The Power of Markets and Prices

The Invisible Hand

The market system is one of the most powerful mechanisms humanity has ever created. The incorporation of shipping distance, assembly process, material selection and many other factors, filter through the market to generate accurate prices. Prices then enable individuals to make informed complex decisions in an instant simply based on what something costs. The power of this instantaneous decision-making process is something to be harnessed and preserved. A modern standard of living, communication, and efficiency are all maintained through markets and may degenerate without them. However, the goals of humanity have slowly shifted since the conception of this powerful mechanism, and what was once a limitless environment to be exploited is now realized to be finite and well within humanity’s influence.

The oceans, thought to be indestructible and resilient, are now depleted and polluted to an extent not thought possible even 50 years ago. The atmosphere, once locally vulnerable but globally everlasting, has also become susceptible to a modern population and industriousness. These (and other) seemingly limitless resources that were once outside economic consequence are now firmly within the known influence of humanity. More importantly, the maintenance of these common spaces is vital to the systems that support us, our way of life, and potentially humanity itself.

Markets have traditionally quantified what is scarce and assigned a price accordingly. This allows careful consideration when using rare things as the cost will be significant (think gold vs water). This is an over simplification of the world economic system but touches on an important function of markets and how prices influence our decisions. The same principal of scarcity can be expanded to substances that have traditionally not been accounted for in the economic equation (often referred to as “externalities”). If we put a price on the externalities (ex. carbon emissions) the cost of items that produce them goes up. This increase in price will allow individuals to make more balanced and complete economic decisions by simply considering the more complete cost. The principal being: the lower the cost, the more abundant and more sustainable a product is.

There is a great debate on how to best address the environmental problems facing humanity as they quickly develop into an existential problem. I submit (however unoriginally) that the powerful invisible hand of the market system can play an invaluable role in addressing these crises. No one can be expected to research every economic decision for its impact on the environment, but everyone can choose the cheaper alternative if sustainability is tied to the price. Individuals should be enabled to act collectively and make decisions that ensure prosperity today and for generations to come.  

Mackenzie