Jul 1, 1991
Proceedings of the National Academy of Sciences of the United States of America
Economies are sometimes viewed as analogous to ecological systems in which "everything is connected to everything else." In complex modern economies, the question arises whether the market mechanism can appropriately coordinate all the interconnections or whether instead some supramarket body is needed to coordinate the vast web of human activities. This study describes how an idealized decentralized competitive market in fact coordinates the different economic organisms in an efficient manner. The problems of pollution and other externalities can undo the efficient outcome unless corrected by appropriate property rights or corrective taxes. But in closing the economic circle, the internalized economy does not actually need to close the natural cycles by linking up all physical flows through recycling.