The Market is a Computer; L.E. Read

THE MARKET IS A COMPUTER 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 enor mously 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 judg ment; 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, "GIGOl": Garbage In, Garbage Out.! Consider, first, the free market computer, as if it ex isted. 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. In cluded in the data are all efficiencies, inefficiencies, in ventions, discoveries, as well as the reports of all rising and falling supplies and all rising and falling 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 1 The pros pronounce it guy-go. 316 THE MARKET IS A COMPUTER 317 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 health or whatever. The free market computer gives accurate answers in prices, signaling to all would-be entrepreneurs to get in or get out or to step up or to diminish particular eco nomic activities. This is the way that supply and demand are caused, automatically, to tend toward equilibrium. The free market computer is truly free: its accurately in structive answers are founded on free exchange data; its services are free, with no more cost than the sun's energy; it f1~ees each and all of us from the impossible task of as sembling 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 com prehensive 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.

318 LEONARD E. READ The U. S. Version 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 labor unions: minimum wages, maximum rent, ceilings on earnings, interest, hours of labor, 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 de crees 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. But the signals of the present U.S.A. market computer, like the free market computer, reflect the data. 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 mar ket. Here's how rigged data bring about a shortage: 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 THE MARKET IS A COMPUTER 319 shall not exceed $25.00 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 $25.00 and desire a mink coat! Remember OPA days? Now, 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, 355,000,000 pounds of dried milk, 1,500,000 bales of cot ton, 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 Computer Has Been Rigged 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 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 2 See "Agricultural Statistics," 1962, p. 632. U. S. Government Printing Office, 'Vashington, D. C.

320 LEONARD E. READ for prices to be set in any other manner. Thus the Rus sian 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 astonish ingly out of proportion to that small share. In 1959, some 47 per cent of the nation's meat came from them, 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 agri cultural freedom, economic calculation in Russia is out 3 The Wall Street Journal~ May 17, 1961, p. 12. Also see "Private Farming Big Aid to Soviet," The New York Times~ November 28, 1960.

THE MARKET IS A COMPUTER 321 of the quest~on.4 As a consequence, nothing better than political calculation-bungling guesstimates-is possible. The Russian political riggers, in making their guessti mates, do take peeks at the other market computers in the world, most of these others being more or less instruc tive, 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 trade 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 4 Professor Ludwig von Mises deserves the greatest praise for logi cally demonstrating that the socialist community is incapable of economic calculation. See his Socialism (New Haven: Yale Uni versity Press, 1953), pp. 113-122. $10.00. Refer also to "Soviet Econ omists Part Company with Marx" by Dr. Trygve J. B. Hoff. Essays on Liberty, Vol. VIII, p. 231.

5 Aleksy Wakar and Janusz Zielinski, leading professors of the Cen tral Planning School of Poland, astonishingly for socialists, say, "The best methods of producing a given output cannot be chosen [by social ist methods of calculation] but are taken from outside the [socialisq system . . . Le., methods of production used in the past, or so-called 'advanced' methods of production, usually taken from the practice of more advanced countries and used as data for plan-building by the [socialist] country under consideration." (Italics mine.) See The Journal of the American Economic Association, March, 1963. I doubt that anyone can have the slightest concept of correct eco nomic theory without grasping the significance of economic calcula tion. For a clear, simple, and excellent explanation see "Play Store Economics" by Dean Russell, p. 218 of this volume.

322 LEONARD E. READ you like, it is surrounded by an Iron Curtain. The Com missars, alone, can hear the signals, but· what can they do with them? Any market computer, to function per fectly, 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 situa tion since the free flow of goods and services across their borders is no more than a trickle. Freedom in Exchange the Key To repeat, the free market computer renders its services for free, and it frees us from the impossible task of col lecting billions of flowing data but-and this is the all important point-freedom in exchange is an absolute, un modifiable condition. Freedom in exchange is the key, the secret; a secret, I must add, which is all too well kept! The secret unfolds itself easily enough if we will con ceive of human action for what it really is: human energy in motiona flowing performance. Potential human en ergy is enormous, and all creative human energy is in calculably 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 6 Free exchange can never be wholly squelched, regardless of how powerful the dictatorship. People, to live, will smuggle and form black markets. For instance, it is generally supposed that the useful goods and services in Russia, such as. they are, originate with social ism-the Kremlin's rigging. Nothing of the sort! The Russian people THE MARKET IS A COMPUTER 323 anyone trying to exist exclusively by his own energy. Were each of us dependent entirely on his own type of creative energy, all of us "'/ould perish. Free exchange remains so little understood because it has no positive explanation; it is that state of affairs which exists in the absence of obstacles, but no one can ever say what that state of affairs will be. However, only prices founded on free exchange data are usefully instructive, for they alone convey actual value: the value of any good or service being what others will give for it in willing ex change. Data founded on unwilling or unfree exchange (rigged) is "garbage in" and, thus, valueless.

A Russian or Polish Commissar, for instance, can be in formed of U.S.A. prices-signals from the U.S.A. market computer-in a fraction of a second. Yet, if these prices are founded on rigged data fed into the U.S.A. market computer-such as our wheat prices-the rapid communi cation is nothing but the speedy transmittal of "garbage out." Only if free exchange prevails do the signals have useful instruction. This important point needs nothing more to confirm it than to reflect on how completely we dismiss Russian prices. ~'hey have no instruction for us whatsoever. The distinction between theirs and ours is only that theirs is all GIGO, ours only partially so. Were are bursting with creative energy. What actually is witnessed in the production of useful goods and services is but the result of pent-up creative energy forcing its way through the political rigging. The Kremlin, being composed of political riggers and not economists, erroneously concludes that the escaping, free energy is its accom plishment! Indeed, if it were not for the fact that most Russians, in most of their dealings, "cheat" against the theoretical communist system, they would all starve to death.

324 LEONARD E. READ giant Russia a free port, like little Hong Kong, all the world would look to Russian prices for instruction. For instance, when we wish to know the real value of gold, we ask its price where it is freely traded, where there is free dom in exchange. Were all the world's gold freely ex changeable, 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 does, but the effect is in the form of misleading, not instructive, prices.) One Market for Everyone Before presenting some work-a-dayexamples 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 per mitted; so, in its stead, we have literally thousands of market computers, the GIGO factors ranging from frac tional 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.

N ow for an example by Frederic Bastiat, a remarkably THE MARKET IS A COMPUTER 325 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 my self-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 ap preciate the vast multiplicity of commodities which must enter tomorrow through the barriers in order to preserve the inhabit ants from falling prey to the convulsions of famine, rebellion and pillage. And yet all sleep at this moment, and their peace ful slumbers are not disturbed for a single instant by the pros pect 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 in genious and secret power which governs the astonishing regu larity of movements so complicated, a regularity in which every body 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, per haps 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 [rig ging] would multiply infinitely those sufferings, and spread 326 LEONARD E. READ 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 minister and his minions without disaster. These people from the eighty French provinces were unaware of what the other millions of producers and distributors were do ing; they had no firsthand knowledge of the 'shifting in tastes and fancies of Parisian consumers. Of the count less 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 instruc tions 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 at which 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 of these or tens 'f This extract is from Social Fallacies, Register Publishing Com pany edition, 1944.

THE MARKET IS A COMPUTER 327 of thousands of other fabricated items by which we live. The participants in the making of a cup of coffee-grow ers, makers of bags, ships, engines, freight cars, cartons, cans, producers of gas, oil, electricity; metallurgists, blenders, tasters, warehousemen, brokers, merchants, printers, on and on from all over the earth-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 merely watch prices: stop and go sig nals 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. Freedom Follows the Market The market is a computer; the rigged market is GIGO to the extent that it is rigged and, thus, to that extent im perfect; the free market is the perfect computer. 8 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, dis tort, disfigure, and destroy many of the data. The motives 8 This is not the claim of a partisan but hard fact. It merely means that values-as determined by willing exchange-are com puted 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.

328 LEONARD E. READ for so doing include protection against competition, a be lief that value is determined by the amount of effort ex erted, ignorance of the inability of any man 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 other motivations. But, regard less 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 eco nomic practice. Value has nothing whatsoever to do with effort exerted; value is what others will willingly ex change for one's goods or services.. In this manner it re spects the wishes and performances of everyone imperson ally. There are no favorites. It is the only means there is for the automatic and speedy allocation of scarce re sources; that is, it is the method for bringing a scarce and high-priced good or service within the reach of more and more people. It is the miracle worker, demonstrated over and over again before our eyes daily.

A free market, of course, is out of the question except among a people who prize liberty and know the impera tives of liberty; for instance, no one can rationally prize liberty for himself more than for others. Liberty, we must bear in mind, is not a one-man term, but, like the free market, finds its complete realization in universal prac tice: every man on earth is born with as much right to his life, his livelihood, his liberty as I. To realize liberty, to tear ourselves loose from political THE MARKET IS A COMPUTER 329 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 uni son with him. Implicit in such a counsel of delay is the taking of no steps, by anyone, this being fatal to liberty. An individual can stand for liberty all by himself; a na tion 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 that the market computer be not rigged. Free dom follows the free market!9 9 For an explanation of this assertion, see "Freedom Follows the Free Market" by Dean Russell. Essays on Liberty, Vol. X, p. 198.