In the land of milk and honey, a life of luxury is possible – without any work or effort. But despite all the prosperity we have achieved, we do not live in a land of milk and honey. In the real world, milk and honey do not flow automatically. They have to be earned, just like all other goods and services.
In real life, people compete for scarce goods. They have different interests and ideas about their lives. In other words, the world is complex and full of shortcomings. The question therefore is: how can people’s different, often competing goals be reconciled in the best possible way? How can scarce resources be used efficiently? How can the different consumer desires be fulfilled?
We need an economic system because resources are scarce and consumer desires are very different. How can these different desires and interests be coordinated? The social market economy has proven to be the economic system that brings people the greatest possible prosperity, freedom of choice and development opportunities as well as social security.
The state also often tries its fortune as an entrepreneur. Before their collapse at the end of the 1980s, the communist countries in Eastern Europe even managed the entire economy centrally through state planning bodies. Although this experiment failed and led to the collapse of communism and socialism, state solutions are now enjoying surprising popularity again. Political activities and attempted solutions often seem intuitively plausible. They also have clearly recognizable actors in the person of economic policymakers. This may explain why many citizens find a strong state appealing and promising.
Market-based solutions, on the other hand, are usually complex, often counterintuitive and therefore always in need of explanation. The market lacks a visible player to steer its destiny. This is because the market relies on swarm intelligence, on the entrepreneurial spirit, personal initiative and inventiveness of citizens. The flow of goods and capital, the labor force and simply all economic transactions are coordinated by the price mechanism. This is extraordinarily abstract and difficult for the observer to imagine. Adam Smith, the founder of classical economics, therefore spoke of the market economy being guided by an “invisible hand”. The fact that this invisible hand is nevertheless highly effective is demonstrated time and again. For example, during the pandemic. Whether it was disinfectants, medical masks or hygiene products, companies immediately ramped up production capacity. This is because companies know best and fastest how demand will develop in their markets. No government directives were needed. The increasing demand and rising product prices, which signaled the growing need, were completely sufficient.
The social market economy has repeatedly produced amazing success stories. But it will not succeed in one thing: It will not bring about the land of milk and honey. It is merely the ideal economic system for making the most of scarce resources.
As Bergos’ Chief Economist, Dr. Jörn Quitzau is responsible for economic analysis. He writes about the business cycle, growth and inflation, as well as economic and socio-political issues.