The Value of the Price System is Priceless

by Don Boudreaux on May 18, 2020

in Adam Smith, Competition, Complexity & Emergence, Prices, Property Rights, The Economy

In my latest column for AIER I again sing praises that cannot be sung too often – namely, the praises of market prices. A slice:

This system of prices and wages conveys reasonably reliable information to each individual about the consequences that will be experienced not only by her, but also by other people – most of them complete strangers – as a result of her choice of how to use her resources. And because the value of each person’s resources generally rises when that person uses her resources in ways that make other people, on net, better off, each person in a regime of private property has strong incentives to use her resources in ways that not only improve her well-being but also the well-being of countless strangers.

The division of ownership of resources in a regime of private (“several”) property rights and freedom of contract combines with humans’ “propensity” (as Adam Smith put it) “to truck, barter, and exchange one thing for another” to create a vast array of prices. These prices both inform and incite each individual to arrange the resources under his or her control in ways that give rise to an unfathomably complex and productive globe-spanning arrangement of resource use.

This overall arrangement of resource use is not and could never be comprehended by any individual or by any committee. Much less could it be consciously designed and built. It emerges unplanned and unplannable from billions of individuals, each informed by market prices about how he or she might better arrange the tiny clump of resources under his or her control. That what we notice of this system are its imperfections testifies to just how well and smoothly – indeed, how magnificently – it routinely performs.


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