as internal to the system, and not the result of external forces, although the arms race may have hastened the process. the lesson that appears to be emerging is that only free market systems exhibit the flexibility and robustness to accommodate human nature and harness rapidly advancing technology to consistently advance living standards. to get a better sense of the forces that are driving the world ’ s economies, especially in the second half of the twentieth century, it is useful to understand why the soviet experiment in central planning failed. indeed, it is not an exaggeration to state that from this failure we have learned as much about why our free capitalist systems work, as about why central planning does not. the soviet economic failure was so unambiguous that it proffered a new set of standards to better gauge alternative economic paradigms. it, for example, afforded us a far better understanding of why some of the mercantilistic capitalist economies of east asia worked for awhile but then did not. centrally planned economic systems, such as that which existed in the soviet union, had great difficulty in creating wealth and rising standards of living. in theory, and to a large extent in practice, production and distribution were determined by specific instructions - - often in the form of state orders - - coming from the central planning agencies to the various different producing establishments, indicating from whom, and in what quantities, they should receive their raw materials and services, and to whom they should distribute their final outputs. [UNK] without an effective market clearing mechanism, the consequences of such a paradigm, as one might readily anticipate, were both huge surpluses of goods that were not wanted by the populace, and huge shortages of products that consumers desired, but were not produced in adequate quantities. the imbalance of demand over supply of these latter products inevitably required rationing or its equivalent - - standing in queues for limited quantities of goods and services. one might think that the planning authorities should have been able to adjust to these distortions. they tried. but they faced insurmountable handicaps in that they did not have access to the immediate signals of price changes that so effectively facilitate the clearing of markets in capitalist economies. movements in prices give incentives to adjust the allocation of physical resources to accommodate the changing technology of production and the shifting tastes of consumers. among the key prices central planning systems lacked were the signals of finance - equity values and the broad array of interest rates. in a centrally planned system, finance plays a decidedly minor role

mr. greenspan discusses the ascendance of market capitalism remarks by chairman of the board of governors of the us federal reserve system, mr. alan greenspan, before the annual convention of the american society of newspaper editors held in washington, d. c. on 2 / 4 / 98. the ascendance of market capitalism the current turmoil in east asia is easy to categorize as one of many such crises over the decades. nonetheless, it appears to be an important milestone in what evidently has been a significant and seemingly inexorable trend toward market capitalism and political systems that stress the rule of law. the shifts have been gradual but persistent. markets today are responding far more rapidly to subtle changes in consumers ’ values and choices than ever before. while advancing technology has always been a factor sensitizing markets to changing consumer tastes, what is so striking in recent years is how pervasive that force has become. just - in - time inventory systems have enabled production to more rapidly adjust to changing consumption. satellite coordinated trucking moves goods to destinations of optimal use. bar coding has facilitated a major revolution in retailing. for supermarkets, for example, checkout scanning devices have facilitated the creation of a variety of wares reflecting the most current consumer wants. those producers who cannot keep up with this technologically driven surge to efficiency fall by the wayside. those exceptionally skilled in advanced engineering and computer programming, for example, are rewarded with significantly higher levels of income relative to the less facile. it is difficult to prove, but arguably luck, the great random leveler in the market place, appears to play an ever smaller role in determining success and failure in today ’ s just - in - time, high quality, productive systems. those systems appear to be especially rewarding to financial skills. the advent of computer and telecommunications technology has spawned a vast proliferation of new financial derivatives products crafted by mathematicians and finance technicians who had never previously found favor on either wall or lombard streets. the above - average earnings they receive reflect the increasing value added created by financial institutions, which, in turn, results from their enhanced ability to marshal savings to support investment in the most productive physical capital. not unexpectedly, as the share of gross domestic product has shifted persistently to conceptual products and services from those requiring physical brawn to produce, the wage premium for skills and education has risen significantly, especially during the past two decades. as one might surmise, the shift arguably has led to the sharply higher