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A Marvel of Cooperation: How Order Emerges without a Conscious Planner : Russell Roberts
7 paragraphs found.
 

One of the great virtues of economics is how it illuminates the unseen and the hidden. Frederic Bastiat, in his classic essay, What Is Seen and What Is Not Seen, analyzed the economic consequences of a simple act of vandalism, the broken window. We see the broken window. We see or can imagine the consequences of the broken window—more money for the glazier. What is harder to see and imagine is what is not seen—the economic activity that will not take place because the window must be fixed.

 

This simple example is a fundamental reminder of the scarcity that constrains our choices at a point in time. Bastiat used the metaphor of the broken window to critique policy recommendations whose promises of success often ignored the inevitable scarcity that must always apply at a point in time—resources used for one purpose can no longer be used elsewhere.

 

But Bastiat had another insight about the seen and the unseen that is less appreciated than his classic metaphor of the broken window. In Chapter 18 of Economic Sophisms, Bastiat asks why is it than no one goes to sleep anxiously in Paris, worried about whether there will be bread and other items available for purchase in the morning:

On coming to Paris for a visit, I said to myself: Here are a million human beings who would all die in a few days if supplies of all sorts did not flow into this great metropolis. It staggers the imagination to try to comprehend the vast multiplicity of objects that must pass through its gates tomorrow, if its inhabitants are to be preserved from the horrors of famine, insurrection, and pillage. And yet all are sleeping peacefully at this moment, without being disturbed for a single instant by the idea of so frightful a prospect… What, then, is the resourceful and secret power that governs the amazing regularity of such complicated movements, a regularity in which everyone has such implicit faith, although his prosperity and his very life depend upon it? That power is an absolute principle, the principle of free exchange.

 

Bastiat was not the first to point the marvel of coordination. Ultimately, the cooperation that underlies the process is driven by specialization and the division of labor. So it is not surprising that Adam Smith, who began The Wealth of Nations with a discussion of the division of labor and its wealth-producing properties, asks his readers to marvel at the power of specialization, the division of labor and the unseen cooperation of thousands to produce a simple woolen coat:

Observe the accommodation of the most common artificer or day-labourer in a civilized and thriving country, and you will perceive that the number of people of whose industry a part, though but a small part, has been employed in procuring him this accommodation, exceeds all computation. The woollen coat, for example, which covers the day-labourer, as coarse and rough as it may appear, is the produce of the joint labour of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join their different arts in order to complete even this homely production. How many merchants and carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country!

 

Hayek was invoking the marvelousness of uncoordinated knowledge as a counterpoint to the socialists of his day who argued for the superiority of centralized, state-run, top-down coordination. Bastiat, in the same discussion quoted above, contrasts the success of decentralized exchange in providing Paris with all of its citizens needs with how poorly a government bureau would perform the task.

 

Hayek wanted to illuminate the incredible coordinating of vastly decentralized knowledge that must happen to cope with any adjustment such as a shortage. Hayek's answer, akin to Bastiat's referring to self-interest and exchange, and Read's invoking of the Invisible Hand, is the price system, which he expounds on in some detail.

 

And yet, like Bastiat's Parisian, we rightly lose little or no sleep worrying about these changes. The transition will be managed not by a Congressional committee or Presidential board charged with averting a crisis. The transition will be handled by the price system and we'll hardly notice it. Part of my confidence comes from Hayek's insights into how markets work. But much of my confidence comes from the evidence of the past 20 years when a hundred million Chinese made the same trek we're talking about in the future. This is the greatest migration in human history and my guess is that you missed it. Very little changed in the world around us. The Chinese didn't buy up all the bicycles or cedar for the pencils or coffee grounds for more coffee. Somehow, our economic system took care of this transition so effectively, that most of us didn't even know it happened.