town meeting – but, of course, politicians and the political process cannot produce costlessly any more than can private people in the market process.  One big difference between competition in politics and competition in the market is that in the former the competitive struggle is settled by who is the strongest: the strong simply take from the weak, with no obligation to give the weak anything in return.