COOPERATION AND COMPETITION
IN A PRIVATE-ENTERPRISE ECONOMY

Let us move on now to the complex real economy, to consider how we do decide among alternative uses of resources and how the economy’s total production frontier may move out. Man lives by cooperating with his fellow men. In all economics there is no more basic truth. And in the modern American economy this cooperation is indescribably broad and complex.

To satisfy our simplest wants, we rely upon the efforts of innumerable people in all parts of the world, and on the labors of generations past. Yet this vast cooperative system, as a system, has not been consciously designed by man. No human director tells the 80 million workers in the United States where to work, what to do, or how to do it. Somehow the system seems to organize itself, with a minimum of central planning or directing.

Man can organize, and indeed he has organized much. Tens of thousands of workers are employed in some large industrial plants. Often many of these huge plants are joined together in a single organization. The American Telephone
and Telegraph Company, for example, spreads over the entire United States, with over half a million employees and assets of over $30 billion.

But in spite of the immense power of such huge aggregations, each business concern plays a tiny part in the total picture of organizing economic resources to satisfy human wants. And in spite of the great expansion of government controls, the private-enterprise economy still does the bulk of the job in its long-established unplanned way in contrast to the central plans that control our biggest rival, the Soviet economy.

The Incredible American Economy

It’s easy to find things the matter with a basically private-enterprise, “unplanned” econ-omy, like ours. But thoughtful observers have long been impressed by its remarkable efficiency in pro-ducing the infinite variety of goods and services consumers want.

Consider New York City, teeming with eight million people crowded into a few square miles. As Bastiat, a famous economist, remarked about the Paris of a hundred years ago, here are millions of human beings who would all starve in
a short time without a constant flow of provisions into the metropolis. Hardly one could support himself for more than a few days without help from the far corners of the nation. “Imagination is baffled,” Bastiat wrote, “when it tries to appre-ciate the vast multiplicity of commodities which must enter tomorrow in order to preserve the in-habitants from falling prey to the convulsions of famine, rebellion, and pillage. Yet all sleep, and their slumbers are not disturbed for a single mm-ute by the prospect of such a frightful catas-trophe.”

Every day, New York City gets hundreds of tons of meat, huge amounts of fresh vegetables, coal, oil, furniture. Every year, it gets millions of shirts, automobiles, rugs, hairnets, movie films,and more other goods and services than you can think of. Yet no individual, business, or government agency plans it that way. The same is true,on a smaller scale, of every city and village throughout the country.

Who sees to it that all these millions of products are where they’re needed when they’re needed? What organizes this indescribably complex economy?

Suppose for a moment that you have just been made complete economic dictator, and that for some unfortunate reason you have no ideahow much of everything is now being produced.

You have to tell every one of 80 million workers just what to do, decide just how much of each commodity and service shall be produced, and determine who shall get how much of what is made—all this so that the amount of everything produced will be equal to the amount wanted, and so that no productive resources will be wasted through involuntary unemployment!

How, for example, would you decide whether Joe Smith ought to spend his time grinding fine edges on a machine tool later to be used in manufacturing tractors later to be used in producing corn later to be fed to hogs later to be eaten as pork; or whether he ought to spend his time making TV cabinets, or running a locomotive, or operating a corne’r grocery store? What would you do about the minor problem of how many sheep to raise, when each sheep yields both wool and mutton, the demands for which are almost completely independent? Wool is used for clothing, blankets, rugs; mutton is used for dinner.

How are you going to make them come out even, even if you have somehow decided on the total number of sheep to be raised? How would you decide who is to have the tractors and corn and cabinets and mutton and wool once they are produced? Or, to take an apparently simple problem, how would you decide how many raincoats to make next year? This is the merest suggestion of the problems faced—and it matters not whether the economic system is capitalist, communist,fascist, or what not. Somehow these decisions have to be made. We must discover what our production possibilities are, must make full use of them, and must do so in a way that will go as far as possible toward satisfying the mixture of wants of some 200 million people.

The Organizers : : SeIf-Interest and Competition

In a basically private-enterprise economy like ours, we rely chiefly on private initiative, in search of wages and profits, to get the job done. If we as a group want something badly enough, we are willing to pay for it. If we want shoes, there will be a profit to be made in producing shoes. Businessmen, recognizing this potential profit, begin producing more shoes. People go to work where businesses will pay the best wages, in general where consumer demands are strongest. As output increases, a point is reached when just as many shoes are being produced as consumers are willing to pay for at a price that is just high enough to cover the full production costs. If businessmen compete actively, prices will be held down to a level that just covers the costs of production.

The same general pattern of production in search of profits goes on for thousands of other products simultaneously. Consumer spending guides profit-seekers to where the potential profits are largest. Where profit prospects look brightest, they offer jobs and bid raw materials and capital in to increase production. Millions of workers work where they will, generally where wages are best but taking into account working conditions and the like. Consumer demands through the
market process determine where on the production-possibilities curve we operate.

This is the mechanism by which the “private-enterprise, free-price system” does this indescribably complex job. It decides what’s to be produced, how to get it produced, and how to distribute it to 200 million consumers. As Adam Smith pointed out in his famous Wealth of Nations back in 1776, the desire for personal profit within the framework of a competitive economic system works almost like an “invisible hand” to guide the system toward the greatest possible welfare of all.

Perhaps Adam Smith was overenthusiastic in relying so heavily on individual self-interest and competition as a beneficent invisible hand. But the first big lesson to learn about a private-enter-prise economy is that it gets its vast job done for the most part automatically and impersonally, through the profit and price system.

Nobody decides any more than his own affairs. Yet everyone deciding in his own self-interest seems to do the trick. In a private-enterprise economy, absence of planning and control does not mean chaos.

Rather, it means order in an economy so complex that no mind could comprehend it and bring order without the price system or something like it to do the job.

But this is a lesson that must not be over-learned. We can understand and admire the way the private-enterprise, free-price system ticks on year after year, impersonally solving its millions of intertwined problems, and still not shut our eyes to its failings. And failings there are—drastic ones, some people think. The public has looked increasingly to government intervention to assure competition among businessmen; to set minimum standards for wages and working conditions; to regulate industries (like broadcasting and telephone service) where the public interest is paramount and free competition is not feasible; and to provide a wide range of services (like education,highways, national defense, and police protection) that can’t reasonably be obtained on aprivate-profit basis for the bulk of the public. In fact, government is now so involved in the economy that many people call ours a “mixed” rather than a “private-enterprise” economy. For the moment, however, leave the government out, while we get a slightly more complete overview of how a private-enterprise economy solves the basic economic problems. It all comes back to the central economic problem—how to use our limited re-sources to satisfy the public’s vast human wants as fully as possible.