Yesterday I inaugurated the New Year by taking the kids ice skating. Naturally this got me to thinking about economics, specifically Dan Klein's modern classic, Rinkonomics: A Window on Spontaneous Order.
Long ago people didn't know anything of skating. Imagine yourself one of them. Imagine that a friend walks up to you and tells you with great enthusiasm about his new idea for a business:
"I'll build a huge arena with a smooth hard wooden floor and around the perimeter a naked iron hand-rail. I'll invite people to come down to the arena and strap wheels onto their feet and skate round n' round the arena floor. They won't be equipped with helmets, shoulder-pads, or knee-pads. I won't test their skating competence, nor separate skaters into lanes. Speedsters will intermingle with toddlers and grandparents, all together they will just skate just as they please. They'll have great fun. And they'll pay me richly for it!"
Knowing nothing of skating, you would probably expect catastrophe. You exclaim: "How are 100 people supposed to skate around the arena without guidance or direction?…The arena will be a scene of collision, injury, and stagnation. Who will pay for that?!"…
Yet, we have all witnessed roller skating, and we know that somehow it does work out. There are occasional accidents, but mostly people stay whole and have fun, so much so that they pay good money to participate. The spectacle is counter-intuitive. How does it happen?…
An important quality of collision is mutuality. If I collide with you, then you collide with me. And if I don't collide with you, you don't collide with me. In promoting my interest in avoiding collision with you, I also promote your interest in avoiding collision with me.
The key to social order at the roller rink is this coincidence of interest.I do not intend to promote your interest. I am not necessarily even aware of it. Still, by looking out for myself I am to that extent also looking out for you. My actions promote your interest.
Skating on the floor of the roller rink is an example of what Friedrich Hayek called spontaneous order.
John Stossel memorably demonstrated the alternative process of centrally planned skating in this video (starting about 3:16).