We may see ourselves as independent individuals but we all rely for our very lives on other individuals, as well as being independent. Based on countless strangers who create life's amenities. Few of us can produce the food we need to survive, much less establish a place where we can live. Living in or making items like computers or vehicles. In order to produce all these things for us, other individuals must be induced. For that reason, rewards are necessary.
In a market economy, prices are at the heart of these incentives. There are some relatively simple, but important economic principles that together help to explain how a complex society is made up of millions of people. Human beings provide countless goods and services to each other that sustain, enhance and prolong their lives. Because we are aware that the allocation of scarce resources with alternative uses is a key task for any economy, and the next question is: how does an economy do that?
It is obviously achieved differently by different kinds of economies. The Lord of the Manor simply told the people under him what to do in a feudal economy. Plant less barley and more wheat, put fertilizer here more hay there, drain the swamps, and where he decided to put resources. It is baffling to many how an extremely complex, high-tech economy can work without any central guidance. The Last Soviet President, Mikhail Gorbachev, is said to have asked Margaret Thatcher, British Prime Minister, how do you see people getting food? The response was that she didn't. Prices have done that.
Imagine what a colossal bureaucracy it will take, without the position of rates, to ensure that the city of London alone is supplied with the loads of food, of all sorts, that they eat every day. Yet it is possible to dispense with such an army of bureaucrats and the citizens who will in such a bureaucracy that efficient work may be required elsewhere in the economy, since the simple price mechanism does the same job. Quicker, less costly, and easier.
This is also true in China, where the Communists still run the government, but permitted free markets at the beginning of the twenty-first century. They are involved in much of the economy of that country. While China has one-fifth of the world's total population, it has only 10 percent of the world's population. The arable land of the planet, so feeding its people will continue to be the vital issue it once was, back in the days when frequent famines took place.
The fact that all the countless economic activities in a market economy are regulated or organized by no given person or set of individuals does it doesn't mean this stuff all happens spontaneously or chaotically. Each client, manufacturer, retailer, landlord, or employee makes a person in the terms they mutually agree on make transactions with other individuals. Prices express those words, not only to the individuals themselves but also across the entire economic system.
If there is someone else somewhere who has a product - service, this reality is transmitted and acted on by prices without any elected representative official, better product or lower price. In deciding how much of each resource is used where and how the resulting goods are transferred to millions of people, prices play a crucial role. Yet this function is rarely understood by the public, and politicians frequently ignore it entirely. Margaret Thatcher, Prime Minister, in her memoirs said that Mikhail Gorbachev "had little understanding of economics," even though he was the leader of the biggest country on earth at the time.
