… is from pages 263-264 of my late Nobel-laureate colleague James Buchanan’s 1991 paper “The Minimal Politics of Market Order,” as this paper is reprinted in Choice, Contract, and Constitutions (2001), which is volume 16 of The Collected Works of James M. Buchanan:
If resources are not allocated and products distributed through the workings of a market system, then the allocative and distributive functions must be performed directly by a political-bureaucratic agency. In this direct and obvious sense, markets, to the extent that they are allowed to operate, constrain bureaucratic intervention into the lives of citizens.
This conclusion does not imply that markets or market organizations eliminate, as if by magic, the elemental constraints imposed by scarce resources. By increasing efficiency in resource use, markets may reduce the severity of these ultimate constraints. Yet the basic limits on resources remain; markets replace the implementation and representation of constraints through coercive intrusion of personalized bureaucracy by the impersonal price structure. The discretionary power or authority of the bureaucrat is replaced by the impersonal authority of prices, with the accompanying differences in interpersonal relationships.
DBx: Many people distrust or otherwise dislike the allocation of resources according to market-set prices precisely because such prices (and, hence, the patterns of resource allocation that arise from such prices) are impersonal. No human agency is in charge to ensure that worthy people receive all they ‘should’ receive and that unworthy people be denied what they ‘should’ be denied. Anyone above the age of four can locate in reality instances of seeming economic ‘injustices,’ and, in the process of doing so, easily imagine how god would improve on the observed economic arrangement. Indeed, such flights of imagination are both fun and fill the imaginer with a satisfying sense of self-righteousness.
But as Thomas Sowell repeatedly reminds us, reality isn’t optional. Reality is not a pliable dough that can be formed into whatever shapes our imaginations conjure.
In competitive markets, prices and wages – although of course never ‘perfect’ – reflect more accurately than any other institution known to humankind the real and relative scarcities of different goods, services, and inputs (including different types of human labor). I emphasize: scarcities aren’t created by existing market prices; scarcities are reflected in existing market prices. And because such reflections are as accurate as is humanly possible, people’s reactions to these prices – reactions as consumers and as producers – typically keep the current ‘bite’ of the scarcities as mild as possible (which isn’t to say that that bite isn’t often painfully sharp) and cause the sharpness of this ‘bite’ to weaken over time.
Those who would suppress market prices as the chief means of allocating resources in market economies almost never think seriously about what forces arise in the place of prices. Sometimes those who would suppress market prices imagine that government officials would allocate resources better. But how? From where to these officials get the information necessary to allocate resources wisely, efficiently, or “better”? This question is seldom asked because those who call for the suppression of market prices and wages typically assume either that the problem of resource allocation is an easy one or that the government officials charged with the task somehow have superhuman abilities.
Note that the problem of resource allocation by conscious human direction isn’t only one of information; it’s also one of incentives. People with a faith in government simply trust that a ‘good’ government (however ‘good’ is defined by the particular devotee of government control) will serve worthy people – the poor, the weak, the forgotten – better than does the market. Those with such a faith are ignorant of actual economic history and of actual political reality.
Pictured in the above photo are, left to right, Anne Buchanan (Jim’s wife), Jim Buchanan, and Betty Tillman (Jim’s long-time devoted secretary and personal assistant).