[Smart Economics] The Ever-Evolving Market Economy Order

The reason we can eat kimchi without knowing how to make it is that we have the market.

In September 1758, the French economist Vincent de Gournay said, “Laissez-faire. Let things be, and the world will run on its own.” The same applies to the market economy. The market has existed throughout human history and has undergone countless rounds of evolution. What is evolution? It is change toward the form best optimized for one’s environment. All living things on Earth have continually adapted to their environments and changed into forms best suited for survival. Thus, the form of every living thing can be understood as either the form best fitted to its environment or the process of becoming so. Species that fail to evolve naturally disappear. In the end, evolution is nature’s principle for survival and prosperity.

Through competition and elimination, only the best products survive and are passed on to the next generation

This same order of evolution can be found in our own lives. The economy, in particular, boasts a remarkable history of evolution alongside the development of human civilization. From the self-sufficient economies of primitive times, when people survived by hunting and gathering, to today’s exchange economy of free competition and profit-seeking through division of labor and specialization, the economy has developed astonishingly as the times changed and industry advanced. This is the result of more than 2,000 years of continuous evolution in human history, and the market economy is precisely the optimal economic system that has evolved and developed on its own over that long period of time.

Unlike socialist or totalitarian planned economies, which failed and disappeared, the market has survived and evolved through unimaginably numerous changes from the very beginning of exchange economies to the present day. Moreover, it is still evolving even now. How has such unceasing evolution been possible? It is because the market is friendly to evolution. When economic actors engage freely in economic activities within the market, all kinds of changes and variations arise, and fierce competition unfolds. It is through this competition that only what survives by winning consumer choice gets passed down to the future. That is why we are able to use better products each time than in the past.

In this way, if firms fail to create better products, they are not chosen by consumers and are naturally eliminated from the market. Therefore, only firms, products, and technologies that adapt well to the market environment survive and help energize the market. Hayek saw this process of market selection and evolution as a “spontaneous order,” and said that “competition is a discovery procedure.” In reality, even without artificial design, the market naturally forms the most suitable order and moves toward balance according to the principle of the “invisible hand.”

The evolution of the market can also be seen in changes in our daily lives. In medieval Europe, conquest and war were undertaken even to obtain spices. But today, no country wages war to secure spices. That is because spices are no longer hard-to-obtain ingredients but have become commonplace. A major reason spices became so widely available was the development of transportation. As transportation advanced, the barriers of distance collapsed, trade naturally developed, and the scale and scope of markets expanded greatly. The types and quantities of goods traded became incomparably more diverse and abundant than before, and transaction times were shortened dramatically. That is why today we can comfortably receive goods flown in from the other side of the globe anytime, anywhere.

The evolution of the market can also be seen in the increasing specialization of occupations. Today there are far more kinds of jobs than in the past. That is because people no longer solve everything by themselves but instead use the market to meet what they lack. Take kimchi, for example. In the past, if you wanted to eat kimchi, you had to learn how to make it, prepare all the ingredients yourself, and then make it. But what about these days? Even if you do not make kimchi yourself, you can easily buy it and eat it. That is because people who are skilled at making kimchi professionally produce and sell it. So now, even if you do not prepare the ingredients and do not know how to make kimchi, you can enjoy delicious kimchi anytime.

Schumpeter once said, “The achievement of capitalism does not consist in providing silk stockings for queens, but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort.” In this way, the expansion and development of the market—that is, the evolution of the market—provides us with the universal convenience that allows anyone to buy inexpensive stockings at a nearby convenience store and wear them at any hour of the day.

Various failures are nourishment for evolution

I can say with certainty that the market is the most evolution-friendly economic institution in human history. Today’s market was formed through the interaction of countless social elements, and the market of the future will be formed in the same way. This willingness to accept evolution without hesitation and to keep transforming itself anew is both the excellence and the natural character of the market. Going forward, the market will continue evolving on its own without stopping.

Of course, various failures may appear in the course of evolution. But even those failures become nourishment for further market evolution and development. What matters is not failure itself, but faith in a market that evolves on its own according to spontaneous order.

△ Please remember

When economic actors engage freely in economic activities within the market, a variety of changes and variations emerge, and fierce competition takes place. It is in this competition that only what survives by winning consumer choice is passed on to the future. That is why we are able to use better products each time than in the past.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: [스마트 경제 읽기] 지금도 계속 진화하고 있는 시장경제 질서

Author: Sung-no Choi

Date: 2021-07-19

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=4&idx=24053