Don’t dismiss the market economy

No one in the world knows how to make the newspaper you are holding (and, if you’re reading this on your phone, computer, iPad or Kindle, no one knows how to make those things either).

Even the best editor in the world has no clue how to make a printing press or the ink, or how to operate a communications satellite.

This is hardly a new insight. In 1958, Leonard Read wrote one of the most famous essays in the history of libertarianism, “I, Pencil.” It begins, “I am a lead pencil — the ordinary wooden pencil familiar to all boys and girls and adults who can read and write.” It is one of the most simple objects in human civilization. And yet “not a single person on the face of this Earth knows how to make me.”

The pencil tells the story of its creation. The wood comes from Oregon, or perhaps California. The lead, which is really graphite, is mined in Ceylon (now Sri Lanka). The eraser, which is not rubber but something called factice, is “made by reacting rape seed oil from the Dutch East Indies with sulfur chloride.”

To make a long story short, the simple act of collecting and combining the ingredients of a pencil involves the cooperation of thousands of experts in dozens of fields, from engineering and mining to chemistry and commodity trading. I suppose it’s possible for someone to master all of the knowledge and expertise to make a pencil all by themselves, but why would they?

The lessons one can draw from this fact are humbling. For starters, any healthy civilization, never mind any healthy economy, involves unfathomably vast amounts of harmonious cooperation.

These days there’s a lot of buzz about something called cloud computing. In brief, this is a new way of organizing computer technology so that most of the data storage and number crunching don’t actually take place in your own computer. Rather, everyone plugs into the computational equivalent of the electrical grid.

Do a Nexis search and you’ll find hundreds of articles insisting that this is a revolutionary advance in information organization. And in one sense, that’s obviously true. But in another, this is simply an acceleration of how civilization has always worked. The information stored in an encyclopedia or textbook is a form of cloud computing. So is the expertise stored in your weatherman’s head. So are the intangible, but no less real, lessons accumulated over generations of trial and error and stored in everything from the alphabet to the U.S. Constitution to my daughter’s second-grade curriculum.

More relevant, the modern market economy is the greatest communal enterprise ever undertaken. Friedrich Hayek did the heavy lifting on this point half a century ago in his essay “The Use of Knowledge in Society.” The efficient pricing of markets allows millions of independent actors to decide for themselves how to allocate resources. According to Hayek, no central planner or bureaucrat could ever have enough knowledge to consistently and successfully guide all of those economic actions in a more efficient manner.

The latest proof of Hayek’s insight can be found not only in the economic winter that goes by “recovery summer,” but in the crown jewel of the stimulus known as “cash for clunkers,” which subsidized car purchases that would have happened anyway. That’s a major reason the auto industry just had its worst August in 27 years. Meanwhile, lower-income buyers are seeing used-car prices soar thanks to the artificial scarcity created by destroying perfectly good “clunkers.”

But that’s a small point in the grand scheme of things. According to progressives, the financial crisis discredited “market fundamentalism” and created a burning need for a more cooperative society in which “we’re all in it together.”

It’s an ancient argument, with many noble intentions behind it. But it rests on a misunderstanding of one simple, astounding, irrefutable fact. The market economy is cooperative, and more successfully so than any alternative system ever conceived of, never mind put into practice. Admittedly it doesn’t feel that way, which is why everyone wants to find a better replacement for it. But they never will, for the same reason no one can make a pencil.

jgoldberg@latimescolumnists.com