Friday, May 16, 2008

The Free Market is like the Internet

The internet is a web that isn't controlled by a single person or a single group. If there is a defect, data gets routed around it.

If I were a baker and my flour supplier screws up, I can find another flour supplier.

The Free Market is self optimizing. If I had 2 flour suppliers I'd go with the one that offered the best combination of price, quality, and service. If the less favored supplier figured out a way to cut cost, he would become the favored supplier. Let's say he figured out that he could cut cost by switching his delivery vans to vegetable oil / diesel. The other guy would then have to figure out a way to cut his costs too.

The beauty of this is that everyone figures out a way to be most productive, because he gets rewarded. I don't need to tell the flour supplier that he should switch his delivery vans to diesel. No bureaucrat needs to decide who gets how many rolls of toilet paper that week.

The free market in a way is also like distributed processing. Every Tom, Dick, and Harry would get to decide how to best run their business. A million individual brains is better than one single bureaucrat.

The opposite of this is centralized economic planning a la the Soviet Union. Their shortages of basic necessities were legendary. In contrast, when were you ever worried that your favorite coffee shop would have no coffee one morning?

The idea of the free market as self-optimizing is espoused in the classic essay, "I, Pencil":

The most curious thing of all though is, despite the fact that many people realize that central economic planning is ridiculous, they allow the very core of the economy, the monetary system, controlled by a central planner, the central bank, aka the Federal Reserve (in the United States).

How does the monetary system work? Here is a fantastic 45 minute cartoon video making it easy to understand:

1 comment:

Anonymous said...

There are single points of failure for the Internet. The top domain names like .com .uk etc. are controlled and managed by the InterNIC they can be manipulated and shutdown, though it would be obvious for all to see.

The best way to subvert the Internet is to fill it with distracting crap...never giving people the chance to find informative political websites.