The Price Is Right

Last week I outlined just how complicated the economy really is. Society is confronted with the almost incalculable problem of how to meet the indefinite needs of a massive and diverse population. Anyone who has raised a decent-sized family knows just how hard it is to satisfy even a small group of people whom you know inside and out, actually love, and talk to every day. How much more enormously complicated — nearly impossible — seems the task of trying to keep millions of people not just alive but working steadily in useful, cooperative ventures that meet each others’ needs promptly and without enormous waste of resources and effort. Wilhelm Röpke, whose principled, subtle analyses I will be data-mining for the next few weeks, laid out the predicament of economics in his layman’s introduction, Economics of a Free Society:

Consider, for a moment, the problem of the daily provisioning of a great city. Its millions of inhabitants must be provided with the basic necessities, to say nothing of the “luxuries” which cheer and brighten existence: so many tons of flour, butter, meat, so many miles of cloth, so many millions of cigars and cigarettes, so many reams of paper, so many books, cups, plates, nails, and a thousand other things must be daily produced in such wise that a surplus or deficiency of any particular good is avoided. The goods must be available hourly, monthly, or annually (according to the kind of good in question) in exactly the quantities and qualities demanded by a population of several millions. But the people’s demand for goods is necessarily dependent upon their purchasing power (money). The existence of purchasing power presupposes, in turn, that the millions who appear in the market as consumers have previously as “producers” (whether employees or independent proprietors) so adjusted their output, both in quantity and quality, to the general demand for goods that they were able to dispose of their stock without loss. Now the highly differentiated modern economic system encompasses not alone a single city, however great, not alone a country however vast, but, in a way to which we shall give our particular attention later, the whole terrestrial globe. The craftsman in an optical instrument factory makes lenses for export to the most distant countries, which in turn supply him with cocoa, coffee, tobacco and wool. While he is polishing lenses he is also producing, indirectly, all these things more abundantly and more cheaply than if he produced them directly.

This immensely extended and intricate mechanism can function only if all its parts are in such constant and perfect synchronization that noticeable disorder is avoided. Were this not the case, the provisioning of millions would be immediately imperiled.

 

Who is charged with seeing to it that the economic gears of society mesh properly? Nobody. No dictator rules the economy, deciding who shall perform the needed work and prescribing what goods and how much of each shall be produced and brought to market.

The absence of such a dictator has troubled many a thinker over the centuries. Looking at society as a family, and its inhabitants as the ruler’s many short-sighted, rebellious children, political philosophers have sought to organize human efforts in much the way a stern, patriarchal father (such as Brad Pitt plays in Tree of Life) might command a gaggle of adolescent sons. This paternalistic tradition in political thought, as Frederic Bastiat observed in The Law, stretches from Plato’s Republic through Thomas More’s Utopia right up into modern systems of utopian and revolutionary socialism: The rulers possess greater wisdom and virtue than the ruled, and hence should dictate the priorities for the latter’s work and wealth:

Happily, according to these writers, there are some men, termed governors and legislators, upon whom Heaven has bestowed opposite tendencies, not for their own sake only, but for the sake of the rest of the world.

Whilst mankind tends to evil, they incline to good; whilst mankind is advancing toward darkness, they are aspiring to enlightenment; whilst mankind is drawn toward vice, they are attracted by virtue. And, this granted, they demand the assistance of force, by means of which they are to substitute their own tendencies for those of the human race.

For such thinkers, abstract principles, philosophically derived, should govern the lower orders as the mind commands the body, or a charioteer controls his horses. To make this concrete, strict laws should ensure that the prices paid for each product, and the wages paid for each type of work, conform to “justice” and support the proper hierarchy of values that reflects the society’s vision of the Good. Thus will men’s activities — instead of being anarchic and subject to their sinful, irrational passions — be firmly guided from above toward the pursuit of virtue.

Plug in terms like “community” for “ruling elite” and switch out the values imposed by force upon individuals, and the above also describes the ethos of democratic socialism, as well as the liberalism that dominates the Democratic Party and the thinking of many Catholic bishops. The masses, like the laity, were put on earth to pay, pray, and obey.

 

There are two objections to such a top-down method of managing human work, and the first one is moral. As Bastiat pointed out, the philosophers or rulers who imagined themselves dominating other men this way were elevating themselves above the human condition, marking themselves as effectively a higher sort of being than those men they ruled. Those other, lesser men might be goaded by selfishness, pride, and other passions — which is precisely why they needed to be controlled by a better class of men, such as… intellectuals. Thus rulers and thinkers were virtually deified and subjects degraded to the status of clever animals. Hence those subjects’ economic behavior must be closely regulated according to codes designed to check their grubby passions: guild regulations fixing wages and prices, royal monopolies stifling competition from upstarts, tariffs keeping foreigners out of the market, and “sumptuary” laws denying luxuries to those who hadn’t been born a part of the noble class. In our own day, such laws have given way to a bewildering array of regulations imposing a different moral code on the governed, one driven by leftist and collectivist egalitarian goals. But the goal of imposing control, by government force, on other men’s lives and work remains unchanged.

Does history offer any evidence that men who rise to power — the kind of men who crave it, can get it, and hold it — are in fact qualitatively different from ordinary men? The record of tyrants in the ancient world, feudal lords in the Middle Ages, tyrannical kings in the Renaissance and Reformation periods, utopian revolutionaries in France, Spain, Mexico, and Russia suggests that they are not. It was the melancholy record of how men with unaccountable power abuse it that led America’s founders to seek a “government of laws, and not of men,” and to arrange for the “separation of powers,” such that the hunger for power of various factions would lead them to cancel each other out, and replace “perfect” tyrannical programs with safe, if shabby, compromise.

The great Catholic libertarian Lord Acton is famous for observing that “power tends to corrupt, and absolute power to corrupt absolutely.” I don’t quite agree. I think, instead, that power reveals what is in a man — and what it typically shows most clearly is the truth of original sin. As histories of the Renaissance make clear, even popes are not immune — though they are held back from committing a single, very grave sin: teaching heresy. That’s all Christ ever promised us, so none of this should scandalize the orthodox. The papacy hasn’t changed, nor have new divine promises been granted concerning the popes, since the reign of the Borgia Pope Alexander VI — despite what a Catholic shrink in New York City once tried to tell me (on my dime), when he solemnly assured me (through a mouth full of penne puttanesca) that Pope John Paul II, unlike all previous popes, had been “granted special powers by the Holy Spirit.” (I referred him to another, secular shrink.) Of course, we have been blessed since the early 19th century with a (mostly) holy and (largely) prudent series of pontiffs. But God grants us no guarantees. There may be a Borgia in our future. There’s nothing in the record even of the papacy that should make us comfortable granting absolute temporal power to any human being, or overweening power to any government, however constituted.

 

The second objection to the top-down model of the economy is that it leads to the making of millions of ill-fitting black left shoes, all size 12, sitting in warehouses, and to hungry housewives standing in line for bread and salt. While heroic resistance to Communist tyrannies was typically led by men of faith in God and (hence) in human dignity, like Solzhenitsyn, Mindszenty, Wyzinsksi, Wojtyla, and Walesa, what ultimately brought the system down was its economic incoherence, its inability to provide people with even the simple pleasures in life: clothes that fit, fresh food, productive work, and the hope of a better life for their children. Indeed, in Soviet Russia, the system couldn’t even provide apartments large enough to house more than one or two children, a fact that contributed to one of the highest abortion rates in history.

As Röpke’s mentor Ludwig von Mises predicted in 1920 — only three years into the great Marxist experiment–such catastrophes were bound to happen, and for an implausibly simple reason: lack of accurate information about what people want and how much they want it. That is what prices are — irreplaceable, accurate data about what millions of individuals prefer on a moment-to-moment basis, transmitted constantly from every consumer and producer in the world to a decentralized database, which almost instantaneously starts up the process of responding to those preferences. Each time you go to Amazon to buy, say, a Catholic humor book (hint, hint), you are sending the bookseller, the publisher, and the author a thank-you note in the form of money. Or, if you prefer, think of it as a vote. It’s a vote you likely earned by providing some good or service to someone else — who in turned earned his votes by serving still other people. This is the origin of the astounding organic order that emerges from the apparent chaos of economic life, when men and women are left essentially free to express their personal preferences and trade the labor they’re willing to do for the goods they wish to buy. Thus they harness themselves to each other and cooperate in building the future.

In a fully collectivist economy such as the Soviet Union’s, it is virtually impossible to determine what anyone wants, since prices are set arbitrarily by the government. So are wages. But no government, however powerful, could collect, sort, and transmit the kind of data about what people want that the price system spontaneously generates and seamlessly uses to tweak what some people produce to match what others wish to consume. Given the sheer impossibility of this task, which not even Orwell’s dystopian government in 1984 could hope to pull off, the state shrugs off the effort to figure out what people want and decides instead to dictate what they shall have. Wise bureaucrats determine the bare minimum human needs — black bread, cheap coffee, a drab green uniform — and strive amidst the inherent anarchy of any socialist system to produce and distribute them. Since the state controls both the production and distribution, dissenters can expect to struggle or even starve. Instead of the messy, organic order that is the marketplace, men live in the thinly veiled chaos of a prison camp — and strive to win favor with the kapos.

While Mises was a countercultural prophet in his time for pointing all these things out, most Westerners today would accept that a completely collectivist economy is impossible. They remember the Berlin Wall, which was built to keep people who lived in the prison camp from escaping into the marketplace. What too few of us realize today is that every direct intervention by the government in the economy does introduce some distortion in the price system, jamming the signals people send and adding a measure of confusion. Soviet-style socialism was, in this sense, absolute chaos, like a PC completely compromised with viruses, sending out only spam instead of email. Our own economic system — with all its confusing and confiscatory taxes, non-market incentives, regulations, and litigations — is more like a laptop riddled with spyware, whose works are so gummed up that it functions at half the speed it should. But at least it runs.

Now, this isn’t to say that the price system ought to be absolute, untrammeled by laws that restrict what can be sold or bought. There are certain types of transactions (for instance, nuclear weapons) that the state can and should refuse to permit, some contracts (such as gay “marriage”) the community can simply refuse to enforce. We can and should impose pollution and safety regulations that protect innocent third parties from the toxic side-effects that often accrue with industry, which often are not accounted for in the prices of goods or services. But our interventions will be fewer, more prudent, and more reluctant if we remember that the price system and the market are, at heart, the source of economic order, an exquisitely subtle organic system that we no more wish to distort and destroy than we do the human reproductive system.

John Zmirak

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John Zmirak is the author, most recently, of The Bad Catholic's Guide to the Seven Deadly Sins (Crossroad). He served from October 2011 to February 2012 as Editor of Crisis.

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