Giving Thanks for Capitalism, The Invisible Hand, The Miracle of the Market and No Turkey Czars
Like in previous years, you probably didn't call your local supermarket ahead of time and order your Thanksgiving turkey this year. Why not? Because you automatically assumed that a turkey would be there when you showed up, and it probably was there when you showed up "unannounced" at the grocery store to select your bird.The reason your Thanksgiving turkey was waiting for you without an advance order? Because of "spontaneous order," "self-interest," and the "invisible hand" of the free market - "the mysterious power that leads innumerable people, each working for his own gain, to promote ends that benefit many." And even if your turkey appeared in your local grocery stores only because of the "selfishness" or "corporate greed" of thousands of turkey farmers, truckers, and supermarket owners who are complete strangers to you and your family, it's still part of the miracle of the marketplace where "individually selfish decisions lead to collectively efficient outcomes."
In a 2003 Boston Globe column titled "Giving Thanks for the Invisible Hand" (available only in the paid archives) Jeff Jacoby explains below why he is thankful for the miracle of the invisible hand that makes affordable turkeys automatically available so efficiently at Thanksgiving:
The activities of countless people over the course of many months had to be intricately choreographed and precisely timed, so that when you showed up to buy a fresh Thanksgiving turkey, there would be one -- or more likely, a few dozen -- waiting. The level of coordination that was required to pull it off is mind-boggling. But what is even more mind-boggling is this: No one coordinated it.
No turkey czar sat in a command post somewhere, consulting a master plan and issuing orders. No one forced people to cooperate for your benefit. And yet they did cooperate. When you arrived at the supermarket, your turkey was there. You didn't have to do anything but show up to buy it. If that isn't a miracle, what should we call it?
Adam Smith called it "the invisible hand" -- the mysterious power that leads innumerable people, each working for his own gain, to promote ends that benefit many. Out of the seeming chaos of millions of uncoordinated private transactions emerges the spontaneous order of the market. Free human beings freely interact, and the result is an array of goods and services more immense than the human mind can comprehend. No dictator, no bureaucracy, no supercomputer plans it in advance. Indeed, the more an economy *is* planned, the more it is plagued by shortages, dislocation, and failure.
It is commonplace to speak of seeing God's signature in the intricacy of a spider's web or the animation of a beehive. But they pale in comparison to the kaleidoscopic energy and productivity of the free market. If it is a blessing from Heaven when seeds are transformed into grain, how much more of a blessing is it when our private, voluntary exchanges are transformed - without our ever intending it - into prosperity, innovation, and growth?
HAPPY THANKSGIVING!
53 Comments:
What the Hell, now President Obama the socialist is now appointing a turkey czar?
I want a turkey which has no government regulations !!!!!! We don't need the FDA and other turkey regulators interfering with my turkey !!!
Why hasn't the new republican congress stopped this turkey socialism? Time to vote out the new republican congress, nothing has changed since the republicans took over congress.
The turkeys are all in congress !!!!
Great Post. I always enjoy your Thanksgiving post.
Happy Thanksgiving Mark!
Fantastic. And, thanks to the power of the invisible hand if you didn't want turkey there were plenty of substitute goods for you to choose from!
"invisible hand" of the free market - "the mysterious power that leads innumerable people, each working for his own gain, to promote ends that benefit many."
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Sometimes, not always.
It is also possible for innumerable people each working for their own gain to make decisions that work individually, but turn into a collective mistake.
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Excellent and concise explanation of the workings of a market(s) by professor Perry. I am so thankful I live in a country that seems to be reverting to the norm of cherishing markets. I won't take capitalism for granted and will continue to bash phony-market economies.
Yep, capitalism is the finest Edsel ever built, and with all the marketing hype, promotion, and gunships behind it, a better one never will be built.
Why is it that capitalism thrives on new and better features and innovation for all of its products except itself?
Happy Thanksgiving and as always, you are doing great work with your blog.
Yes, I like free enterprise, although the price signal has no way to handle pollution, or the damaging of private property by pollution.
what is a "self-sustaining expansion"?
that is the new expression, as if the government sustains the expansion? with all sorts of economic magic tricks?
If the government got out of the way the economy would expand all by itself and in a more healthy way than if is sustained by government policy.
Happy Thanksgiving!
"It is also possible for innumerable people each working for their own gain to make decisions that work individually, but turn into a collective mistake"...
A prime example of that is ninty miles off the Florida coast...
"It is also possible for innumerable people each working for their own gain to make decisions that work individually, but turn into a collective mistake."
For example...?
Sometimes, not always.
It is also possible for innumerable people each working for their own gain to make decisions that work individually, but turn into a collective mistake.
The market is good at correcting mistakes made by people. Governments aren't. Markets are good at delivering the goods. Governments aren't. If you want to see the difference between the system that you favour and the market look no further.
http://offtopic.kimcm.dk/Images/KoreaByNight.jpg
Why is it that capitalism thrives on new and better features and innovation for all of its products except itself?
When some of us praise capitalism we mean free market capitalism. It improves products because that is what consumers actually want. But free market capitalism works perfectly fine as it is and needs no improvement. The failures that you see are not those of free market capitalism but crony capitalism, which uses the power of the sate to put up barriers to competition and and to gain special favours in the form of subsidies. The only way to fight that is to take away from the state the power to put up barriers to competition and to grant favours.
"If you want to see the difference between the system that you favour and the market look no further."
Korea By Night
That picture is my favorite argument in favor of capitalism. It says it all.
Tom DeLay also hates government regulations when it comes to corporations donating money.
Another example is ninety miles of the Florida coast.
G
Vanges: you are arguing in circles. Capitalism is an invention of man, and like any product, it can be improved.
Regulation was invented to relieve some of capitalisms failures. As you point out, crony capitalism was an unintended result. Regulation is another human invention subject to continual improvement. So one way to decrease regulation is to improve capitalism.
Even Adam Smith recognized the invisible hand could take as well as give. "People of the same trade seldom meet together but the conversation ends in conspiracy against the public."
I have recommended that one way to improve both institutions is to put the level of regulation on the market. In order to do that capitalism has to covered regulation is necessary, and regulators have to concede they don't know how much regulation is best.
Vanges: you are arguing in circles. Capitalism is an invention of man, and like any product, it can be improved.
Again, I am not arguing about capitalism, which can exist in a regulated world like the one that we have today but about free market capitalism. You can't improve that because as soon as you step away from the free market or away from privately owned and controlled capital you get a worse outcome.
Regulation was invented to relieve some of capitalisms failures. As you point out, crony capitalism was an unintended result. Regulation is another human invention subject to continual improvement. So one way to decrease regulation is to improve capitalism.
Regulations limit liberty and are designed to help some by hurting others. The only way to totally 'improve' a regulation is to kill it.
Even Adam Smith recognized the invisible hand could take as well as give. "People of the same trade seldom meet together but the conversation ends in conspiracy against the public."
Yes it does. But in a free market system is is not the producers who conspire that win the day but the consumers who decide how to spend their own money. That is something that even Smith (who was a statist) recognized.
I have recommended that one way to improve both institutions is to put the level of regulation on the market. In order to do that capitalism has to covered regulation is necessary, and regulators have to concede they don't know how much regulation is best.
I know what you have recommended. But your ignorance of economics and morality makes you a very weak advocate for the serfdom that you argue for.
Sorry, should have read capitalist need to concede regulation is necessary and regulators need to concede they don't know how much is necessary.
None of us takes capitalist axioms as literal givens. To expect the return of free trade is ridiculous, but we can expect to improve upon the regulations we are stuck with.
Your claim that I am arguing for serfdom is false and unsupported as is your claim that I am ignorant of morality and economics.
Since you have chosen to attack the messenger I assume you have no response to the message.
The Korea by night photo is impressive. So is the satellite photo of Hispaniola. The variance side has no effective government and it is denuded and wracked by poverty. The Dominican side has also had its share of bad government, but it is prosperous and green by comparison.
Pointing out other bad systems does not mean capitalism cannot be improved AND provide more freedom.
I submit that wiping out the passenger pigeons and Heath hens was a mistake made by people. How will the market correct that mistake? Will we resurrect them from fossil DNA like Jurassic park?
It used to be that we didn't regulate fishing. That didn't work, so we regulated the fishing season. That didn't work, so now we regard the sustainable catch as property, shares of which can be bought and sold.
Problem now is the sale of shares is handled by government as a proxy for the people, who have an interest in continued fishing. My view is that shares should be issued to us, to sell or not as we choose. Those that believe that sustainability is threatened can withhold their shares, but the incur both the loss of income and higher fish prices.
Everyone has more freedom, more choice, and more economic power. Where is the immoral serfdom in proposing that regulation is a marketable form of valuable property?
You are still arguing in circles if you are arguing that true free market capitalism cannot be improved. It is a human invention and it can be improved by humans. Not by humans that think it is perfect however.
If it is so perfect, why is it we have so few examples?
Sorry, should have read capitalist need to concede regulation is necessary and regulators need to concede they don't know how much is necessary.
Why do we need to regulate voluntary transactions when we already have laws against fraud or the initiation of force?
None of us takes capitalist axioms as literal givens. To expect the return of free trade is ridiculous, but we can expect to improve upon the regulations we are stuck with.
Like I said, if you want to improve a regulation all you have to do is to repeal it.
Your claim that I am arguing for serfdom is false and unsupported as is your claim that I am ignorant of morality and economics.
First, you want to regulate voluntary social and economic transactions. That is exactly what serfdom is. Second, your postings are evidence that you are ignorant of morality and economics. There is no way to justify the use of force to get people to do things that they would not choose to do and no way to argue that such a use of force leads to better economic outcomes.
Pointing out other bad systems does not mean capitalism cannot be improved AND provide more freedom.
It shows that less regulation and more freedom leads to a better standard of living and a better life.
I submit that wiping out the passenger pigeons and Heath hens was a mistake made by people. How will the market correct that mistake? Will we resurrect them from fossil DNA like Jurassic park?
But it was not a mistake. Nobody was willing to spend resources to save the species because they did not value it as much as you think that they did. Like I wrote on other threads, we do not have to worry about elephants or cows going extinct because people can make money by raising them for commercial purposes.
Everyone has more freedom, more choice, and more economic power. Where is the immoral serfdom in proposing that regulation is a marketable form of valuable property?
When the rightful owners of a property decide to dispose of it, let others use it, or lease it we do not call it regulation. Let the fisheries be private and the owners manage them as they see fit and there won't be a problem with fisheries.
You are still arguing in circles if you are arguing that true free market capitalism cannot be improved.
I am not arguing in circles. I say that people can make better decisions about what to do with their property and their capital than bureaucrats who have no incentive to make good decisions or no knowledge to do so.
It is a human invention and it can be improved by humans. Not by humans that think it is perfect however.
But you can't improve it. Whenever you intervene you get worse results.
If it is so perfect, why is it we have so few examples?
Here. A relatively free system versus a system of massive state intervention.
http://offtopic.kimcm.dk/Images/KoreaByNight.jpg
I agree that on a large scale, given enough time, the market sometimes corrects itself. That can take a long time and ruin a lot of individuals in the meantime.
Why do we need regulation when we already have rules against fraud.....?
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And you are accusing me of being ignorant ? You and I can have unlimited transactions buying and selling passenger pigeons.
But you can't improve it. Whenever you intervene you get worse results.
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Ok you believe a pure free market system is the one thing man invented which is perfect and can never be improved.
I think that is unlikely, so we disagree.
I observe failures in everyday transactions that are not caused by regulatory interference. Therefore I don't believe the system is perfect.
I ask again, if it is so perfect, why do we keep tinkering with it? Why are there no extant examples nor have there been for centuries?
Why do some heavily regulated places do much better than others?
The argument presented here is that providing turkeys requires precision coordination and planning by dozens of players, yet no one coordinated it. Chaos worked a miracle.
I don't believe it for a second. Distributed decision making is not the same as no decision making. Anyone who thinks this is magic caused by some invisible hand has not thought this through. It is like looking at the sky and deciding that planets are wandering stars.
Now you are talking about government bureaucrats. Changing the subject is another way to bend the conversation in circles.
You believe an individual working for his best interest will always make a better decision that will (magically) always improve more lives than any decision an impartial observor would make.
Naturally, the individual is going to think that any time a different decision is imposed. Over time this generates a big bias against the impartial observor. " yeah he screwed me over too, the idiot"
So why do we have courts full of second opinions, then?
It is because we know from experience the hand that gives can be the hand that grabs.
Yes I know the picture.
A relatively free system compared to one that is massively controlled.
So what? Where is the comparison between a massively free system and a relatively free one? How about a massively free system vs a massively controlled one? I don't see the evidence that extremism is good. Ergotomine is a drug and a poison. The difference is in the dosage.
You can grow, kill and eat your own Turkey, completely unregulated. My Turkey last year was. It is a pain in the ass, and it is expensive, but it doesn't require dozens of cooperative choreographed decisions.
You can do that because you have your own best interests at stake. You are not going to feed yourself a sickly Turkey.
But you cannot go to the market and buy an unregulated Turkey. We tried that once and discovered that people looking after themselves didn't mean they were looking after you. Yep, the market will correct bad behavior eventually.
Remember that while you are puking and shitting your guts out.
I agree that on a large scale, given enough time, the market sometimes corrects itself. That can take a long time and ruin a lot of individuals in the meantime.
Actually, that is not true. Markets correct very quickly by liquidating malinvestments, which is what needs to happen. It is governments that get in the way and prevent corrections from taking place.
Compare the depression in 1922 with the one that took place in the 1930s. Harding stepped out of the way and let the market liquidate bad investments. Hoover and FDR intervened and prevented a liquidation. When the market was allowed to do its job the correction was very deep but recovery began quickly. When the market was not allowed to do its job the correction not as deep but lasted a very long time. Recovery did not began until the government finally got out of the way a decade and a half after the depression began.
And you are accusing me of being ignorant ? You and I can have unlimited transactions buying and selling passenger pigeons.
You are ignorant. Passenger pigeons are only yours after you posses them. Once you have them then you should be free to do with them whatever you want. We do that with millions of chickens every day and there is no problem.
Ok you believe a pure free market system is the one thing man invented which is perfect and can never be improved.
No man invented the free market system. And we have never had a truly free market system. The free market system is what develops when people are left to pursue their own interests but are not permitted to initiate force against anyone because it is the best way of delivering the greatest amount of goods and services to the greatest number of people.
I observe failures in everyday transactions that are not caused by regulatory interference. Therefore I don't believe the system is perfect.
Your ignorance is showing. If you buy a hat because you want it only to figure out a few weeks later that you made a lousy choice it is not the market but your judgment that failed.
I ask again, if it is so perfect, why do we keep tinkering with it? Why are there no extant examples nor have there been for centuries?
We tinker with it because people want to take things from others for the benefit of themselves and their friends. Individual can't really tinker with it. They can only use the government, which has a monopoly on the 'legal' initiation of force.
don't believe it for a second. Distributed decision making is not the same as no decision making. Anyone who thinks this is magic caused by some invisible hand has not thought this through. It is like looking at the sky and deciding that planets are wandering stars.
Your ignorance is showing. What Mark is pointing out is that there was no central planning involved. Each person did what was best for him and interacted with his/her own customers and vendors over time in many transactions. Yet, without a central planner we have all the turkeys that we need and do not worry about shortages.
Contrast that to a centrally planned system, such as the one that I grew up in, and you see the huge difference. The central planners could not organize the millions of transactions effectively and what we wound up with was shortages and rationing or surplus and waste.
Now you are talking about government bureaucrats. Changing the subject is another way to bend the conversation in circles.
Your ignorance is showing. That is what regulations require, government bureaucrats passing rules and making decisions that interfere with transactions between individuals.
You believe an individual working for his best interest will always make a better decision that will (magically) always improve more lives than any decision an impartial observor would make.
Yes. Every voluntary transaction takes place because the individuals that take part in the transaction value what they get more than what they give up. In a situation that is free of force (which has to be case for it to be VOLUNTARY) and fraud both are better off as long as their judgment is relatively sound. Put all of these transactions together and you have an economy that does things efficiently when compared to one that is centrally planned and heavily regulated.
Naturally, the individual is going to think that any time a different decision is imposed. Over time this generates a big bias against the impartial observor. " yeah he screwed me over too, the idiot"
Your ignorance is showing again. No decision is imposed in a voluntary transaction, which is what a free market trade of goods or services is.
So why do we have courts full of second opinions, then?
Courts are there to deal with cases of fraud. Not all people are honest and they will not be honest in a regulated environment because we already have laws against fraud.
You are incapable of making an argument without attacking you opponent. It reveals a childish lack of intellect.
My argument is That problems are the only excuse for government. Not all problems rise to the level of fraud. Not all disagreements mean that one side is right and the other wrong ( or ignorant).
Many problems government attempts to solve relate to commerce and property (capitalism).
Therefore, if we, as freedom loving conservatives want less government we either need to improve upon capitalism so that it causes less problems (improved respect for property rights) or inject more free market capitalism into the workings of government.
True free market capitalism isn't going to happen. Problems and government are not going away. I only suggest that both instituitions are capable of and worthy of improvement.
Your position is that free market capitalism is God given perfect, nothing can improve it, and anyone who can't see things your way is ignorant.
Good luck with that.
You can grow, kill and eat your own Turkey, completely unregulated. My Turkey last year was. It is a pain in the ass, and it is expensive, but it doesn't require dozens of cooperative choreographed decisions.
But it is more expensive to grow your own. It is far easier, cheaper, and better to let the specialists who know how to raise turkeys do that. How they make their plans is not a concern to us because all we care about is what we get and the price we get it for.
So what? Where is the comparison between a massively free system and a relatively free one? How about a massively free system vs a massively controlled one? I don't see the evidence that extremism is good. Ergotomine is a drug and a poison. The difference is in the dosage.
We have seen examples and they are still around us.
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You are incapable of making an argument without attacking you opponent. It reveals a childish lack of intellect.
I am quite capable. But what I expect from those that I debate is logical responses supported by evidence, not narratives based on ignorance of economics, history, political science, or human nature.
My argument is That problems are the only excuse for government. Not all problems rise to the level of fraud. Not all disagreements mean that one side is right and the other wrong ( or ignorant).
You lack specifics once again and engage in spin. And we certainly do not need governments to settle disagreements because the government court systems do not work very well. They come up with stupid decisions like awarding $1 million to someone who was too stupid to know that hot coffee should not be spilled on oneself while driving or drive companies or individuals into bankruptcy even though they never did the harm that they were accused of.
Many problems government attempts to solve relate to commerce and property (capitalism).
Again, you spin a narrative that has no point or any specifics and refuse to see that government regulations create problems by imposing on two parties conditions that they must agree to even though there is no specific reason for those parties to agree to those conditions.
Therefore, if we, as freedom loving conservatives want less government we either need to improve upon capitalism so that it causes less problems (improved respect for property rights) or inject more free market capitalism into the workings of government.
Since when have conservatives been freedom loving? They argue for regulations and government to control individual behaviour, support meddling in the affairs of other nations and support the very structure that is the enemy of free market capitalism while they pretend to be friends of the market. From what I can see they are just as stupid and evil as the liberals that they oppose.
True free market capitalism isn't going to happen. Problems and government are not going away. I only suggest that both instituitions are capable of and worthy of improvement.
Improvement comes from cutting regulations, not growing government.
Your position is that free market capitalism is God given perfect, nothing can improve it, and anyone who can't see things your way is ignorant.
No, my position is that we should not meddle in voluntary social or economic transactions that are free of fraud. That requires free markets.
Consumers decide how to spend their money.
You can't really believe that.
You decide to buy a car. You cannot possibly know that model has a substandard water pump that will typically fail in 70,000 miles. Worse, the design is such that you cannot replace the seals and the assembly is such that it is a $1500 labor bill to get the thing out.
Sure, the market now knows this and the model is scorned as a lemon.
You think the schmuck stuck with this thing decided to buy that water pump? Having failed what decision does he get to make next? Bend over and replace it, or junk an otherwise good car for a new one with no way of knowing what its problems will be?
Consumers decide how to spend their money.
You can't really believe that.
Of course I do. When my family decides go to see a movie we decide which one to go to. When I buy a house or car my wife and I make the decision. GM can't force me to buy its crappy cars unless it really offers a very nice deal that makes them more attractive to me than the Infinity or Audi vehicles that I am looking at. When I go to the grocery store I decide which type of bread to buy and which fruits we need to pick up, not the grocery store.
You decide to buy a car. You cannot possibly know that model has a substandard water pump that will typically fail in 70,000 miles. Worse, the design is such that you cannot replace the seals and the assembly is such that it is a $1500 labor bill to get the thing out.
But I do know about the reliability of the vehicles that I purchase because I do my homework and check the various reports put out by the consumer rating outfits, which have to do a decent job because if they didn't, I would not spend my cash purchasing their publications.
And if something breaks after the warranty expires I make the decision who will repair it. My dealer will not get my business unless he gives me a decent price. If he doesn't I will choose a reliable mechanic based on recommendations that I get from my family or friends who have used that mechanic or from a chain that offers a lower price and guarantees its work.
In no case does anyone force me to buy something that I choose not to purchase on my own.
Sure, the market now knows this and the model is scorned as a lemon.
You think the schmuck stuck with this thing decided to buy that water pump? Having failed what decision does he get to make next? Bend over and replace it, or junk an otherwise good car for a new one with no way of knowing what its problems will be?
Your ignorance is showing again. I have no problem buying a 'lemon' if the price point that I purchase it at allows me to lower my overall costs. Neither do most people because, unlike you, they are rational.
Hmmm, hydra for all the time you spent arguing with vangeIV you should've been reviewing Milton Friedman instead and all your fallacious arguments would've been addressed...
"You think the schmuck stuck with this thing decided to buy that water pump? Having failed what decision does he get to make next? Bend over and replace it, or junk an otherwise good car for a new one with no way of knowing what its problems will be?"
Your fear of buying is hilarious, and at the same time pathetic. How do you live your life without making informed buying decisions? Does someone make them for you?
"You decide to buy a car. You cannot possibly know that model has a substandard water pump that will typically fail in 70,000 miles."
What is the problem here? If I'm among the first to buy one of these, then no one knows this will be a problem. If I fear something like this, I can never buy anything new. If this is a known problem with this model, I will avoid it as I've done my homework before buying.
What if I buy one with this problem and find out later about it? Oh well, I guess I'll anticipate the problem and decide whether the car is worth repairing. The repair is almost certainly cheaper than a new car, so unless there are other reasons to get rid of it, I will fix it. I believe most rational people would think along these lines. What's wrong with you?
If you're suggesting that the manufacturer is intentionally producing an inferior product, then I have to wonder why? If I have a bad experience, I might decide to avoid that model or manufacturer entirely in the future, just to be safe. I believe other people would too. Wouldn't you? The manufacturer won't survive if they make too many shoddy products.
Your views and examples are bizarre. You need to get a grip, and has been suggested many times, learn some things about economics, history, political science, and human nature. Until you do, your comments here just won't contribute much to the conversation.
Hydra,
juandos is right. Check out the excellent series at the link provided. If that doesn't pierce your ignorance, then nothing can.
Hey Ron H, the older and more experienced I get the smarter Milton Friedman gets...:-)
I still can't get over just how seriously cool Friedman's Lesson of the Pencil is...
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