It's about time that we start to put some of these pieces together. To do that, we have to focus on the BIG PICTURE. The big picture is reproduced below, reduced in size so that we can still fit it on the page.

At the top of the picture we have our millions of consumers. Each of our consumers is characterized by a unique set of preferences known only to himself. Some like red cars, some like white; some like to spend their vacations roughing it in the wilderness, others like to sip gin and tonics slowly through a straw while playing the slot machines in Las Vegas; some like pizza pies with anchovies, some don't.

At the bottom of the picture we have our millions of resources, where a resource is defined as anything that has the potential to produce happiness. Coal, plumbing, spring water, and steel are merely resources that are waiting to be turned into something useful, like electricity, housing, bottled water, and automobiles. All resources are like that---sitting out there somewhere, capable of producing pleasure for consumers, only needing someone to direct and organize them into something fit for consumption. There are literally billions--no, trillions--of ways to allocate these resources across the millions of consumers hungry for pleasure. It is the economy's job to manage these resources so that the happiness of society is maximized. What a gargantuan task! What a superhuman endeavor! Who possibly can be entrusted with such an awesome responsibility?

Let's reconsider some of the possibilities. There really aren't very many. One possibility is that we have an economic dictator. It makes little difference whether the dictator is a single individual ("Hi, my name is Joe...Joe Stalin" ) or a national economic planning board, say the Committee to Review Every Existing Possibility for Insuring Exceptional Satisfaction (CREEPIES). Either way, the problem remains the same. How will the economic dictator know where to direct resources so as to maximize society's happiness? Of course, we visited this problem in Chapter 3 when we considered the Soviet planner's dilemma about allocating resources to housing and how best to distribute the deceased rich man's estate. Short of operating a national auction that would allow the millions of society's consumers to place bids, it's difficult to imagine how the dictator(s) would know what items consumers wanted and how many of them to make. In addition, there is the sticky problem of what to do if the dictator doesn't prove up to the task. ("Hey, Joe, I think you're losing touch with the proletariat, have you thought about stepping down and giving someone else a go at it?...Siberia, no I've never been there, why do you ask?")

Another possibility that seems to be quite popular today is that we let democracy do it--that is, let the people vote. Direct or indirect elections to determine the allocation of resources is an intriguing idea. The one person, one vote convention seems a particularly fair way to allow people to express their views about how society's resources should be allocated. Indeed, in many so called "capitalistic" economies, much or most of the economy is directed by this mechanism. For example, in the United States, approximately 40 cents of every dollar spent in the economy is spent by some level of government: local, state, or federal. These levels of government are led by representatives who are directly elected by voters (a.k.a consumers). Thus, voters already control--indirectly--the allocation of over forty percent of the U.S.'s resources. If democracy seems like a good way to decide how many soldiers to train and how many nuclear missiles to build, why not use it to decide what kinds of cars we should drive and what brands of breakfast cereal we should eat? While this would make for some very interesting political campaigns ("If elected, I promise you that I will put more raisins in every box of Toasted Raisin Bran Crunchies"), there are some serious drawbacks to this way of allocating resources. For one thing, the last time we checked, politicians enjoyed approval ratings just below used car salesmen and not much higher than convicted drug felons. We may not want to place even greater control of our resources in the hands of politicians. Further, the astute reader might ask, how does the one person-one vote rule relate to a consumer's willingness to pay? The answer is: not well. This is an important topic and one that we will return to later on in the book.

For now we want to focus our attention on a third possibility. In an economy organized by the market, the agents that carry out the awesome task of allocating resources across consumers are none other than those everyday, humdrum organizations we call FIRMS. For our purposes, we think of firms as nothing more than resource owners. They range in size from General Motors, which has sales upwards of $130 billion a year; to a roadside produce stand which has sales of $500 and operates for just a week. Some firms are singly owned, others have hundreds of thousands of shareholders. No matter. In fact, the laborer who "owns" his or her time and skills can also be thought of as a "firm." Firms all share the common characteristic that as resource owners, they make the decisions that result in the allocation of resources across the economy's consumers.

Maybe this isn't exactly comforting. After all, what guarantee do we have that firms will carry out their task in a socially responsible fashion? Somehow, the thought that men like John D. Rockefeller, J. P. Morgan, Donald Trump, and Bill Gates should be entrusted with the job of deciding the happiness of millions of consumers is--shall we say--a little disconcerting. Before you get too discouraged, however, let's first think of how we would like our firms to behave in an ideal world. Then we'll compare our idealized firms to those that exist in the real world.