As such, I present to you a short video, only about six minutes long (if you don't stay through the credits) which I believe helps show how even the simplest item is the product of a web of humanity that, without considering it, makes everything possible. I submit to the Hall... the pencil:
What IS the Free Market
I think far too often, we get wrapped up in terminology and concepts and we lose sight of the simple truths of things. When we discuss supply and demand, we think in very nebulous terms. We don't think of the simple, natural, human interactions that these terms encompass. We think of markets, and stocks, and companies, and not of the people that make up these things. And I think we lose sight of how each item we touch in our day to day lives exists because of, not in spite of, the free market.
As such, I present to you a short video, only about six minutes long (if you don't stay through the credits) which I believe helps show how even the simplest item is the product of a web of humanity that, without considering it, makes everything possible. I submit to the Hall... the pencil:
As such, I present to you a short video, only about six minutes long (if you don't stay through the credits) which I believe helps show how even the simplest item is the product of a web of humanity that, without considering it, makes everything possible. I submit to the Hall... the pencil:
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I appreciate any video that starts with Chesterton's grand insight.
Until the last minute of the film, though, it could be about what goes into a military effort: you could easily talk about everyone moving in common, parts being made in various places, basic ingredients from around the world, only instead of a pencil you're making an F-35 (or flying one).
The last minute gets at what you really want to talk about, which is the fact that this gets done without a "mastermind." I think that point can be easily overstated. There is of course someone masterminding the production of the pencil: it's the head of the pencil factory. The loggers don't work for him directly, but they have a boss who is managing their efforts.
Control is distributed, then, but not absent. Instead of a commanding general, you have a bunch of minor officials here and there. It's generally preferable if controlling forces are smaller and less capable on Jefferson's principle that the government that governs best governs least (Jefferson was of course too smart to have said anything quite so obviously suited to an immediate refutation by reductio); that way you are free to move around if you don't like your boss.
But a whole lot of effort goes into the planning and management of market efforts. Indeed, some of the best paid work of all is in that line: the guy who stamps out the pencil physically is probably making less than the guy who sits in an office above him, making sure that the next shipment of cedar is on time.
...this gets done without a "mastermind." I think that point can be easily overstated.
Not really. None of the folks doing any of those disparate things are doing any of those things because they want to be part of a pencil production chain of events. They're where they are because the like the outdoors, and forestry is a way to be there; or because they like grubbing in the dirt, and mining graphite is a way to do that; or because they want a paycheck, and serving coffee or being a short order cook is a way to earn one; or.... None of those choices are guided by any kind of foreman. All of those activities, too, are useful in a potful of enterprises other than making pencils. The guy owning the pencil factory didn't contract with the graphite miner, he contracted with a late-stage intermediary, who's selling prepared graphite, and not so prepared graphite, to a host of differing enterprises.
In the end, too, the pencil-making factory owner/foreman is doing these things because enough individual men have made their own choices regarding pencils that the pencil-maker has a market.
The invisible hand is a bottom up thing, not a top down one, or even a middle to up and down one.
Eric Hines
Until the last minute of the film, though, it could be about what goes into a military effort: you could easily talk about everyone moving in common, parts being made in various places, basic ingredients from around the world, only instead of a pencil you're making an F-35 (or flying one).
Last I checked, Lockheed isn't exactly giving those away. It's a consumer good like a pencil, only it has a much more restricted customer base. But as you say, it is no different. The from the miners who extract the metals to make the F-35, to the programmers who code the avionics of it, to the tailor who makes the uniform of the flight instructors and pilots who fly it, these people do not know each other, will likely never meet each other, and yet all work towards the same ultimate goal. THAT is the power of the free market.
None of the folks doing any of those disparate things are doing any of those things because they want to be part of a pencil production chain of events.
Exactly. The waitress who delivers the meals to the loggers doesn't know or even think about the fact that the wood they're cutting is going to make pencils like the one she uses to take their order. And she certainly doesn't answer to the head of the pencil factory.
But a whole lot of effort goes into the planning and management of market efforts.
Who does this? Who states that the waitress needs to be at work by noon to feed the loggers who will be breaking for lunch then so that they can cut the trees to be loaded on trucks and taken to the mill to be turned into boards to be loaded on another truck that was made in a factory in Germany by workers using materials mined in China by miners who communicate over radios manufactured in Japan that were designed by an engineer who specced out the device on a notepad with pencils made by a factory that got its wood from loggers in the Pacific Northwest who get their lunch from a little diner...
No one... no government, indeed no organization made the decisions that lead to that pencil getting made, unless you count humanity as a whole as an organization. But the question is, who determines how much metal will be mined for all those things? Not some head of a pencil factory. Not the German truck manufacturer... the market as a whole does. Everybody that needs those metals helps decide how much gets mined. If the price of the metal is profitable enough, the mine hires more miners to get more. If the price falls too much because there is too much supply and not enough demand, the mine lays off workers. There is no person or persons directly responsible to decide than 93 million metric tons of tin will be extracted in 2015 to meet the demands of the world's industries (made up numbers). Instead the need for that metal worldwide, and the cost of everything required to get it into the hands of those who need it determine those things.
Every time a planned economy has been tried in human history... every single time it has failed. Because it's too much. No one can grasp it all. No government is wise enough to foresee all the needs that will occur, and when they try they either get shortages leading to shortages down the supply chain, or they get gluts of unneeded materials that sit and do nothing (in a best case scenario).
Indeed, some of the best paid work of all is in that line: the guy who stamps out the pencil physically is probably making less than the guy who sits in an office above him, making sure that the next shipment of cedar is on time.
If you like, I can explain why this is so and why it should be so. But I think you already know the whys, and don't want to lecture unless folks really don't know.
There's a mistake people make when thinking about economics that is very much along the lines of what you are doing right now. The mistake is thinking about economics as if it were a force of nature.
The analogy you should not make is the analogy to evolution. Somehow (we are taught, and the best science currently suggests) this wonderful complexity in life arises without anyone planning or designing it. The argument being forwarded here makes economics sound like that, but it isn't.
The fact is that there's a huge amount of human planning and organizing involved in every aspect of what's going on here. It's just not centralized, in large part because it can't be (as you say).
But it's not absent. The magic of the invisible hand isn't like the magic of evolution. It's very much a carefully planned set of processes, all the way down to the guy who works out the schedules for the waitresses who feed loggers at the diner.
Another parallel to military operations- the force which has distributed leadership and decision making abilities (initiative) will likely come out on top over the force with a highly centralized command.
Sure, Grim, you are correct that there is much planning going on, but just as raising children is better left to individual families (on the whole), and we wouldn't want the government raising our children (too 'one size fits all'), so too market decisions are better left to individuals in the market.
What I don't want, Douglas, is just this: I hate the implied argument that, since economics analogizes to evolution and thus can be viewed as a force of nature, we shouldn't attempt to impose any sort of human controls on it. Bad things happen when you try to play God or screw around with forces of nature.
That's the sort of argument I find totally implausible, but easily assumed given a frame like the one in the video. The economy is nothing other than human activity, and thus human planning and human controls are essential to it. Sometimes it's best if those controls are decentralized; once in a while, we may want a rule that is broadly applied rather than left to local discretion. One way or the other, though, some human beings are going to be controlling what happens.
The reason for not imposing top down human controls on markets is that centralized planning invariably fails to do what its authors want it to do.
No human being - even a centralized planner - totally controls markets, because money is like water: it finds ways around impediments. That's why socialist countries have black markets for goods: that's people finding a way around attempts to control what they buy/sell or artificially set prices.
The fact that there are masterminds planning out small parts of the market is categorically different from there being a mastermind controlling an entire economy.
Depends on how you draw your categories.
You can draw them that way: "Central Planning Economies" versus other economies.
I just want to make sure we don't make the mistake of drawing them as "Economies with Human Controls" and "Economies without Human Controls." That's invalid -- no form of the latter is even possible -- but the logic of free market arguments often tends to suggest it as an ideal. Of course markets are always planned by humans. They're a human activity for human purposes. Planning per se is not the problem, though centralization of power is very often a problem in almost any form of human activity.
I recently reviewed Boris Chertok's wonderful memoir describing his decades of work in the Soviet/Russian aerospace industry. At one point, he had to go visit a factory to track down some missile parts which were having problems. The factory also made TV sets, and Chertok noticed the aisles were full of completed TVs. Knowing that there was great popular frustration with unavailability of this consumer product, Chertok asked the manager WTF was going on: why were the TVs clogging up the factory rather than on their way to the stores? The frustrated manager explained that he had been assigned a quota for the TV sets, and that with great effort on everyone's part, it had been fulfilled---but the planners had forgotten to allocate sufficient rail cars to carry the finished product to the distribution points.
Stuff like this happens endlessly in a "planned" economy.
My review of Chertok's book, Rockets and People, is here:
http://chicagoboyz.net/archives/46617.html
See also Stupidity: Communist-style and Capitalist-syle
http://chicagoboyz.net/archives/5604.html
David, I have a friend who grew up in the Ukraine. One day when she was visiting DC, we got in a discussion with another of her friends (also born/raised there) about the morality of stealing at work.
One of the participants couldn't see anything wrong with stealing when no one "owns" anything - it all belongs to the workers. The idea that one person might steal more than their "fair share" of communally owned property, thereby creating "inequality" never seemed to occur to this person.
*sigh*
I get it, Mr. Foster. I do. In fairness, though, we see similar stories with the invisible hand, too. We hope to see them less, but market inefficiencies are not eliminated entirely under any system.
Some regulation of markets is necessary to them functioning smoothly, even. Nobody really denies that we need contract enforcement or certain basic standards for weight and measure. The point, I think, is to try to find the right balance between what we do via central planning and what gets decentralized.
I agree that mostly decentralization works better. I just want to insist on the point that it's all planning; it's all human activity. If it's a force of nature, it's human nature.
Note that the problems of centralization vs decentralization, and explicit planning vs market mechanisms, also exist *within* large corporations. For instance...
Is GE better off having its own electric motor division, or sourcing motors externally via the market? If the answer is "do it themselves," what should be the relationship between the locomotive business or the CAT scanner business (both of which use motors) and the motor division. Should there be a transfer price, and if so how should it be established, or should production requirements for the motor division simply be driven by a company-wide Material Requirements Planning system? etc
That's a good Schumpeterian point. I approve. :)
Grim, is the movement of a flock of birds a force of nature, or the result of the individual decisions of each bird?
Truth is, it's both in a way. Or perhaps I'm not clear on what "force of nature" means. Flock movements work (as movement and as protection for the most birds in the flock) because the decisions are governed by overarching general rules, and the individual specifics are left to the individual to implement. There is an interdependency, as the rules establish some of the parameters of the relationships between individuals, but they are the simplest of rules- this is important, as CGI artists discovered in their quest to model flocking behaviors.
You can't manage the system through management of the individudals or the individual relationships they are in because there are too many variables to be able to regulate effectively.
"...market inefficiencies are not eliminated entirely under any system."
Well, nothing's perfect, and we ought not let the perfect be the enemy of the good.
What has been shown to work best is a free market with very limited regulation under a society self-regulated by the Judeo-Christian ethic. My fear is that as we become more 'multi-cultural' and diffuse the social pressures to conform to the Judeo-Christian ethic, we will create an environment where the market will become more ridden with the types of problems you seem to worry about most.
Or perhaps I'm not clear on what "force of nature" means.
Good: that's a philosophical question worthy of answering. What does it mean?
Well, my basic understanding would be things that occur naturally, without my (or someone or something else) having the ability to change it significantly. Typically, things like weather, gravity, the immutable laws of physics, are the sorts of things we refer to that way. I think part of the issue with understanding your point is that I don't think any of us consider a man-made interaction like an economy to be 'natural' in the sense of it's outside us- of nature, not of man. That said, an economy may have similarities to forces of nature in that the entirety of it is beyond the control of any one person- even centralized economies find this out, sooner or later.
So, there's a difference among your examples. We talk about gravity or the 'immutable laws' as being one of the forces of nature (strong force, weak force, etc.)
When we talk about weather, we're really talking about a product of those forces. We can have some reason to think that all the factors in weather are products of physical forces.
But your example was flocking behavior in birds, which doesn't seem to be reducible to physical forces like gravity entirely. There's something going on with living creatures, who seem to be reacting and responding to stimuli in at least an instinctive way -- possibly in a mindful way.
Now you want to talk about economics, which is the sum of human interactions! That's even one level beyond that.
Analogies always break, because otherwise they wouldn't be analogies between different things but discussions about identical things. So it sounds like you've got an analogy here between things like gravity, things like products of gravity and other forces, things like that plus animality, and things like what we elect to do for reasons that have been carefully thought out and planned.
How strong is that analogy?
"But your example was flocking behavior in birds, which doesn't seem to be reducible to physical forces like gravity entirely."
I admitted right away that I probably wasn't using "force of nature" correctly when referring to the flock of birds, and so I think the analogy may still be a fairly good one, just not a refutation of your case that 'economies aren't a force of nature'
" I think part of the issue with understanding your point is that I don't think any of us consider a man-made interaction like an economy to be 'natural' in the sense of it's outside us- of nature, not of man."
-Me, previously
So I think that it's fairly clear now, at least to me, that I don't consider an economy a 'force of nature', however that may be too narrow a term to be relevant here. That's a specific category of the natural, but there are others, like the aforementioned instinct- it's quite powerful, but is also able to be controlled/repressed when desired by higher creatures. Now, I'm not sure what you call that, or the instinct to stay in a flock, or our inclination to work cooperatively (pack behavior?), but there is certainly a natural component there. That is then intersected in some way with mindfulness, or will, or whatever you'd like to refer to it as. What I think I am willing to say is that I don't think economies are entirely 'planned, man-made products'. They're more than that- necessary but not sufficient.
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