Alchian on Competition and Coordinated Cooperation

Found in Universal Economics

Starting with Adam Smith, the cornerstone of the field of study of economics has been the division of labor. Either by force, or voluntarily, human societies progressed to the extent that they were able to create institutions that allow individuals to cooperate with one another in the production of goods and services.

In primitive societies, most relations, including economic relations, were organized by involuntary arrangements, be that traditional forms of bondage, or any other subjection legally enforced such as slavery.

The primary focus of economic analysis is on (a) competition in exchange of rights to services and goods and (b) coordinated cooperation in creating wealth. Competition by offers of exchange is a form of cooperation. “I’ll do this for you if you’ll do that for me—at better terms than someone else.” Though competing, we also cooperate—in the market, in the family, in firms, and in governments. We cooperate to make the “pie” larger; we compete over how much of the pie each of us gets. Any effective combination of cooperation and competition requires a control of the permissible types of competition so as to not obstruct social cohesion and cooperation. (FROM: COMPETITION, Competitive Cooperation by Exchanges)

If one abstracts their moral failings, those forms of social cooperation could be arguably more efficient than anarchy or the straightforward killings of subjugated peoples, still, they were much less productive than voluntary cooperation, as it could be seen by Alchian by comparing free market societies with the socialist ones existing in his lifetime.

Still, competition in the marketplace, under the rule of law, and the mores of commercial societies, were decried by socialists, and other enemies of the open society. Be that due to ignorance or due to the wearing of ideological blindsides.

That cooperation among humans happens outside the marketplace is not difficult to understand. People are expected to be altruistic with their families and their friends, and devotion to public service and military duty are more common in open societies than the cynicism of many observers would concede beforehand.

However, what Alchian is calling attention to is not that. What he is calling attention to is that the very competitive nature of the market is the instrument by which cooperation is achieved in the realm of economic activity. Furthermore, this voluntary cooperation is more efficient than non-voluntary, that is, non-competitive ones.