Article Review : "The Reality of Markets" by Robert Russell
Economics is the study of such emergent phenomena, particularly when prices, monetary or non-monetary are involved. We call these phenomena "markets." It's an unfortunate term, but one of course, that I have no control over. It's the term that has been used for a century or more and is likely to endure. But I say unfortunate, because in the mind of the public, the term "markets," conjures up either the New York Stock Exchange or a farmer's market, highly organized, centralized interactions between buyers and sellers. Most of what we study in economics called markets are decentralizednon-organized interactions between buyers and sellers.
Yet these decentralized, non-organized interactions result in prices, either monetary in the case of houses or non-monetary in the case of traffic, that have an orderliness to them in spite of their not being organized by any individual or even a group. That orderliness, that predictability, runs through our lives in ways we rarely appreciate.
To take one very important example, the orderliness of prices and the resulting lack of shortages allows knowledge to be widely dispersed via specialization. Such specialization sustains our standard of living. The level of specialization emerges alongside the prices, but the prices make it all possible. A pencil company never worries about there being a graphite shortage or a cedar shortage or a shortage of yellow lacquer. That lets the pencil factory outsource these materials and avoid the accumulation of knowledge necessary to master all of the processes involved in pencil making. The emergence of prices allows a world to emerge where no one knows how to make a pencil. That world is a pleasant one because it is a world where pencils are inexpensive, abundant and always available.
Understanding the emergent phenomena economists call a market is the essence of the economic way of thinking. In contrast, the human brain seems more accustomed to what might be called the engineering way of thinking where human action and human design work together. If I'm dissatisfied with the size of my kitchen, I make a plan and by following the plan, if it's a good plan, the result is a bigger kitchen. A person who sits around hoping for a new kitchen without design or action is going to be disappointed. Or if I notice the leaves falling from the trees, I don't hope that they're going to clean themselves up. I have to plan to rake them and then do the actual raking
Yet these decentralized, non-organized interactions result in prices, either monetary in the case of houses or non-monetary in the case of traffic, that have an orderliness to them in spite of their not being organized by any individual or even a group. That orderliness, that predictability, runs through our lives in ways we rarely appreciate.
To take one very important example, the orderliness of prices and the resulting lack of shortages allows knowledge to be widely dispersed via specialization. Such specialization sustains our standard of living. The level of specialization emerges alongside the prices, but the prices make it all possible. A pencil company never worries about there being a graphite shortage or a cedar shortage or a shortage of yellow lacquer. That lets the pencil factory outsource these materials and avoid the accumulation of knowledge necessary to master all of the processes involved in pencil making. The emergence of prices allows a world to emerge where no one knows how to make a pencil. That world is a pleasant one because it is a world where pencils are inexpensive, abundant and always available.
Understanding the emergent phenomena economists call a market is the essence of the economic way of thinking. In contrast, the human brain seems more accustomed to what might be called the engineering way of thinking where human action and human design work together. If I'm dissatisfied with the size of my kitchen, I make a plan and by following the plan, if it's a good plan, the result is a bigger kitchen. A person who sits around hoping for a new kitchen without design or action is going to be disappointed. Or if I notice the leaves falling from the trees, I don't hope that they're going to clean themselves up. I have to plan to rake them and then do the actual raking
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