Today’s Quotation of the Day comes from Armen Alchian and Harold Demsetz 1973 article in the Journal of Economic History, The Property Right Paradigm (Original emphasis):
Economics textbooks invariably describe the important economic choices that all societies must make by the following three questions: What goods are to be produced? How are these goods to be produced? Who is to get what is produced? This way of stating social choice problems is misleading. Economic organizations necessarily do resolve these issues in one fashion or another, but even the most centralized societies do not and cannot specify the answer to these questions in advance and in detail. It is more useful and nearer to the truth to view a social system as relying on techniques, rules, or customs to resolve conflicts that arise in the use of scarce resources rather than imagining that societies specify the particular uses to which resources will be put.
Since the same resources cannot simultaneously be used to satisfy competing demands, conflicts of interest will be resolved one way or the other. The arrangements for doing this run the full gamut of human experience and include war, strikes, elections, religious authority, legal arbitration, exchange, and gambling. Each society employs a mix of such devices, and the difference between social organizations consists largely in the emphasis they give to particular methods for resolving the social problems associated with resource scarcity.
These two paragraphs, which begin their relatively short but interesting article on property rights, are an important discussion of the economic problem: when faced with scarcity, how are resources allocated? The three questions they discuss as leading off economic textbooks are ways of addressing the economic question, but can be misleading to the young economist or layman since they imply that the answers are conscientiously chosen can be known. However, as Hayek teaches us, that sort of information is highly decentralized and extraordinarily context-dependent. So, the real question is what techniques are used to allocate these resources.
Some techniques are better than others in differing contexts, and in a near-future post (inspired, in part, by this article) I will be expanding on one particular technique, the allocation of property rights.