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Complexity Demands Freedom

Free markets achieve amazing results by assimilating vast amounts of dispersed information while requiring no masterminds, writes Ronald M. Nate, Ph.D.

Clichés of Socialism (1962), listed as its number one, “The more complex the society, the more government control we need.” We’ve actually heard this cliché in other forms too: “This is a complicated problem, requiring a well-thought-out solution,” or “there are no simple answers.”

It’s amazing how much we’ve accepted this flawed principle. Time and again the government fails us, tries to do things by grand design, demonstrates its inability to solve simple problems, and creates unnecessary misery. See the generations of failure in Johnson’s “War on Poverty,” or notice the never-ending conundrum of regulating financial markets to prevent the next “big collapse.”

It’s not that government or its agents have bad intentions, rather that they lack the knowledge and the ability to assimilate information and devise grand plans to accomplish simple tasks in a complex world. Unfortunately, they don’t lack the hubris to think they are the solution, and that’s dangerous.

F.A. Hayek wrote, “To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm.”

But markets accomplish the grand, without the grand design. Markets by their nature transmit information, encourage cooperation, and achieve the complex by rewarding initiative and innovation.

Look up the article I, Pencil, by Leonard Read. How does the market help a pencil get made? This seemingly simple device, a pencil, is actually the product of thousands, nay millions, of economic actors, pursuing their self-interests, trading resources, and labor, and coordinating processes in a complex, yet autonomous orchestration.

Consider this: Not a single person knows how to make a pencil, and those that make pencils don’t even want them. Not even the CEO of Ticonderoga possesses the complex and vast knowledge required to harvest wood, process wood, mine graphite, smelt metals, produce rubber, mix glue, and the many other things necessary to make a simple pencil.

The workers don’t want the pencils they produce. They want cars, food, TVs, and other things. But they produce pencils nonetheless, simply to achieve their own aims. All this is coordinated through markets and efficient pricing signals, causing people to adjust plans, economize here, take an opportunity there. It gets done.

I cringe to think how in the world government could accomplish the coordination necessary to make pencils—and for pennies a pencil. Grand human design can’t do the seemingly simple very well. We might never see another pencil if left entirely to the Feds with an “Affordable Pencil Act.”

But markets work this pencil miracle billions of times a year. Human action through markets is almost always superior to government design.