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Wednesday, January 30, 2013

If You Like Wikipedia, You Should Love Markets


I recently came across a celebratory article about Wikipedia by Sue Gardner, executive director of the Wikimedia Foundation. Gardner was helping to mark Wikipedia’s twelfth birthday. It is impressive how ubiquitous and useful Wikipedia has become in such a short time, to the point that virtually everyone takes its availability for granted. 
Members of my immediate family, for instance, have undertaken undergraduate and graduate training in mathematics, economics, philosophy, English, art history, theology, counseling, women’s studies, education, and digital editing. All of us agree about Wikipedia’s value. When used sensibly, it’s very helpful, particularly as a place to start the learning process. 
After reading Gardner’s article, I went to the Wikipedia article on Wikipedia itself as a sort of test. I found a lengthy piece (which had last been updated just minutes before) in which the author(s) clearly strived for balance. There were twelve major headings, 286 footnotes, and many references for further study. I was impressed to discover that it is the most popular general reference work site on the Internet, with 365 million readers, 24 million articles (over 4.1 million in English) in 285 languages, and growing by about 800 new articles a day. 
While almost everyone I know echoes Ms. Gardner’s positive view of Wikipedia, as an economist, I found certain things she wrote particularly important. Her words remind me that anyone who likes Wikipedia should love markets. She writes: 
An encyclopedia is one of humankind’s grandest displays of collaborative effort, and Wikipedia takes that collaboration to new levels . . .
I don’t know of a comparable effort, a more diverse collection of people coming together, in peace, for a single goal.
Wikipedia has become an indispensable part of the world’s information infrastructure.
Each of those quotes pulls out something—the degree of collaboration, the extent to which it incorporates diversity, the degree to which it achieves its goal in peace, that it is an indispensable source of information—that reveals why voluntary exchange in markets is mankind’s greatest accomplishment.

Vast Collaboration

Even Wikipedia, with its thousands of contributors, is only a demonstration of the beauty of collaboration. Market interactions bring everyone into collaboration, whether they intend to collaborate or not.
In markets, every participant’s preferences and values are incorporated into the results. Everyone who chooses to buy does so voluntarily, reflecting the fact that they place a greater value on what they receive than on what they give up. Everyone who chooses to sell does so voluntarily, reflecting the fact that they, too, place a greater value on what they receive than on what they give up. And those market relationships move goods and services to more highly valued forms, locations, and time periods, as well as to owners who place higher values on them, which are the only changes all self-interested parties mutually agree to. That is a far vaster field of social cooperation than Wikipedia. And everyone who uses the prices that result as information about the tradeoffs others are willing to make—that is, everyone—benefits from it. 
Because markets reflect the choices—and therefore the preferences, abilities, and circumstances—of their participants, they also reflect the changes that impact them, communicating information by way of relative price changes. While Wikipedia is far more nimble than other reference sources in incorporating new information, markets incorporate vastly greater amounts of useful new information far more quickly.
In fact, as Friedrich Hayek pointed out in his tin example in “The Use of Knowledge in Society,” markets can incorporate information initially known only to one individual, even if she has no intention of benefiting others by that knowledge, because her self-interested market behavior will be reflected in price changes that communicate the consequences of that information, regardless of her intent. 
Further, Wikipedia focuses on presenting facts that can be articulated and whose sources can be traced. But in markets, there is so much more information—including all the details of time and place that can change individual evaluations of goods and services—that it overwhelms our ability to know and process it. Much of the information is transitory and often not articulable, so markets pass on only the central thing most of us want to know about how they connect to our specializations or consumption choices: How much? 
How much will someone else give me for something now, or how much will someone else demand from me for it now? Markets economize on information, sparing us all the infinitely complex combinations of who, what, when, where, and how, by communicating via price changes alone.
When one thinks carefully about the beyond-remarkable feats of social coordination markets make possible, it is not hard to understand why Hayek concluded, 
I am convinced that if [the market system] were the result of human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind.
Add to these marvels the fact that the market’s amazing feats of cooperation are also accomplished in peace. When one’s property rights are well defined and defended, only voluntary arrangements are possible. Or as Leonard Read put it in his most famous book, only anything that’s peaceful is allowed. Force is imposed only if necessary to stop those who would violate others’ rights.
Indeed, early leaders of the free trade movement, such as Frédéric Bastiat, John Bright, and Richard Cobden, emphasized not just markets’ advantages for society in general and the poor in particular, but for the advancement of peace. In Cobden’s words:
[We] advocated Free Trade, not merely on account of the material wealth which it would bring to the community, but for the far loftier motive of securing permanent peace [with] people . . . brought into mutual dependence by the supply of each others’ wants. 
The peaceful nature of market interactions is all the more amazing in view of the fact that unlike Wikipedia, markets do not advance a single goal. They do improve social cooperation, but that cooperation is in service of individuals’ widely disparate, often conflicting, particular goals. For example, we all desire food, clothing, and shelter, but we do not want the same kinds of food, clothing, or shelter, nor do we want them at the same time or in the same place.
Not only are markets a far more “indispensable part of the world’s information infrastructure” than Wikipedia, they function under a greater handicap: Our government does not constantly attack and undermine the information Wikipedia provides. In contrast, the information infrastructure provided by markets is widely undermined by government through a panoply of intrusions, including price ceilings and floors, taxes and subsidies, protectionism (tariffs, quotas, and non-tariff barriers), and regulations that deter entry and stifle innovation.
Wikipedia is certainly an impressive success story. It’s collaborative, diverse, and peaceful—and people increasingly rely on Wikipedia to acquire information. It is worth celebrating. But it is not humanity’s greatest collaborative effort, nor our greatest source of useful information. Those come from the direct and indirect benefits of the peaceful, voluntary arrangements referred to in shorthand as “market interactions.” Yet while we laud Wikipedia for what it provides, we should also remember that the benefits of voluntary association in the market are under attack on many fronts. Giving markets the kind of respect Wikipedia currently enjoys would be a major step forward for humanity.

  • Gary M. Galles is a Professor of Economics at Pepperdine University and a member of the Foundation for Economic Education faculty network.

    In addition to his new book, Pathways to Policy Failures (2020), his books include Lines of Liberty (2016), Faulty Premises, Faulty Policies (2014), and Apostle of Peace (2013).