My May 16th, 2007, column for the Pittsburgh Tribune-Review celebrates the marvelous properties of spontaneous market orders. In doing so, this column exposes the utter unrealism and hubris of those persons who insist that the economy can be improved upon by turning resource-allocation decisions over to conscious human design. (Of the many columns that I’ve written, this one is among my favorites.) You can read the celebration below the fold.
Marvelous properties
The economist Paul Romer notes the astonishing fact that if you thoroughly shuffle a deck of 52 cards, chances are practically 100 percent that the resulting arrangement of cards has never before existed.
Never.
Each time you shuffle a deck, you produce an arrangement of cards that exists for the first and only time in history. The arithmetic works that way. For a very small number of items, the number of possible arrangements — which item is first, which item is second, which is third, and so on — is small. Three items, for example, can be arranged only six different ways. But the number of possible arrangements grows very large very quickly. The number of ways to arrange five items is 120. For 10 items it’s 3,628,800. For 15 items it’s 1,307,674,368,000. The number of different ways to arrange 52 items is 8.066 times 10 to the 67th power.
This number is so enormous that no human can comprehend it. By way of comparison, the number of ways to arrange a mere 20 items is 2,432,902,008,176,640,000 — a number larger than the number of seconds that elapse in the course of 10 billion years. And this number is microscopic compared to 8.066 times 10 to the 67th power.
The economic relevance of this slice of arithmetic is revealed when you consider how large is the number of different resources available in the world — my labor, your land, oil, tungsten, chickens, rivers, the Sears Tower, the wharves at Houston, the classrooms at Cambridge and on and on. No one can possibly even count all of the different productive resources available for our use. They number in the trillions.
So the number of different ways to arrange all the world’s resources is mind-boggling. And almost all of these ways are useless. For example, one possible arrangement would have me holding a scalpel as I prepare to perform brain surgery on you. This arrangement would be regrettable; I have no medical training. Another unfortunate arrangement would be a steel mill whose receiving docks are loaded not with iron ore but with bales of cotton.
If our world were random, it’s a virtual certainty that the resulting combination of resources would be useless. Nothing worthwhile would be produced. We’d all starve. Because only a tiny fraction of possible arrangements serves human ends, any arrangement will be useless if it is chosen randomly or with inadequate knowledge of how each and every resource might be productively combined with each other.
How, then, to select from all the possible arrangements of resources those relatively few arrangements that serve human ends? Central planning won’t work. No human mind, or group of minds, can even list — much less rank — the gigantagazillion different possible arrangements of resources.
Yet all around us we witness an arrangement of resources that’s reasonably productive. Cotton bales aren’t delivered to steel factories; Ben Roethlisberger does not design women’s lingerie (at least not that I know of); suitcases are not made of caramel. Today’s arrangement of resources might be imperfect but it is vastly superior to most of the trillions upon trillions of other possible arrangements.
How have we managed to get one of the relatively minuscule number of arrangements that works? The answer is a social institution that encourages mutual accommodation: private property.
Private property ensures that resource arrangements will not be random. Each resource owner chooses a course of action only if it promises rewards to the owner that exceed the rewards promised by all other available courses of action.
For each consumer, this means spending money on those items that best satisfy his individual tastes. For each producer, this means finding those uses that promise the highest profit. Because profit in free markets comes from satisfying as many consumers as possible, each producer is forever on the lookout for better ways to use his resources to satisfy consumers.
Because private property gives to each resource owner (including people who own just their own labor) both the power to reject unattractive offers and incentives to use his resources in ways that generally do much to help others, the result is a system of peaceful, productive, mutual accommodation.
F.A. Hayek called this result a “marvel.” It’s a breathtakingly complex and productive arrangement of countless resources. This arrangement emerges and evolves over time as the result of billions of individual, daily, small decisions made by persons seeking to better employ their resources and labor in ways that other people find helpful.
Although unplanned, this order is governed by a strict logic — that of mutual accommodation — a logic contained only in the institution of private property.
