Supply and Demand BS

Back in the 1770s, Adam Smith came up with a catchy phrase: the ‘Invisible Hand.’ It made sense, at least in some esoteric, theoretical world.

The problem with catchy phrases is that those without any real understanding of the subject latch on to them. To demonstrate their ‘with-itness’ they drop the phrase a few times into various conversations. They are not sentient enough to realize that they, as the phrase itself, are making no sense.

Smith’s concept was based on another little phrase that quickly caught on: ‘Supply and Demand.’ As with the other phrase, there is only the most tenuous relation to the real world. If you will stay with me, I will show that Economics not only is insufficiently developed to qualify as an academic discipline, the most basic assumptions upon which it is founded are untrue in the real world. Another untruth is that I was a contemporary of Smith.

Back in the late 70s I mentioned something that I had noticed to a couple of professors of economics. In the two years following the oil embargo of 1973 the sales of automobiles experienced a significant decrease. This resulted in an oversupply. It was accompanied by the largest price increases in my lifetime. Demand goes down. Supply goes up. Prices go up. How could that be? The ‘Law of Supply and Demand’ didn’t work? Quick, check to see if gravity is still working.

One of the professors made a valiant effort to defend the concept. He said that the ‘Law of Supply and Demand’ didn’t apply when there were only three suppliers in the market. He conveniently forgot American Motors, Volkswagen and Toyota but his point would have been well-taken if it had any relevance.

You see, ‘Supply and Demand’ can’t be relied on absent a ‘Free Market.’ Just what is a ‘Free Market?’ It is a market that allows one to easily enter and depart. Until George Archer, John Daniels, Midland Linseed (what an odd name), John Tyson, Bill Clinton (genus Sus) and Orville Redenbacher took control of agriculture, farm commodities used to be used as the example. A ‘Free Market’ also requires a large number of players, in order to eliminate any manipulation of that market.

So, after listening to my profrssors’ feeble attempts to salvage this ‘law,’ I went further. As I had pointed out, the ramifications of the embargo resulted in the largest increase in the prices of automobiles in my lifetime. I went back just a little bit further.

The two years following the Crash of ’29 the demand for automobiles also tanked. There was an oversupply. The prices, percent-wise, rose even faster and higher. Again, it wasn’t a ‘Free Market,’ was it? Well, the best estimate I could find was that there were more than 180 manufacturers back then. True, that wasn’t a classical free market but 180-plus covers almost the entire curve. Essentially, it was close enough to a ‘Free Market’ to qualify as one.

As the professors clearly stated, a ‘Free Market’ does not exist when the number of players is limited. As they were finally forced to admit, the ‘Law of Supply and Demand’ doesn’t always work even when there is a ‘Free Market.’ Without this ‘law,’ the ‘Invisible Hand’ is otherwise occupied. I wonder if this ‘Invisible Hand’ has ‘Invisible Warts.’

You may be questioning why the professors were so ready to cede the limitations of the ‘law’ when there were a limited number of players. That is because the limited number have control over larger portions of a particular market. That control translates to greater power. That power is always used to distort any theoretical machinations of a market, to the presumed advantage of those players.

Now, please, please do not accuse me of being a communist. I am no more a communist than I am a capitalist, or a follower any other such cult. I am just going to explain a famous, or infamous, passage from Karl Marx that has been heard by many but understood by few. He said that capitalism contained within itself the seeds of its own destruction.

Any capitalist is expected to try to be successful; as successful as possible. That is normally accomplished by garnering as large a share of the market as possible. So, ultimate success as a capitalist would be to amass the entire market. If one person or company owns and/or controls an entire market, what do you call that? Monopoly. Monopoly is not capitalism. The two cannot exist at the same time. Therefore, ultimate success as a capitalist requires the destruction of capitalism. Just simple logic. Marx didn’t need to be very intelligent to master that logic. And he really wasn’t but he was right on that particular point.

As we have seen, a limited number of players puts us in jeopardy of falling victim to those players. Your assignment is to find a few dozen examples of corporations exerting control over what we too commonly term the ‘Free Market.’ There are so few, if any, ‘Free Markets’ extant that the phrase is essentially useless. Without a ‘Free Market,’ there is no ‘Invisible Hand.’

Recently, I heard John McCain promoting his position on healthcare. He claimed that the ‘Free Market’ provided the best way for distributing healthcare to people. If you find a ‘Free Market’ anywhere in the healthcare industry, please warn my cardiologist before contacting me. It would be too much of a shock.

Actually, there is no reason for concern on that point. The maverick McCain is simply parroting the line that his corporate owners gave him. I heard that there is a politician not under corporate control but have yet to be able to confirm that rumor.

Now you are armed, at least partially, against the onslaught of those who would use words and concepts they don’t understand to rope you into the snares of people and organizations that have no interest in you other than the ability to control and manipulate you. Now you are prepared to go forth and tell these miscreants that, although they may have the power to control much of your daily activities, you at least know that they have no idea what they are talking about. You will usually find them under the label of Republican or Democrat.

Tagged as: adam, demand, economic, economist, economy, hand, Health, invisible, mccain, smith