Markets Solve the Impossible Computation Problem

Tim Worstall, a regular contributor to the “Pin Factory Blog” of the Adam Smith Institute HERE, and incidentally also one of Blogland’s more talented commentator on all matters of economics.

Tim’s piece this his morning’s (2 June) uses the Brad Delong quote on the Yanomamo people and their ‘several hundred products from their stone age hunter-gatherer society within their tribal territory by the Orinoco River compared to the 30 billion products available to the tribe of New Yorkers, living by the Hudson River, whose place in the global economy assures them of access to products of the world economy well beyond their tribal territory.

Typically, Tim uses this comparative data in a punchy piece to illustrate “Why detailed planning simply isn't possible” because the planning of the necessary coordination required to source and supply billions of products at a range of affordable prices to 6 billion people dispersed in their tribal areas across the entire globe which is beyond the computing power of the world fastest computers, and beyond, certainly within a lifetime even at the astonishing regular doubling of computer power as we know it, perhaps also beyond likely advances over several lifetimes.

Tim’s estimates of such power being available to any planned economy in the distant future is a clear barrier to state-managed planned economies. I agree and I am grateful for Tim thinking this problem through.

Soviet-style planning failed from this very barrier, exacerbated by the hideous organizational near glacial barrier necessarily imposed by the politics of Marxian socialism.  All efforts to graft more democratic forms of planned economies on to Marxist naive Gosplan style planning – the social-democratic theory of taking over the “commanding heights” of an economy – were also doomed to failure.  As are their modern anarchist, so-called “left libertarian” versions – the “Occupy movement” – and similar illusions about “localism” from so-called “environmental” and “global warmists” wanting to return us to pre-historic tribal regions with a minimum of extra-tribal trade.  I regularly polemicise on Lost Legacy against  “grand designs” to change everything with utopian fantasies.

Society’s norms emerge from evolutionary forces well beyond the control – and in some cases even the comprehension of apparently informed and intelligent thinkers – of individuals with their version of a “grand re-design” for the world as it is and has become from several thousand years of uneven development.

Yet, the solution of the computation problem is already with us and it is already practiced across the globe and has been for several centuries.  It is called “markets”.  No individual ever designed the market solution; no political party, no parliament or senate, or church, mosque, synagogue, temple, or “god”, or dreaming-visionary hearing voices in the night or claiming advice coming from within a bush, a Valhalla, a Zeus or his cousin, Jupiter, let alone any utopians posting on the Internet.

Markets emerged without design or intention.  They solved the problem of computation among simply organized humans dispersed across the varied post-hunter-gatherer peoples in pre-history, not as a fully formed markets but as the elementary roots of them through all their varied forms – from reciprocal relationships, to “gift” exchanges, to regular purposeful exchanges between countless, unknown individuals, to general exchanges that are at the root of modern markets.

We do not have to wait on growing computational power to see the benefits of growing multi-billion exchanges among people we have never met, nor need to meet.  We already know of the benefits of global markets that function, so far without a plan or an overall shared and directed purpose.  The existence of the market solution is manifested in your ability to read these words of mine right now and without permission from a Commissar or state bureaucrat (true for myself writing them, living among my tribal area by the shores of the Firth of Forth, Scotland, a long way from the Orinoco or the Hudson River. It may be not true if you live in North Korea or other similar planned places.