Koch Industries, Market Process Analysis, and the Science of Liberty

By Koch, Charles G. | Journal of Private Enterprise, Spring 2007 | Go to article overview

Koch Industries, Market Process Analysis, and the Science of Liberty


Koch, Charles G., Journal of Private Enterprise


Acceptance remarks by Charles G. Koch, 2005 Herman W. Lay Memorial Award recipient of The Association of Private Enterprise Education on April 3, 2005 in Orlando, Florida.

Thank you, Wendy [Gramm, Distinguished Senior Scholar, Mercatus Center, George Mason University] for that generous introduction. I am greatly honored to receive this award from an organization that shares my commitment to prosperity through freedom.

And that is the subject of my remarks: How to bring about the free society by applying Market Process Analysis and the Science of Liberty.

I'll start with a little history of how I got involved with these ideas. After graduating from MIT, I went to work for Arthur D. Little, then a leading consulting firm.

After I had been at ADL for about two years, my father began pressuring me to join his firm. But I was learning a lot and enjoyed what I was doing, so I turned him down. Finally, he made me an offer I couldn't refuse. He said his health was poor, and either I come back to run the company or he would sell it.

I joined the company in 1961 and was blessed to work with him for six years until his death in 1967. It was from him that I absorbed the foundational values of a free society-integrity, humility, learning, and hard work.

His first words to me when I joined the company illustrated his regard for humility: "I hope your first deal is a loser. Otherwise, you'll think you're a lot smarter than you are." He had nothing to worry about. I got us in plenty of losers.

After joining the company, I developed two great passions. One was to help build a successful company. The other was to understand the principles that lead to prosperity and social progress. What initially inspired me was Baldy Harper's little book, Why Wages Rise. It convinced me that it was possible to understand and help improve the social world, just as it was the physical world. As a result, I had what Abraham Maslow called a "peak experience," and I've never looked back.

As is true for many of you, my studies led me to believe that a free society is the form of social organization that best fosters prosperity and social progress. By 1964, I was looking for ways to develop, apply, and spread the ideas I was learning. Since then, I have helped found or support many, many organizations that I felt were contributing to liberty and the general welfare.

While I was helping build these organizations, we were also building Koch Industries. I didn't realize at the time how valuable my studies would be in that regard-that the same principles that enable a market economy to prosper could also work when applied in a company or by individuals. Over the years, we learned, through trial and error, and many missteps, how to apply these principles to our businesses in a way that gets results.

What we came to understand is that we were dealing with various applications of a single, overall framework: Market Process Analysis-the study of how people interact in society to best use scarce resources to satisfy their ends while contributing to the general welfare. As such, it is the study of the process by which laws, customs, culture, incentives, and learning lead to a spontaneous order that results in the greatest social progress.

We have found the application of MPA to be extremely powerful in creating prosperity not only for society as a whole, but for individuals and organizations as well. Understanding MPA has enabled me to have a holistic approach to life-in my personal development, in my family life, in dealing with others, in running our company, in charitable work, and in our social change efforts. Applying the principles of MPA can be very powerful in helping an individual fully develop his abilities, in making a business successful, and in establishing a prosperous and civil society.

Although we don't have enough time to discuss individual development, I will spend a few minutes on the application of MPA within an organization, which I call Market Based Management®. …

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