The market as an institution is both a blessing and a curse.
Its blessing lies in its coordinating abilities. As Adam Smith first noted back in his Wealth of Nations, nobody knows how to make a woolen coat. Rather, it is the coordinated (although not planned) actions of “a great multitude” of workers that results in a woolen coat (pg. 22–24 of the Liberty Fund edition). This division of labor and subsequent division of knowledge results in a great multiplication of the goods and services available to everyone. It also leads to innovation and invention, further generating more gains.
F.A. Hayek famously noted how the price system (when operating freely) conveys vital information to all participants, who can then use that information and their own knowledge to make their decisions. One need not know why tin prices are rising, but one does know that tin needs to be conserved and to search out alternatives. And Vernon Smith showed how few conditions are really needed to get the market to work (see Rationality in Economics: Constructivist and Ecological Forms by Vernon Smith, in particular pg. 30, chapter 4, and the citations therein).
Markets have allowed people to come together and create such prosperity that the world has never seen before.
The market’s curse lies in its very decentralization.
Referring back to Adam Smith, division of labor results in a certain “torpor of the mind” (pg. 782 of Wealth of Nations) where an individual becomes so wrapped up in their specialized work that they know nothing of the world beyond. We see that as an outcome in markets politically as collectivism: because individuals know a lot about their specific work, they assume that all knowledge can subsequently be collected, analyzed, and acted upon. But the market contains such a magnitude of particular knowledge (meaning that the knowledge only makes sense in the particular time, place, and mind in which it exists) that it cannot be collected. Collectivists greatly misunderstand the system in which they operate, and consequently meddle with it, undoing the very blessings markets bring, leading to ruin.
One would think that after the spectacular failures of centralized societies in the past century, from fascist Spain, Italy, and Germany to socialist China and the USSR (not to mention failed African and Asian states), would result in a movement away from collectivism. Indeed, the Socialist Calculation Debate (the multi-decade debate between Austrian economists and socialist economists) was won so handily by the Austrians that the definition of “socialism” changed! Yet, those zombie ideas continuously come back from the dead, all justified with some version of “this time is different!”
And so we economists beat on, boats against the currents of collectivism, bore back ceaselessly into the past, rehashing arguments made long ago (and continuously supported by more and more data). Adam Smith declared his intellectual victory for free trade over mercantilism grandiosely:
All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men (Wealth of Nations, pg. 687).
Given the perpetual ebbs and flows of market liberalism, Smith’s declaration may be optimistic, but it is nonetheless true. The market system brings us countless blessings. But simply because of its beautiful, complex nature, it can also never fully disperse the curse of collectivism.
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