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Quotation of the Day…

… is from page 99 of the late Stanford University economic historian Nathan Rosenberg’s 1992 paper “Economic Experiments,” as this paper is reprinted in Rosenberg’s 1994 book, Exploring the Black Box: Technology, Economics, and History:

The historical outcome of this long-term freedom to conduct experiments which, as I have argued, has been the central feature of western capitalism, has been an economy characterized by a truly extraordinary pattern of organizational diversity. This diversity may usefully be thought of as the end result of a process of social evolution in which a wide range of organizational forms has been introduced, and in which firms have been allowed to grow to sizes that were influenced by underlying conditions of technology, location, market size, range of products, etc. The particular outcomes achieved with respect to firm size, pattern of ownership, product mix, etc., have been essentially determined by a market process in which the underlying conditions of different industries have generated patterns of survival reflecting their own special circumstances, not some a priori notion of a single best model to which they were expected to adhere.

DBx: Yes.

Economic competition is not only about keeping prices as low as possible. If consumers cared only about prices then even billionaires and NBA superstars would be driving stripped-down Nissan Versas. Nor is economic competition about ensuring that every aspiring producer in every industry will survive in competition with industry incumbents or with new upstarts.

Economic competition creates new products, new product features, new organizational forms, new contractual terms, new methods of production and of marketing and of delivery and of service. In markets, those features that serve consumers best survive, but only as long as no other features come along to out-compete them. Yet other features, invariably in markets, do come along.

No less invariably, this competition sparks complaints. Of course, many of these complaints come from business owners and workers who, not wishing to suffer losses of incomes, must adjust their productive activities to the new pattern of consumer demands. But complaints come also from other quarters – most notably, from intellectuals.

The dynamism of market competition is controlled by no one – and, if it is to continue to operate effectively, is controllable by no one. Many people fear this dynamism. It causes reality to differ from what they remember – sometimes accurately, many times inaccurately – of the past. And the ever-changing details of dynamic market competition, unable to be understood by intellectuals and certainly outside of their control, are thus assumed by intellectuals to be dangerous or at least inferior to the details of economic activity that intellectuals fancy they can design and implement.

Yet in nearly all cases of intellectuals (or politicians) complaining that markets are mistreating consumers or workers, enormous profits would be available to these intellectuals (or politicians) if they were to launch their own private enterprises to take advantage of the alleged market failures. But they almost never do so. If these intellectuals (or politicians) are unwilling to put their own money where their mouths are, why should anyone allow them to put other people’s money where their mouths are?