Who will get the cars and when? Who will get the steak? Who will get the wine? Or, as the Associated Press asked this morning, “who’s first in line for COVID-19 vaccine”? There are two answers: (1) Jane who works for the government will decide. (2) An impersonal, decentralized, efficient exchange process, where everybody is his own Jane, will give the answer.
My first claim is that, if such a process as #2 existed, it would be much superior for satisfying the most urgent demands, promoting prosperity, and preventing social strife if not “the war of all against all.” My second claim is that such a process does exist: it’s called the (free) market.
The market is a continuous, invisible auction in which every individual or association of individuals can bid, and in which any producer may choose to fill any bid—which will usually be the highest bids. (Some may choose to serve those who bid the lowest price but they are rare. A mischievous economist would say that they are trying to bid for a place in heaven.)
Who gets the cars? Lots of bidders, in fact. Once the bidding process is over at any point of time, all the auction participants willing to pay the price that clears the market get cars. The others don’t. It’s the same for steak or wine or pretty much everything. Some services, like love or friendship, are more difficult to bid for, but they can’t be efficiently allocated by the government’s Jane either.
Why can’t billionaires or governments bid everything away from ordinary people? Suppose a billionaire wants to buy all the guns. Assume there are 200,000,000 private guns in the United States, probably an underestimate. Assume an average price of $200. The minimum value of guns, as evaluated by those who own them and bid for them continuously (if only by not selling), would thus be $40 billion. “Minimum” because of the consumer surplus: one only buys something whose value is higher than its price. No single billionaire has enough money to buy that and, as we shall see presently, even the trillionaire government could not buy all the guns in voluntary exchanges.
As the government bidder-in-chief (or a billionaire) starts bidding, gun prices will start increasing. The first guns can be bought easily, but as individuals who least want their guns have sold them, the bids for the remaining guns will have to increase, and the fewer the private guns left, the higher the necessary bids. As only a few guns are left in the hands of people other than the bidder-in-chief, their prices will be extremely high not to mention the likelihood of holdouts. “$10 million for my old revolver!” Even with confiscatory taxation, the bidder-in-chief will need eminent domain or the Defense Production Act to get all the guns from all the people.
Moreover—and this additional factor is important—as the price goes up, new producers will jump in the industry to produce more. So if the bidder-in-chief does not have the power to abolish free enterprise (or kill all smugglers), he will never be able to bid away all the guns, all the steak, or all the wine in order to give them to his preferred supporters and clientèles. Similarly, neither billionaires nor the trillionaire state can buy all the steel or all the aluminum to build cars, mansions, or walls.
Now suppose Covid-19 vaccine is (hopefully) invented. Instead of Jane deciding who gets the vaccine, everyone in a free society would make his own decision on whether to buy or not, now or later. Every individual would decide to which extent he contributes to biding up the price by deciding whether or not to stop bidding before a price clears the market for all winning bids at that price. Note that our former but humbled bidder-in-chief, the government, would still be able to bid up the vaccine price in order to purchase some—to give, say, to seniors in nursing homes, to government bureaucrats, or to White House occupants, but he would have no more power than that. There is a good argument that vaccines should be subsidized and available free for children. Charities or associations could also bid up the price in order to obtain vaccines for the people they cater to. And nothing would forbid any less-than-average Jane to sell her TV set to get a dose, if she thinks the latter is more important than the former.
In any allocation system, of course, not more than what is available at any point in time can be consumed. But remember that as the price goes up, other producers, domestic and foreign, would be incited to jump in the market by inventing and producing a new vaccine. Furthermore, as more people are vaccinated, herd immunity would develop so that, in the end, even those who did not, directly or indirectly, pay to be vaccinated would be protected.
These ideas are not very original, at least for economists. You may find them in, say, Milton Friedman’s 1962 book Capitalism and Freedom—or, for that matter, in many if not most microeconomics textbooks. They have underlaid the whole classical liberal tradition. Yet, they seem to have disappeared from anywhere else in our socialist societies.
In a perfect socialist society, where there would presumably be a continuous redistribution of income from the above-average to the below-average individual, there would be no reason, from that point on, not to let each one be his own Jane and up prices. (Continuous redistribution: You wake up in the morning, look at your screen, and see that $100 have been debited from your bank account with the mention DIET, or “Daily Income Equalization Transaction.”) However, there would be few vaccine producers as one could live as comfortably doing anything that one thinks is the easiest and most pleasant.