A Primer In

Libertarianism is the view that you are free to live your life as you choose, provided that you do not violate the rights of others. That means that you have the right to live your life the way you want to live it, but you do not have the right to violate other people's rights. This also means that the government does not have the right to violate your rights in any way, shape, or form.

Many people ask whether Libertarians are conservative or liberal. The truth of the matter is - THEY ARE NEITHER! We believe that the proper role of government is to protect us from force and violence, and to protect the individual rights and property of Americans. We believe that once government violates this role, then it too becomes the aggressor. In effect, the average thief or aggressor pales in comparison to how the government operates.

Libertarians are advocates of both personal and economic liberty. The Libertarian Party epitomizes the beliefs that Libertarians share. It is a political organization dedicated to bring back America's heritage of individual liberty, limited government, personal responsibility, tolerance, peace, and personal and economic freedom.

The party was founded by former Republicans and Democrats, former liberals and conservatives who became so disenchanted with the political establishment that they believed the two older major parties abandoned their original positions and beliefs on personal and economic liberties. It was statist Republican and Democratic politicians who led Americans astray from personal responsibility, tolerance, and individual liberty. They will continue to do so unless America returns to its libertarian roots.

The party was influenced by a Russian essayist and philosopher Ayn Rand. Her capitalistic beliefs influenced modern libertarianism and logical thought. Her book Atlas Shrugged laid down the belief that capitalism is the basic component of liberty and a free society. It is because of Ayn Rand that the libertarian movement began in the late 1960s and that it is thriving today.

Like the Republicans, Libertarians support free enterprise , oppose taxation , support free trade , oppose the minimum wage laws, oppose the federal government's involvement in welfare , want to privatize Social Security and get it out of the hands of the federal government once and for all, want to privatize health care and get it out of the government's hands completely, end farm subsidies, and abolish corporate welfare. They also support gun rights . Libertarians always put the Second Amendment first.

Like the Democrats, Libertarians support free speech, freedom of religion, freedom of the press, the right to assemble peaceably, and to petition the government for redress of grievances. Libertarians also support civil liberties, civil rights, oppose censorship of the Internet , support privacy , oppose conscription, oppose forced jury duty, support free immigration , oppose the War on Drugs , oppose foreign aid using taxypayer subsidies, and oppose interventionalism in all foreign wars. We support a strong national defense . We do NOT support a strong national offense like both the Republicans and Democrats do today. We also oppose consensual sex laws which make voluntary sexual relations a crime. We also support the legalization of prostitution, because the laws that prohibit voluntary sexual services function the same way as the drug laws do. We also oppose government legislating laws which prohibit abortions, but we also oppose government legislating laws that require Americans to subsidize abortions, as well as laws that mandate abortions. Since abortion is a touchy subject and since not all Libertarians agree on the issue, we recognize that Libertarians can have good faith views on the subject. That doesn't mean we agree with or disagree with abortions. That means we believe that the individual must follow his own conscience on the issue, and must choose whether or not to have an abortion.

In short, we believe that Americans are in a better position to decide how they should live and what their lives should be - not what the government believes how they should live or what their lives should be.

Today's so-called liberal Democrats are now socialists, and today's so-called "compassionate conservative" Republicans (George W. Bush for example) are actually fascists. Why do we say this? Well, there's a good reason.

Today's Republicans claim to be the party of limited government and economic freedom while downplaying personal freedom. But the Republicans have clearly demonstrated that, after passing every single pork-barreled bill, they support minimum wage laws; propping up the Russian ruble; every federal and state regulation on health care and education; every tax increase; and funding the Social Security system. They also support restricting free trade, and subsidizing other governments. They also support subsidizing corporations and they also support farm subsidies.

Today's Democrats claim to be the party of privacy, civil liberties, civil rights, tolerance, personal responsibility, drug legalization, and personal freedom while downplaying economic freedom. But the Democrats (as demonstrated during President Clinton's 8-year tenure in the White House) have clearly proven that they support censorship of the Internet, support V-chips in your television, support hate crime legislation, support the ridiculous "don't-ask-don't-tell" policy of the military, support America's role of a world policeman by interfering in every foreign war, support drug prohibition, support tobacco prohibition, and support every bill or act which violates your privacy, the Bill of Rights, and every personal liberty that you have.

In effect, the Republicans and the Democrats are the architects of big government. Libertarians are the architects of a small, limited government and personal and economic freedom.

re you tired of government intruding into your life? Are you opposed to taxation? Are you opposed to the endless bureaucratic control of your health care, your education, your retirement, etc.? Are you opposed to the government's efforts to repeal your Second Amendment rights? Do you want the War on Drugs to come to a binding halt? If so, vote Libertarian!

If you want more information on the Libertarian Party, please call 1-800-ELECT-US, or head over to the party's national website. You can ask for an information packet, and one will be sent out to you shortly.

As for your political beliefs, where do you stand? Are you a conservative? Are you a liberal? Are you a centrist? Please take the World's Smallest Quiz and find out which political philosophy you comfortably fit in. I encourage you to take the quiz. The results just may surprise you. :)


The Key Question

"Who is going to make the decision about this particular aspect of your life, you or somebody else?"

Do you spend the money you earn, or does Congress?

Do you pick the school your child goes to, or does the school board?

Do you decide what books you will read, or will a bureaucracy make that decision?

Do you decide what drugs to take when you're sick, or does the Food and Drug Administration in Washington?

In a civil society you make the choices about your life. In a political society someone else makes those choices. And because people naturally resist letting others make important choices for them, the political society is of necessity based on coercion.

What Rights Do We Have?

Critics on both left and right have complained that America in the 1990s is awash in rights talk. No political debate proceeds for very long without one side, or both, resting its argument on rights--property rights, welfare rights, women's rights, nonsmokers' rights, the right to life, abortion rights, gay rights, gun rights, you name it.

A journalist asked me recently what I thought of a proposal by self-proclaimed communitarians to "suspend for a while the minting of new rights." Communitarians in late 20th-century America are people who believe that "the community" should in some way take precedence over individuals, so naturally they would respond to rights-talk overdosing by saying "let's just stop doing it." How many ways, I mused, does that get it wrong? Communitarians seem to see rights as little boxes; when you have too many, the room gets full. In the libertarian view, we have an infinite number of rights contained in one natural right. That one fundamental human right is the right to live your life as you choose so long as you don't infringe on the equal rights of others.

That one right has infinite implications. As James Wilson, a signer of the Constitution, said in response to a proposal that a Bill of Rights be added to the Constitution: "Enumerate all the rights of man! I am sure, sirs, that no gentleman in the late Convention would have attempted such a thing." After all, a person has a right to wear a hat, or not; to marry, or not; to grow beans instead of apples, apples and beans both, or open a haberdashery. Indeed, to cite a specific example, a person has a right to buy an orange from a grower even though the orange is only 2-3/8 inches in diameter (though under current federal law the grower could go to jail if he sells it to you).

It is impossible to enumerate in advance all the rights we have; we usually go to the trouble of identifying them only when someone proposes to limit one or another. Treating rights as tangible claims that must be limited in number gets the whole concept wrong.

But the complaint about "the proliferation of rights" is not all wrong. There is indeed a problem in modern America with the proliferation of phony "rights." When "rights" become merely legal claims attached to interests and preferences, the stage is set for political and social conflict. Interests and preferences may conflict, but rights cannot. There is no conflict of genuine human rights in a free society. There are, however, many conflicts among the holders of so-called "welfare rights"--"rights" that require someone else to provide us with things we want, whether that is education, health care, social security, welfare, farm subsidies, or unobstructed views across someone else's land. This is a fundamental problem of interest-group democracy and the interventionist state. In a liberal society people assume risks and obligations through contract; an interventionist state imposes obligations on people through the political process, obligations that conflict with their natural rights.

So what rights do we have, and how can we tell a real right from a phony one? Let's start by returning to one of the basic documents in the history of human rights, the Declaration of Independence. In the second paragraph of the Declaration, Thomas Jefferson laid out a statement of rights and their meaning that has rarely been equaled for grace and brevity. As noted in chapter 2, Jefferson's task in writing the Declaration was to express the common sentiments of the American colonists, and he was chosen for the job not because he had new ideas but because of his "peculiar felicity of expression." Introducing the American cause to the world, Jefferson explained:

"We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are life, liberty, and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive of these ends, it is the right of the people to alter or abolish it."

Let's try to draw out the implications of America's founding document.

Property Rights

In fact, the ownership of property is a necessary implication of self-ownership because all human action takes place over property. How else could happiness be pursued? If nothing else, we need a place to stand. We need the right to use land and other property to produce new goods and services. We shall see that all rights can be understood as property rights. But this is a contentious point, not always easily understood. Many people wonder why we couldn't voluntarily share our goods and property.

Property is a necessity. "Property" doesn't mean simply land, or any other physical good. Property is anything that people can use, control, or dispose of. A property right means the freedom to use, control, or dispose of an object or entity. Is this a bad, exploitative necessity? Not at all.

If our world were not characterized by scarcity, we wouldn't need property rights. That is, if we had infinite amounts of everything people wanted, we would need no theory of how to allocate such things. But of course scarcity is a basic characteristic of our world. Note that scarcity doesn't imply poverty or a lack of basic subsistence. Scarcity simply means that human wants are essentially unlimited, so we never have enough productive resources to supply all of them. Even an ascetic who had transcended the desire for material goods beyond bare subsistence would face the most basic scarcity of all: the scarcity of one's own body and life and time. Whatever time he devoted to prayer would not be available for manual labor, for reading the sacred texts, or for performing good works. No matter how rich our society gets--nor how indifferent to material goods we become--we will always have to make choices, which means that we need a system for deciding who gets to use productive resources.

We can never abolish property rights, as socialist visionaries promise to do. As long as things exist, someone will have the power to use them. In a civilized society, we don't want that power to be exercised simply by the strongest or most violent person; we want a theory of justice in property titles. When socialist governments "abolish" property, what they promise is that the entire community will now own all property. But since--visionary theory or no--only one person can eat a particular apple, or sleep in a particular bed, or stand on a particular spot, someone will have to decide who. That someone--the party official, or the bureaucrat, or the czar--is the real possessor of the property right.

Libertarians believe that the right to self-ownership means that individuals must have the right to acquire and exchange property in order to fulfill their needs and desires. To feed ourselves, or provide shelter for our families, or open a business, we must make use of property. And we need to be confident that our property right is legally secure, that someone else can't come and confiscate the wealth we've created, whether that means the crop we've planted, the house we've built, the car we've bought, or the complex corporation we've created through a network of contracts with many other people.

The Dignity of the Individual

Not long ago, on a Saturday morning in a small city in France, I walked up to an automatic teller machine set into the massive stone wall of a bank that was closed for the weekend. I stuck a piece of plastic into the machine, punched some buttons, waited a few seconds, and collected about $200, all without contact with any human being, much less anyone who knew me. I then took a taxi to the airport, where I approached a clerk at a rental-car counter, showed him a different piece of plastic, signed a form, and walked out with the keys to a $20,000 automobile, which I promised to return to someone else at a different location in a few days.

These transactions are so routine that the reader wonders why I bother to mention them. But stop for a moment and reflect on the wonders of the modern world: A man I had never seen before, who would never see me again, with whom I could barely communicate, trusted me with the keys to a car. A bank set up an automatic system that would give me cash on request thousands of miles from my home. A generation ago such things weren't possible; a couple of generations ago they would have been unimaginable; today they are the commonplace infrastructure of our economy. How did such a worldwide network of trust come about? We'll discuss the strictly economic aspects of this system in a later chapter. In this and the next few chapters, I want to explore how we get from the lone individual to the complex network of associations and connections that make up the modern world.…commitments, a legal system that enforces the fulfillment of contracts, and a market economy that allows us to produce and exchange goods and services on the basis of secure property rights and individual consent. Such a framework lets people develop a diverse and complicated civil society that serves an incredible variety of needs.

In the libertarian view, the role of government is to protect people's rights. That is all, but that is quite enough of a task, and a government that does a good job of it deserves our respect and congratulation. The protection of rights, however, is only a minimal condition for the pursuit of happiness. As Locke and Hume argued, we establish government so that we may be secure in our lives, liberties, and property as we go about the business of surviving and flourishing.

We can barely survive, and hardly flourish, without interacting with other people. We want to associate with others to achieve instrumental ends--producing more food, exchanging goods, developing new technology--but also because we feel a deep human need for connectedness, for love and friendship and community. The associations we form with others make up what we call civil society. Those associations can take an amazing variety of forms--families, churches, schools, clubs, fraternal societies, condominium associations, neighborhood groups, and the myriad forms of commercial society, such as partnerships, corporations, labor unions, and trade associations. All of these associations serve human needs in different ways. Civil society may be broadly defined as all the natural and voluntary associations in society. Some analysts distinguish between commercial and nonprofit organizations, arguing that businesses are part of the market, not of civil society; but I follow the tradition that the real distinction is between associations that are coercive--the state--and those that are natural or voluntary--everything else. Whether a particular association is established to make a profit or to achieve some other purpose, the key characteristic is that our participation in it is voluntarily chosen. It should be noted that the associations within civil society are created to achieve a particular purpose, but civil society as a whole has no purpose; it is the undesigned, spontaneously emerging result of all those purposive associations.

Civil Society

Some people don't really like civil society. Karl Marx, for instance. Commenting on political freedom in an early essay, "On the Jewish Question," Marx wrote, "the so-called rights of man . . . are nothing but the rights of the member of civil society, i.e., egoistic man, man separated from other men and the community." He argued that "man as he is in civil society" is "an individual withdrawn behind his private interests and whims and separated from the community." Recall that Thomas Paine distinguished society from government, civil society from political society. Marx revives that distinction, but with a twist: He wants political society to squeeze out civil society. When people are truly free, he says, they will see themselves as citizens of the whole political community, not "decomposed" into different, non-universal roles as a trader, a laborer, a Jew, a Protestant. Each person will be "a communal being" united with all other citizens, and the state will no longer be seen as an instrument to protect rights so that individuals can pursue their selfish ends but as the entity through which everyone would achieve "the human essence [which] is the true collectivity of man." It was never made clear just how this liberation would arrive, and the actual experience of Marxist regimes was hardly liberating, but the hostility to civil society is clear enough.

Marxism is a bad word these days (as it should be), but Marx's powerful hold on so many people for so long indicates that he was on to something when he wrote about people feeling alienated and atomized. People do want to feel at least some connection to other people. In traditional, pre-capitalist communities they didn't have much choice about it; in a village, people you had known all your life were all around you. Like it or not, you couldn't avoid having a sense of community. As liberalism and the Industrial Revolution brought freedom, affluence, and mobility to more people, more and more of them chose to leave the villages of their birth, often even the countries of their birth, and go off to make a better life elsewhere. The decision to leave indicated that people expected to find a better life--and the continuing mobility and emigration, generation after generation, in modern society, would seem to indicate that people do find better opportunities in new places. But even a person who is glad he left the village or the old country may feel a loss of that tight sense of community, just as one's departure from the family to become an adult may generate a profound sense of loss even as one enjoys autonomy and independence. That's the longing to which Marxism seemed for many people to provide an answer.

Ironically, Marxism promised freedom and community but delivered tyranny and atomization. The tyranny of the Marxist countries is well known, but it may not be so well understood that Marxism created a society far more atomized than anything in the capitalist world. The Marxist rulers in the Soviet empire in the first place believed theoretically that men under conditions of "true freedom" would have no need for organizations catering to their individual interests, and in the second place understood practically that independent associations would threaten the power of the state--so they not only eliminated private economic activity, they sought to stamp out churches, independent schools, political organizations, neighborhood associations, and everything else down to the garden clubs. After all, the theory went, such non-universal organizations contributed to atomization. What happened, of course, was that people deprived of any form of community and connectedness between the family and the all-powerful state became atomistic individuals with a vengeance. As the philosopher and anthropologist Ernest Gellner wrote, "The system created isolated, amoral, cynical individualists-without-opportunity, skilled at double-talk and trimming." The normal ways in which people were tied to their neighbors, their fellow parishioners, the people with whom they did business, were destroyed, leaving people suspicious and distrustful of one another, seeing no reason to cooperate with others or even to treat them with respect.

The even greater irony, perhaps, was that Marxism eventually produced a renewed appreciation for civil society. As the corruption of the Brezhnev years faded into the liberalization under Gorbachev, people began to look for an alternative to socialism, and they found it in civil society, the concept of pluralism and freedom of association. The billionaire investor George Soros, eager to liberate the land of his birth (Hungary) and its neighbors, began by making large contributions not to bring about political revolution but to rebuild civil society. He sought to subsidize everything from chess clubs to independent newspapers, to get people once again working together in non-state institutions. The burgeoning of civil society was not the only factor in the restoration of freedom to Central and Eastern Europe, but a stronger civil society will help to protect the new freedom, as well as supplying all the other benefits that people can only achieve in association.

Even people who aren't Marxists share some of Marx's concerns about community and atomization. Communitarian philosophers, who believe individuals must necessarily be seen as part of a community, worry that people in the West, especially in the United States, overemphasize claims to individual rights at the expense of the community. Their view of our relationship to others could be represented as a series of concentric circles: an individual is part of a family, a neighborhood, a city, a metropolitan area, a state, a nation. The implication of these arguments is that we sometimes forget to focus on all the circles and that we should somehow be encouraged to do so.

But are the circles merely concentric? A better way to understand community in the modern world is as a series of intersecting circles, with myriad complex connections among them. Each of us has many ways of relating to other people--precisely what Marx complained of and libertarians celebrate. One person may be a wife, mother, daughter, sister, cousin; an employee of one business, an owner of another, a stockholder in others; a renter and a landlord; an officer in a condominium association; active in the Little League and the Boy Scouts; a member of the Presbyterian Church; a precinct worker for the Democratic party; a member of a professional association; a member of a bridge club, a Jane Austen fan club, a feminist consciousness-raising group, a neighborhood crimewatch, and more. (True, this particular person probably feels pretty frazzled, but at least in principle one can have an indefinite number of associations and connections.) Most of these associations serve a particular purpose--to make money, to reduce crime, to help one's children--but they also give people connections with other people. No one of them, however, exhausts one's personality and defines one completely. (One can approximate such exhaustive definition by joining an all-embracing religious community, say, a Roman Catholic order of contemplative nuns, but such choices are voluntary and--because one can't alienate one's right to make choices--reversible.)

In this libertarian conception we connect to different people in different ways on the basis of free and voluntary consent. Ernest Gellner says that modern civil society requires "modular man." Instead of a man who is entirely the product of and absorbed by a particular culture, modular man "can combine into specific-purpose, ad hoc, limited associations, without binding himself by some blood ritual." He can form links with others "which are effective even though they are flexible, specific, instrumental."

As individuals combine in myriad ways, community emerges; not the close community of the village, or the messianic community promised by Marxism, national socialism, and all-fulfilling religions, but a community of free individuals in voluntarily-chosen associations. Individuals do not emerge from community; community emerges from individuals. It emerges not because anyone plans it, certainly not because the state creates it, but because it must. To fulfill their needs and desires, individuals must combine with others. Society is an association of individuals governed by legal rules, or perhaps an association of associations, but not one large community, or one family, in Mario Cuomo's and Pat Buchanan's utterly misguided conception. The rules of the family or small group are not, and cannot be, the rules of the extended society.

The distinction between individual and community can be misleading. Some critics say that community involves a surrender of one's individuality. But membership in a group need not diminish one's individuality; it can amplify it, by freeing people from the limits they face as lone individuals and increasing their opportunities to achieve their own goals. Such a view of community requires that membership be chosen, not compulsory.

The Market Process

When I go to the supermarket, I encounter a veritable cornucopia of food--from milk and bread to Wolfgang Puck's Spago Pizza and fresh kiwis from New Zealand. The average supermarket today has 30,000 items, double the number just 10 years ago. Like most shoppers, I take this abundance for granted. I stand in the middle of this culinary festival and say something like, "I can't believe this crummy store doesn't have Diet Caffeine-free Cherry Coke in 12-ounce cans!"

But how does this marvelous feat happen? How is it that I, who couldn't find a farm with a map, can go to a store at any time of day or night and expect to find all the food I want, in convenient packages and ready for purchase, with extra quantities of turkey in November and lemonade in June? Who plans this complex undertaking?

The secret, of course, is precisely that no one plans it - no one could plan it. The modern supermarket is a commonplace but ultimately astounding example of the infinitely complex spontaneous order known as the free market.

The market arises from the fact that humans can accomplish more in cooperation with others than we can individually, and the fact that we can recognize this. If we were a species for whom cooperation was not more productive than isolated work, or if we were unable to discern the benefits of cooperation, then we would not only remain isolated and atomistic, but as Ludwig von Mises explains, "Each man would have been forced to view all other men as his enemies; his craving for the satisfaction of his own appetites would have brought him into an implacable conflict with all his neighbors." Without the possibility of mutual benefit from cooperation and the division of labor, neither feelings of sympathy and friendship nor the market order itself could arise. Those who say that humans "are made for cooperation, not competition" fail to recognize that the free market of competition is cooperation.

The economist Paul Heyne compares planning with spontaneous order this way: There are three major airports in the San Francisco Bay area, he says. Every day thousands of airplanes take off from those airports, each one bound for a different destination. Getting them all in the air and back on the ground on time and without colliding with each other is an incredibly complex task, and the air traffic control system is a marvel of sophisticated organization. But also every day in the Bay area people make thousands of times as many trips in automobiles, with far more individuated points of origin, destinations, and "flight plans." That system, the coordination of millions of automobile trips, is far too complex for any traffic control system to manage, so we have to let it operate spontaneously within a few specific rules: drive on the right, stop at lights, yield when making a left turn. There are accidents, to be sure, and traffic congestion--much of which could be alleviated if the roads themselves were built and operated according to market principles--but the point is that it would be simply impossible to plan and consciously coordinate all those automobile trips. Contrary to our initial impression, then, it is precisely the less complex systems that can be planned and the more complex systems that must develop spontaneously.

Many people accept that markets are necessary but still feel that there is something vaguely immoral about them. They fear that markets lead to inequality, or they dislike the self-interest reflected in markets. Markets are often called "brutal" or "dog-eat-dog." But as this chapter will demonstrate, markets are not just essential to economic progress, they are more consensual and lead to more virtue and equality than government coercion.

Information and Coordination

Markets are based on consent. No business sends an invoice for a product you haven't ordered, like an income tax form. No business can force you to trade. Businesses try to find out what you want and offer it to you. People who are trying to make money by selling groceries, or cars, or computers, or machines that make cars and computers, need to know what consumers want and how much they would be willing to pay. Where do they get the information? It's not in a massive book. In a market economy, it isn't embodied in orders from a planning agency (though of course, theoretically, in socialist economies producers do act on orders from above).

 Prices

This vitally important information about other people's wants is embodied in prices. Prices don't just tell us how much something costs at the store. The price system pulls together all the information available in the economy about what each person wants, how much he values it, and how it can best be produced. Prices make that information usable to producer and consumer. Each price contains within it information about consumer demands and about costs of production, ranging from the amount of labor needed to produce the item to the cost of labor to the bad weather on the other side of the world that is raising the price of the raw materials needed to produce the good. Rather than having to know all the details, one is presented with a simple number: the price.

Market prices tell producers when something can't be produced at a cost less than what consumers will pay for it. The real cost of anything is not the price in dollars; it is whatever could have been done instead with the resources used. Your cost of reading this book is whatever you would have done with your time otherwise: gone to a movie, slept late, read a different book, cleaned the house. The cost of a $10 CD is whatever you would have done with that $10 otherwise. Every use of time or other resources to produce one good incurs a cost, which economists call the opportunity cost. That resource can't be used to produce anything else.

The information that prices deliver allows people to work together to produce more. The point of an economy is not just to produce more things; it's to produce more things that people want. Prices tell all of us what other people want. When prices for certain goods rise, we tend to reduce our consumption of those goods. Some of us calculate whether we could make money by starting to produce those goods. When prices--that is, wages or salaries--for some kinds of labor rise, we consider whether we ought to move into that field. Young people think about training for jobs that are starting to pay more, and they move away from training that prepares them for jobs where wages are declining.

In any economy more complex than a village--maybe even more complex than a nuclear family--it's difficult to know just what everyone wants, what everyone can do, and what everyone is willing to do at what price. In the family we love one another, and we have an intimate knowledge of each person's abilities, needs, and preferences; so we don't need prices to determine what each person will contribute and receive. Beyond the family it is good that we act benevolently toward other people; but no matter how much preachers and teachers exhort us to love one another, we will never love everyone in society as much, or know their needs as well, as the people in our family. The price system reflects the choices of millions of producers, consumers, and resource owners who may never meet and coordinates their efforts. Although we can never feel affection for--or even meet--everyone in the economy, market prices help us to work together to produce more of what everyone wants.

Unlike government, which at best takes the will of the majority (and more often acts according to pressure from a small group) and imposes it on everyone, markets use prices to let buyers and sellers freely decide what they want to do with their money. Nobody can afford everything, and some people can afford much more than others, but each person is free to spend his money as he chooses. And if 51 percent of the people like black cars, or Barry Manilow, dissenters are free to buy something else; they don't have to organize a political movement to get the whole country to switch to blue cars or Willie Nelson.

Competition

All this talk about the marvel of coordination shouldn't leave the impression that the market process isn't competitive. Our individual plans are always in conflict with those of other people; we plan to sell our services or our goods to customers, but other people are also hoping to sell to the same customers. It is precisely through competition that we find out how things can be produced at least cost, by discovering who will sell us raw materials or labor services for the lowest price.

The basic economic question is how to combine all the resources in society, including human effort, to produce the greatest possible output--not the most pounds of steel, or the most computers, or the most exciting movies, but the combination of output that will satisfy people most. We want to produce as much as we can of each good that people want, but not so much that it would be better to produce something else instead. The prices we're willing to pay for a good or service, and the prices we're willing to accept for our labor or for what we've produced, guide entrepreneurs toward the right solution.

When we make decisions in the market, each decision is made incrementally, or "on the margin": do I want this steak, one more magazine, a three-bedroom house? Our willingness to pay, and the point at which we're not willing to buy another unit, tells producers how much they can afford to spend on producing the product. If they can't produce another one for less than the "market-clearing" price, they know not to devote more resources to production of that product. When consumers show rising interest in computers and declining interest in televisions, firms will pay more for raw materials and labor to produce computers. When the cost of hiring more labor and materials reaches the limit of what consumers are willing to pay for the finished product, firms stop drawing more resources in. As these decisions are repeated thousands, millions, billions, of times, a complex system of coordination develops that brings to consumers everything from kiwis to Pentium chips.

It is the competition of all firms to attract new customers that produces this coordination. If one firm that senses that consumer demand for computers is increasing, and it is the first to produce more computers, it will be rewarded. Conversely, its television-producing competitor may find its sales declining. In practice, tens of thousands of firms do well, and thousands go out of business, every year. This is the "creative destruction" of the market. Harsh as the consumers' judgment may feel to someone who loses a job or an investment, the market works on a principle of equality. In a free market no firm gets special privileges from government, and each must constantly satisfy consumers to stay in business.

Far from inducing self-interest, as critics charge, in the marketplace the fact of self-interest induces people to serve others. Markets reward honesty because people are more willing to do business with those who have a reputation for honesty. Markets reward civility because people prefer to deal with courteous partners and suppliers.

Socialism

It is the absence of market prices that makes socialism impossible, as Ludwig von Mises pointed out in the 1920s. Socialists have often considered the question of production an engineering question: Just do some calculations to figure out what would be most efficient. It's true that an engineer can answer a specific question about the production process, such as, What's the most efficient way to use tin to make a 10-ounce can of soup, that is, what shape of can would contain 10 ounces with the smallest surface area? But the economic question--the efficient use of all relevant resources--can't be answered by the engineer. Should the can be made of aluminum, or of platinum? Everyone knows that a platinum soup can would be ridiculous, but we know it because the price system tells us so. An engineer would tell you that silver or platinum wire would conduct electricity better than copper. Why do we use copper? Because it delivers the best results for the cost. That's an economic problem, not an engineering problem.

Without prices, how would the socialist planner know what to produce? He could take a poll and find that people want bread, meat, shoes, refrigerators, televisions. But how much bread and how many shoes? And what resources should be used to make which goods? "Enough," one might answer. But, beyond absolute subsistence, how much bread is enough? At what point would people prefer a new pair of shoes rather than more food? If there's a limited amount of steel available, how much of it should be used for cars and how much for ovens? Most importantly, what combination of resources is the least expensive way to produce each good? The problem is impossible to solve in a theoretical model; without the information conveyed by prices, planners are "planning" blind.

In practice, Soviet factory managers had to establish markets illegally among themselves. They were not allowed to use money prices, so marvelously complex systems of indirect exchange - or barter - emerged. Soviet economists identified at least 80 different media of exchange, from vodka to ball bearings to motor oil to tractor tires. The closest analogy to such a clumsy market that Americans have ever encountered was probably the bargaining skill of Radar O'Reilly on the television show M*A*S*H. Radar was also operating in a centrally planned economy--the U.S. Army--and his unit had no money with which to purchase supplies, so he would get on the phone, call other M*A*S*H units, and arrange elaborate trades of surgical gloves for C-rations for penicillin for bourbon, each unit trading something it had been over-allocated for what it had been under-allocated. Imagine running an entire economy like that.