Free Markets X – Emergent Properties

Emergent properties have to do with very complex and sophisticated behavior emerging from a large number of very simple components. For example, neurons in the brain, though biologically complex, are functionally very simple. All they can do is send a signal pulse down the axon (long, thin part) when stimulated at the dendrite (short part near the cell body). Functionally one could do the same thing with nothing more than a battery, push button and piece of wire.

Yet hundreds of millions of these functionally very simple neurons, acting together in a brain, produce thought, self-awareness, and even great music and literature and mathematics – all emergent properties from this assembly of very simple pieces.

Free markets exhibit similar emergent properties. Each individual transaction in a free market is very simple – a consumer considering buying something offered by a seller. The consumer considers the price, how much they want it, whether they can afford it at that price, and whether they would rather spend the money on something else. The seller considers what it cost to make the item, and how much added profit she/he thinks can be added and still find a buyer.

Yet from millions of these simple transactions emerges a market that is remarkably efficient at allocating goods where they are most needed, moving goods from areas of surplus to areas of scarcity, and signaling producers what to produce more of and what to produce less of.

And the market does this without any single person in the market “consciously” trying to control or optimize the market. Indeed, no single person could do that, because no single person could ever have anywhere near as much information as the market as a whole has from each of the hundreds of millions of individual consumer choices being made every day. Instead the market reacts to the feedback signals from all the purchases made or not made at given prices, constantly dynamically adjusting itself as supplies vary and consumer desires change.

At least it does so unless someone interferes and corrupts the feedback signals