Sunday, October 16, 2011

The Beauty of Markets

                I am quite fond of the Thomas Sowell maxim, “reality is not optional” that Dr. Roberts uses in his Reality of Markets piece.  The idealist looks at the state of the things and sees how they should be; the economist looks at the state of things and explains why things have turned out the way they have.  An economist is able to explain the here and now because their worldview involves constraints and tradeoffs.  An idealist looks at the world through a prism of the unconstrained; in their eyes society could give everyone a proper wage and no one would ever again feel the pang of hunger.  Alas, it is never so simple, in our world of infinite wants and finite means, the “market” has emerged as the impartial arbiter of allocation.  Society would not want it any other way.  A price, whether it be temporal, monetary, or otherwise conveys precisely all the information a consumer will need to know to make a decision about whether they should buy or participate in a certain market with the endowments that they hold.
 Let us consider one of my absolute favorite foods, cake.  I am an impenitent cake lover.  I love everything about cake, it is fluffy, delicious, generally frosted and I can bake one practically any time of the day or night if I so choose.  Alternatively, I could run to the bakery and purchase one if I had the hankering and was feeling lazy.  The vanilla may be from Madagascar, the flour from California, the sugar from Georgia, the cocoa from Cameroon.   How has this cornucopia of deliciousness arrived from around the world to let me enjoy my delightful snack? How does the grocery store know which ingredients to stock, the bakery which kind of pastry to supply?  Did the coca producers in Cameron need to know that last Tuesday I would be in need of ¾ cup of dark cocoa powder?  No, they did not, because the world market for cocoa and the prices that stores were willing to pay for the product provided all the information they would need to know, beautiful.  The cogency and elegance of the market is irrefutable.  Goods move across the world to come to our doorsteps because we are willing and able to pay for them.
The emotive, specious pleas of the idealists castigate the market and those who advocate them as the means of corruption, a root of evil.  They are no such thing; they are but a conglomeration of individuals dealing with other individuals that will improve the welfare of all involved.  Yes, there is inequality in society, but the mass body of people has had their lots improved exponentially over the generations, not made worse.  This improvement in the quality of life has come through the market, not the conscious design of men, but a byproduct of their interactions.  Let us recognize its beauty and strive to understand it.


  1. This is a very good post and an excellent illustration of Adam Smith's Invisible Hand parable. Sowell's "Reality is not optional" is indeed a very good way to say that sooner later the bubble (meaning, the dream comfortable bubble people live in) will burst and, as I say to my students, they will have to face the reality. My departmnt chair and i often remind to our students: "Economics is about unpleasant truths." Of course, as somebody interested in the Truth, I don't find the truth unpleasant because that's what I am interested in. But I would argue that most people don't like that the Truth might not be the one they believe in and that's why people while always wanting to talk about economics rarely want to lern it.