This piece by the recently deceased James Buchanan is fantastic, and I think explains exactly what is wrong with most people's concept of economics, political economy, and really how any such system works.
The nut shell version is that we often think of people as having utility functions written into them, and all the people trading are maximizing those functions to get some result. In fact, this is not the case, rather the process defines the utility functions. Which is to say, the conditions under which we exist help define our choices and what we think is optimal; the process defines the utility function. Which means you can not just get a pile of random people, figure out their utility functions, and then organize them such that those are met, coming to the same result as a market; without the process, there are no utility functions to consider! Our concepts of utility functions arise from seeing people make a series of choices, but those functions do not themselves exist independently of those choices.
Ok... pretty soon I am going to end up writing more than Buchanan did, and yet won't explain things one half as well. Just go read the link. Then carve out at least 30 minutes to really think about what the piece means to us as economists, policy analysts, philosophers and voters.
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