Collective Conscious

Nick Rowe:

ZMP2. Coor­di­na­tion fail­ure 1. (Pat­terns of Sus­tain­able Spe­cial­i­sa­tion and Trade). (Thanks David and Wonks Anony­mous).

The unem­ployed plumber wants his house re-​​wired. The unem­ployed elec­tri­cian wants his pipes replaced. But the plumber doesn’t know that there’s an elec­tri­cian in town; and the elec­tri­cian doesn’t know that there’s a plumber in town. Given the cur­rent state of knowl­edge, both work­ers have Zero Value Mar­ginal Prod­uct. Nobody is will­ing to pay for their labour. They would be will­ing to pay, if they knew of each other’s exis­tence, but they don’t. The myth­i­cal cen­tral plan­ner, who knows every­thing that any­body knows, would sort this one out imme­di­ately. All he has to do is intro­duce the plumber and the elec­tri­cian, and both jobs are done.

Arnold Kling, I think (I’m not sure if I am rep­re­sent­ing his view cor­rectly), is talk­ing about ZMP2. (Of course, I have dras­ti­cally over­sim­pli­fied the coor­di­na­tion prob­lem, just so we can under­stand it sim­ply. In the real world it is much more com­pli­cated, and a real world entre­pre­neur might have to bring together many more peo­ple to inter­act in com­plex ways to resolve the coor­di­na­tion problem.)

There’s an excess sup­ply of plumbers’ and elec­tri­cians’ ser­vices, and an excess demand for plumbers’ and elec­tri­cians’ ser­vices, all at the same time. Both want to sell more of their own labour, and buy more of the other’s labour.

ZMP3. Coor­di­na­tion fail­ure 2. (Mon­e­tary Dis­e­qui­lib­rium).

The unem­ployed hair­dresser wants her nails done. The unem­ployed man­i­curist wants a mas­sage. The unem­ployed masseuse wants a hair­cut. The hair­dresser knows where the man­i­curist can be found. The man­i­curist knows where the masseuse can be found. The masseuse knows where the hair­dresser can be found. But all three women are short of money, and won’t spend any until after she earns some. Given the unwill­ing­ness of each to spend money, each of the three has a Zero Value Mar­ginal Prod­uct. Nobody is will­ing to pay for their labour.

This one’s a bit trick­ier for the myth­i­cal cen­tral plan­ner to solve. Intro­duc­tions alone won’t do the trick. Each woman already knows where to find the ser­vice she wants. That’s not the problem.

The cen­tral plan­ner could sim­ply order them all to pro­vide the desired ser­vice, for no cash. That would make all three women bet­ter off. But if the cen­tral plan­ner is myth­i­cal, and can only give myth­i­cal orders, that won’t work.

He could try to get all three women together, and try for a three-​​way barter deal. But it’s hard to cut someone’s hair while your cus­tomer is giv­ing a mas­sage and you are hav­ing a man­i­cure. Who’s going to go first, and how will she know the other two won’t break the chain?

The eas­i­est solu­tion is for the cen­tral plan­ner to print more money and give each of the three women enough so they buy what they want.

ZMP3 is what the rest of us Mon­e­tarists and Key­ne­sians (quasi or oth­er­wise) are talk­ing about.