Thursday, December 21, 2006


Price is one of those extremely simple things, which helps to create incredibly complex things.

Price is so natural to us, we rarely think much about it.

I remember reading somewhere, that we should stop every so often and wonder at the art, genius and craft that's gone into even the simplest of everyday objects.

Look around your desk and pick out any object. A pencil for example. What is the pencil made of? Lead, wood, a paint and or lacquer over the wood. The paint itself is made up of many chemicals, the wood is fashioned by some complex machinery, and of course comes from forested wood. The lead is actually graphite something or other, probably mined. (example from Milton Friedman's TV series).

So a simple pencil actually is made up from dozens of raw materials, the materials are produced, processed and distributed directly or indirectly by perhaps hundreds of people on different continents speaking different languages.

All these people worked together in some way to put that pencil in your hand, ready to use.

How did they cooperate? Price.

I suspect price is the most important factor in civilisation, more important than democracy, science or the arts. Price is so simple (--has any society been discovered without some sense of price?) but helps coordinate and build things of amazing complexity and beauty.

Problems occur when prices aren't set by buyer and seller but interfered with by governments, a corrupt official or another third party. Increased prices to hire someone (e.g. income taxes, official corruption) lower employment. Lower subsidised prices, promote wastage, for example the food mountains of the EU. European farmers are given good prices for producing food that no one eats!

When prices aren't meddled with, vibrant societies are created which depend on nothing much other than /people/, e.g. Singapore, Hong Kong and Ireland. (As a side note, I suspect that there's a negative correlation between countries rich in natural resources and their place in the human development index.)

Human Development Index:
Ease of Doing Business Index:
Economic Freedom:

No comments: