I want those who know how to create the most value out of a resource to have the most access to it. Silicon and copper in my hands are just about worthless, yet in the hands of computer manufacturers they can change the world and make millions of lives better, not to mention dramatically reduce the quantity of other resources required to accomplish tasks.
Resources need to flow where they can best be used for all of us to get the most out of life and what’s around us. That’s why I like markets. Those who can get most out of a resource bid the most for it. Initially, those who created a lot of value in the past and thus earned wealth are in the best position to obtain new resources. But if they can’t do anything to enhance the value of those resources, they’ll want to resell them to others who can, or loan money to people who can enhance the usefulness of the resource. Quickly, resources start to flow to where they can be utilized to create the most value.
Imagine the disaster if, instead, resources flowed where some resource manger thought they should. No expert has expertise enough to know the best use of every material in every field. Of course, we needn’t imagine what would happen, because we’ve seen it. “Planned” economies like the Soviet Union were an unmitigated disaster that literally starved millions to death. Factories produced massive quantities of goods that had no value, and there were chronic shortages of important stuff. Valuable resources were converted into worthless objects left to rot.
Worse still, innovation was nearly impossible. How could cutting edge inventors get resources to work on something new? They had to be politically connected. How much value they could create for people with their improvements was irrelevant. What a terrible system for everybody except the dictator and his buddies.
Maybe total top-down control is out of vogue, but democratically controlled resource directives are no better. Rather than channeling resources to those willing to bid the most for them because they expect to transform them into something valuable enough to exceed the cost, democratic institutions channel resources to people who merely “like” things, or those who are good at political games.
Imagine you’re stranded on an island with a handful of people including one radio expert. You stumble upon a broken radio. The expert is confident she can fix it and send a distress signal. Two other people think it would look really cool as a decoration for their lean-to. Being firm believers in democratic institutions, you vote and the coalition of two wins. The radio expert tried offering whatever she had to convince others to vote for her to have access to the radio, but the group considered that unfair tampering with the decision making process. Everyone gets one equal vote, regardless of how important the resources are to them.
Thank goodness there is still enough of a free-market in the world that most resource allocation happens via voluntary transaction, and goes to those who can use it in productive ways. Imagine how much better off we’d be if the coercive absurdity of politics was completely absent from the process?