Who decides prices?
'How can it be that people with postgraduate degrees, people backed by the power of government and drawing on experts of all sorts, failed to do as well as masses of people of the sort routinely disdained by intellectuals?
What could be the reason? And does that reason apply in other contexts besides the economy?
One easy to understand reason is that central planners in the days of the Soviet Union had to set over 24 million prices. Nobody is capable of setting and changing 24 million prices in a way that will direct resources and output in an efficient manner.
For that, each of the 24 million prices would have to be weighed and set against each of the other 24 million prices. in order to provide incentives for resources to go where they were most in demand by producers and output to go where it was most in demand by consumers.
In a market economy, however, nobody has to take on such an impossible task. Each producer and each consumer need only be concerned with the relatively few prices relevant to their own decisions, with coordination of the economy being left to supply and demand.'
- Thomas Sowell, 'Amateurs Outdoing Professionals'.
What could be the reason? And does that reason apply in other contexts besides the economy?
One easy to understand reason is that central planners in the days of the Soviet Union had to set over 24 million prices. Nobody is capable of setting and changing 24 million prices in a way that will direct resources and output in an efficient manner.
For that, each of the 24 million prices would have to be weighed and set against each of the other 24 million prices. in order to provide incentives for resources to go where they were most in demand by producers and output to go where it was most in demand by consumers.
In a market economy, however, nobody has to take on such an impossible task. Each producer and each consumer need only be concerned with the relatively few prices relevant to their own decisions, with coordination of the economy being left to supply and demand.'
- Thomas Sowell, 'Amateurs Outdoing Professionals'.
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