AN OVERVIEW - Part 5

Yet many of those who revolutionized the technologies and economies of the modern world — Thomas Edison, the Wright Brothers, Henry Ford — had relatively little of the academic training that some wish to consider synonymous with knowledge. Conversely, many with impressive academic and intellectual credentials have failed disastrously in business. In short, there is no simple hierarchy of knowledge, with those higher up being able to do whatever those further down can do. Moreover, much of the coordination of scattered fragments of knowledge is done through systemic interactions in the marketplace, rather than by given experts overseeing the economy. As the late Wall Street Journal editor Robert L. Bartley, put it: “In general, 'the market' is smarter than the smartest of its individual participants.”

Many, if not most, decisions, are not thought through completely, partly because most decisions may not be worth such an investment of time and effort, and there are too many decisions and too little time to give them all an exhaustive examination. One of the benefits of a free market economy is that it reduces the need for any given individual to think everything through because many of the considerations involved are already summarized in the prices with which the consumer is confronted. As noted in Chapter 4, a photographer choosing among telephoto lenses may have no idea of the optical complications that made one telephoto lens far more costly than another, but need only consider whether their differing qualities are worth their differing prices, in terms of the value of those particular qualities for the kinds of pictures taken by this particular photographer. The same principle is involved when choosing among various makes and models of cars, computers, or a thousand other things whose specific technologies and the costs of those technologies are wholly unknown to consumers. In short, the end-results conveyed by prices reduce the amount of detailed information required to make rational trade-offs.

Ultimately, even the greatest experts are expert only within some fraction of the production processes of most products. The optical expert who knows all about lenses may have only vague notions about the computer circuits in the camera to which the lens is attached, much less the technology of the film or digital imaging system in the camera. In short, the benefits of a price system extend from the most knowledgeable to the least knowledgeable, since no one is sufficiently knowledgeable to understand all the factors behind all the decisions that have to be made by any individual or organization, much less a whole society.

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