Anything That’s Peaceful

• CHAPTER 13 •

THE GREATEST COMPUTER
ON EARTH

WHEN A PERSON does not know how little he knows, he may try to change a room’s temperature by monkeying with the thermometer; or, equally absurd, he may tamper with prices to control the market.

Wherever there are people, there will be a market of some sort. The market can no more be eliminated than can its primary components—production and exchange.

Further, the market, be it rigged or free, is an enormously complex computer. It receives the data fed into it and gives off signals in the form of prices. Keep in mind, however, that a computer cannot exercise judgment; its answers merely reflect the data it receives; feed it wrong data and its pricing signals will be misleading or, as they say in the computer profession, “GIGO!”: Garbage In, Garbage Out.1

Consider, first, the free market computer, as if it really existed. Billions of data flow into it continuously. The data are composed of every wish, desire, fancy, whim, like, and dislike of every person on earth. Included in the data are all efficiencies, inefficiencies, inventions, discoveries, as well as the reports of all rising and falling supplies and demands. All degrees and variations of competitive forces and all bidding and asking prices of all goods and services are grist for the mill. Even people’s anticipation of how a flood or a drought or a freeze might modify supply are automatically admitted, as are expectations of managerial competence or failure or the effects of a President’s ideas or the state of his health or whatever.

The Ideal Free Market

The free market computer gives accurate answers in prices, signaling to all would-be entrepreneurs to get into production or get out, to step up or diminish particular economic activities. Supply and demand thus tend, automatically, toward equilibrium. The free market computer is truly free: its accurately instructive answers are founded on free exchange data; its services are free, with no more cost than the sun’s energy; it frees each and all of us from the impossible task of assembling the billions upon billions of data behind our daily decisions.

The free market computer has never been permitted to function on a world-wide basis. It has had only partial, regional, short-run trials. Certainly, one of the most comprehensive tests occurred in the U.S.A. during the century beginning about 1830. Perhaps the small Crown Colony of Hong Kong affords the best test at this moment in history. We do know from a study of the evidence, as well as from a priori reasoning, that the less the free market computer is interfered with or “rigged” the better do people prosper, the more nearly universal is economic well-being. The term GIGO is never applicable to the free market computer; the complex data are truthful, unrigged expressions of the universal economic situation in its continuous ebb and flow, and the price signals, ever changing, are accurate responses thereto.

The U.S.A. Market

Consider, second, something quite different, the U.S.A. market computer as it presently exists. Many of the data are not derived from free exchange and free choice; they are politically rigged. Numerous prices for goods and services are arbitrarily set by government or by politically powerful pressure groups: minimum wages, maximum rent, ceilings on earnings, interest, transportation charges, and so on. What and how much one may plant on his own land is more and more determined not by free choice but by political decrees backed by police force. The fruits of one’s own labor are increasingly siphoned off for urban renewal, paying farmers not to farm, putting men on the moon, subsidies, below-cost pricing of items such as TVA electricity rates, and countless other pet projects. Unpeaceful interventions in the market!

But the signals given off by the present U.S.A. computer reflect the data we force-feed it—in the same manner as any computer. No more judgment is exercised by one than by the other. Many of the data of the U.S.A. market computer are erroneous; the price signals, as stop and go signs, are and must be to some extent misleading; there is a generous portion of GIGO!

When entrepreneurs act on misleading signals, they drain or glut the market; that is, they create shortages or surpluses—phenomena of the rigged, not the free, market. To illustrate: Suppose you were in charge of the boiler room supplying a 70 degree climate to a factory and that you adjusted the heat supply by a thermometer’s signals. Now, imagine that someone changes the calibrations so that an actual 70 degree temperature now registers 80 degrees on the distorted scale. There would soon be a shortage of heat in the factory. Or if the actual 70 degrees were made to register 60 degrees, you would send the factory a surplus of heat. Monkeying with the thermometer—rigging, it is called—creates shortages or surpluses.

Observe what happens to the market when the computer’s signals (prices) are rigged. Mink coats, for example, are not now in short supply. They are on display in stores throughout the nation. But let the government decree that the ceiling price on mink coats shall not exceed $25 and immediately there will be a shortage of perhaps 50,000,000 mink coats. Why? Because no one wants to sell them for such a price and because there are that many women who have $25 and desire a mink coat! For evidence, merely recall OPA days.

Next, observe how rigging can and does bring about surpluses: Let the government decree “support prices,” that is, guaranteed prices over and beyond what a free market computer would signal, and entrepreneurs will produce more than the market will take. This explains why we now cram into ships, warehouses, granaries, and whatever kind of storage government can lay its hands on, some 1,330,000,000 bushels of wheat, more than 205,000,000 pounds of butter, 289,000 pounds of tung oil, 335,000,000 bales of cotton, 1,700,000 gallons of turpentine, 34,140,400,000 pounds of grain sorghum, 1,412,193,000 bushels of corn —the list grows wearisome!2

The Russian Market

Consider, third, something very much different, the Russian market computer as it now exists. It is out of kilter and noninstructive simply because practically all data are rigged, riggers being in complete control over there. Free choice is at a minimum. What can be produced and what consumed is politically dictated by the riggers. Prices, too, are rigged; for in a command economy it is not possible for prices to be set in any other manner. Thus, the Russian market computer is fed “garbage in” on so grand a scale that price signals are quite useless as production guides.

The Russians, so far as we can learn, have admitted the free market computer to operate in one tiny segment of their economy. A small fraction of the tillable land is (in effect) privately owned, and freedom of choice is granted as to what’s produced and how it is priced. The results, while fantastic, come as no surprise to anyone with an awareness of how freedom principles work when put in practice: Private plots make up only 3 to 5 per cent of Russia’s farm land, yet they yield a product astonishingly out of proportion to that small fraction. In 1959, some 47 per cent of the USSR’s meat came from this fraction of land, 49 per cent of the milk, 82 per cent of the eggs, 65 per cent of the potatoes, and 53 per cent of the vegetables.3

Within this limited area of choice for the Russians, economic calculation is made easy. They do not know (nor need they know) a thing about the complex data that is fed into their little, isolated market computer. By merely observing a few of its signals—prices—as do those of us privileged to live in freer societies, they know, to some extent, what and what not to produce; that is, they are automatically informed as to the best allocation of their own scarce resources. Aside from this islet of agricultural freedom, economic calculation in Russia is out of the question.4 As a consequence, nothing better than political calculation—bungling guesstimates—is possible.

The Russian political riggers, in making their guesstimates, do take peeks at the other market computers in the world, most of these others being more or less instructive, depending on the extent to which they are founded on free exchange.5 For instance, if to remove our own wheat glut, brought on by our own political rigging, we offer our surplus at a price below which the Russian Commissars guess it will cost them to raise wheat by slave labor, the Commissars will effect some sort of a deal with us. By so doing they can then force their own wheat-growing slave labor into other endeavors, perhaps into producing military hardware. But the signals from these other market computers are not received automatically into the Russian market computer, for it is jammed; if you like, it is surrounded by an Iron Curtain. The Commissars, alone, can hear the signals; but, not being producers, what can they do with them? Any market computer, to function perfectly, must automatically receive all complex data, and this is impossible unless there be freedom in exchange. This prime requirement is not met in the Russian situation since the free flow of goods and services across the borders is no more than a trickle.

Freedom in Exchange

To repeat, the free market computer renders its services for free, and it frees us from the impossible task of collecting billions of flowing data but—and this is the all-important point—freedom in exchanges is an absolute, unmodifiable condition. Freedom in exchanges is the key, the secret; a secret, I must add, which is all too well kept!

The secret reveals itself easily enough if we will conceive of human action for what it really is: human energy in motion—a flowing performance. Potential human energy is enormous, and all creative human energy is incalculably varied; there are as many variations as there are persons; no two of these creative energies are alike. However, potential, creative, human energy, to be useful, must become kinetic, flowing, performing energy. But it cannot flow except as it is freely exchangeable.6 Imagine anyone trying to exist exclusively by his own energy. Were each of us dependent entirely on this type of creative energy, all of us would perish.

To repeat, the reason that the Russian market computer does not and cannot receive accurate data is because the Soviets do not allow freedom in exchange, that is, they do not let world prices freely interact on and influence Russian prices. Their authoritarianism cuts off the current, so to speak. Only a free market price carries an accurate and instructive message for future production and exchange.

The point is clear enough if we keep in mind that only free exchange data accurately reflect value, the value of any good or service being what others will give for it in willing exchange. Data founded on unwilling or unfree (rigged) exchange carry no value messages; it is “garbage in” and, thus, valueless.

A Russian or Polish Commissar, for instance, can be informed of U.S.A. prices—signals from the U.S.A. market computer—in a fraction of a second. Yet, if these prices of ours are founded on rigged data and fed into our own market computer—such as our wheat prices—the rapid communication is nothing but the speedy communication of GIGO. Only if U.S.A. prices are based on free exchange do they have useful instruction to us, to the Russians, or to any other people. To confirm this important point, reflect on how completely we dismiss Russian prices. They have no instruction for us whatsoever, indeed, not even for the Russians themselves—except in the case of their little, free market plots. The distinction between Russian and U.S.A. price signals is that theirs are founded entirely on GIGO, ours only partially so. Were giant Russia a free port, like little Hong Kong, all the world would look to Russian prices for instruction. When we wish to know the real value of gold, for instance, we ask its price where it is freely traded, where there is freedom in exchange. Were all the world’s gold freely exchangeable, the market computer would give us a precise, accurate, and instructive answer as to its value. (This is not to say that governmental intervention has no effect on prices; it most certainly has. But the effect is in the form of misleading, not instructive, prices and value.)

Before presenting some work-a-day examples of the market-as-computer concept, it is relevant to ask how many market computers presently exist. Were there no rigging at all in our or any other country—that is, were freedom in exchange universal—there would be but a single, universal market computer. All the data flowing into it would be accurate as would the signals in the form of prices. However, economic understanding is and always has been faulty; thus, no such market computer has ever existed nor is it likely to. The ideal has never been permitted; so, in its stead, we have literally thousands of market computers, the GIGO factor ranging from fractional to complete. If economic understanding advances, the number of market computers will lessen and their performance will improve. We can hope for nothing more than moving toward the ideal.

The Provisioning of Paris

Now for an example by Frederic Bastiat, a remarkably astute economic observer. Certainly, the French market computer of 1846 was considerably rigged; yet, relative to others at that time and since, it was in good working order. Wrote Bastiat:

On entering Paris, which I had come to visit. I said to myself—Here are a million of human beings who would all die in a short time if provisions of every kind ceased to flow towards this great metropolis. Imagination is baffled when it tries to appreciate the vast multiplicity of commodities which must enter tomorrow through the barriers in order to preserve the inhabitants from falling prey to the convulsions of famine, rebellion, and pillage. And yet all sleep at this moment, and their peaceful slumbers are not disturbed for a single instant by the prospect of such a frightful catastrophe. On the other hand, eighty provinces have been labouring to-day, without concert, without any mutual understanding, for the provisioning of Paris. How does each succeeding .day bring what is wanted, nothing more, nothing less, to so gigantic a market? What, then, is the ingenious and secret power which governs the astonishing regularity of movements so complicated, a regularity in which everybody has implicit faith, although happiness and life itself are at stake? That power is an absolute principle, the principle of freedom in transactions. … In what situation, I would ask, would the inhabitants of Paris be if a minister should take it into his head to substitute for this power the combinations of his own genius, however superior we might suppose them to be—if he thought to subject to his supreme direction this prodigious mechanism [market computer], to hold the springs of it in his hands, to decide by whom, or in what manner, or on what conditions, everything needed should be produced, transported, exchanged, and consumed? Truly, there may be much suffering within the walls of Paris—poverty, despair, perhaps starvation, causing more tears to flow than ardent charity is able to dry up; but I affirm that it is probable, nay, that it is certain, that the arbitrary intervention of government [rigging] would multiply infinitely those sufferings, and spread over all our fellow-citizens those evils which at present affect only a small number of them.7

Few of us, when viewing Paris or New York City or our home town, ever discern the miracle wrought by freedom in exchange as clearly as did Bastiat. Nor do we readily see that such a fantastic performance as the automatic provisioning of Paris could never be turned over to a government official and his minions without disaster. These people from the eighty French provinces were unaware of what the other millions of producers and distributors were doing; they had no firsthand knowledge of the shifting in tastes and fancies of Parisian consumers. Of the countless data, these anonymous producers knew nothing. All they did was to let their own self-interest respond to the market computer’s relatively few signals: prices. Their instructions were received from prices. To the extent that the prices were reflections of free exchange data, to that extent were the instructions faithful guides. To the extent that the data were rigged, to that extent were the instructions misleading. That the data were more right than wrong is self-evident: the million people in Paris were provisioned with no more thought on the part of each than you or I give to the supplying of a restaurant in Hong Kong where we plan to dine next month.

Nor need we confine our reflections to such miracles as the provisioning of cities. What about producing a jet plane or an automobile or a ball-point pen? No single person on earth knows how to make any one of these or tens of thousands of other fabricated items by which we live. The participants in the making of a cup of coffee—growers, makers of bags, and so on by the thousands—are not, by and large, even aware of each other’s existence. They do not work as a coffee committee or in conscious concert. With no attention to or thought of each other, these countless producers and distributors merely watch prices: stop and go signals from the market computers. Presto! We who want coffee have it on our tables with no more part in it than the brewing, and voluntarily parting with a fraction of our income: willing or free exchange.

No Rigging in Free Market

The market is a computer; the rigged market is GIGO to the extent that it is rigged and, thus, to that extent, imperfect. The free market is the perfect computer. This is not the claim of a partisan but hard fact. It merely means that values—as determined by willing exchange—are computed freely, that is, without intervention, distortion, rigging. To assert that the free market is the perfect computer is as axiomatic as asserting that a flow is perfectly free if wholly unobstructed.

Computers, with the speed of light, give impersonal answers or signals from the data fed to them. Men, like mice gnawing among the labyrinth of wires in a telephone exchange, can and do rig and, thus, distort, disfigure, and destroy many of the data. The motives for so doing include protection against competition, a belief that value is determined by the amount of effort exerted, a falsely presumed ability to run the lives of others, a conviction that the communistic maxim “from each according to ability, to each according to need” can be administered by force without injustice, the insistence on feathering one’s own nest at the expense of others, and countless additional motivations. But, regardless of the reasons, the rigger imposes his errant ways on all the rest of us; he plays authoritarian!

The free market computer is the Golden Rule in economic practice. Value has nothing whatsoever to do with effort exerted; value is what others will willingly exchange for one’s goods or services. The market respects the wishes and performances of everyone impersonally. There are no favorites. It is the only means there is for the automatic and speedy allocation of scarce resources; that is, it is the method for bringing a scarce and high-priced good or service within the reach of those whose incomes are lowest. It is the miracle worker, demonstrated daily, over and over again, before our eyes.

A free market, of course, is out of the question except among a people who prize liberty and know the imperatives of liberty. Liberty, I must repeat, is not a one-man term but, like the free market, finds its complete realization in universal practice: every man on earth is born with as much right to his life, his livelihood, his liberty as I. No one can rationally prize liberty for himself without wishing liberty for others.

To realize liberty, to tear ourselves loose from political rigging, to unshackle creative energy, to achieve freedom in transactions, does not, as many contend, require that the individual wait until all others take these steps in unison with him. Implicit in such a council of delay is the taking of no steps by anyone, and this is fatal to liberty. An individual can stand for liberty all by himself; a nation can practice liberty to its own glory and strength though all other states be slave. The blessings of liberty are conferred on all who live by her credo; and basic to liberty is the unrigged market computer.

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Anyone’s concept of correct economic theory will be improved by grasping the significance of economic calculation. For a clear, simple, and excellent explanation see “Play Store Economics” by Dean Russell. The Freeman, January, 1964.