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Quotation of the Day…

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… is from page 252 of my late Nobel-laureate colleague Jim Buchanan [2]’s 1966 paper “An Individualistic Theory of Political Process,” as this paper is reprinted in Moral Science and Moral Order [3] (2001), Vol. 17 of The Collected Works of James M. Buchanan [4]:

In their behavior in the economic process, private people, as consumers, workers, investors, and entrepreneurs, are assumed to have differing tastes, desires, and values. And the economy represents the institutional or organizational response to the need to satisfy simultaneously this manifold set of wants.

DBx: Yes – and this assumption about people’s behavior is realistic. ‘The economy,’ as we call it, is the unplanned – and unplannable – on-going social process that results when each individual pursues his or her own goals constrained not only by nature (I can’t spend these next few minutes writing a blog post and spend these same next few minutes exercising at the gym) but also by the inability to coerce or defraud other individuals (I can’t compel you to read my blog; if I wish you to do so I must use only peaceful and honest means of persuading you that it is in your interest to choose to do so).

Because everyone in a market economy must play by these rules, no one in a market economy gets everything that he or she desires and that is, at each moment, physically possible for that person to get. At this moment, I can get a cup of coffee from Peet’s, but to do so I must give up $2.50 worth of spending power – spending power that, if I do buy the coffee, I will no longer have to put toward buying a new pair of shoes or into my savings to better prepare me for a rainy day.

Yet because at this moment the coffee that I desire is already brewed and splendidly fresh and piping hot, it’s physically possible for me to get the coffee and retain the $2.50 of spending power. I see this reality. I’m aware that, while I might be better off having the coffee despite turning over to Peet’s $2.50 to get it, I would be even better off having the coffee and keeping all or at least some of the $2.50.

If my understanding of economic reality is poor, I might well sincerely believe that justice requires Peet’s to give me a cup of coffee free of charge, or at some price less than $2.50. After all, Peet’s is physically capable of doing so. Focused greedily only on myself, I don’t see the person who would otherwise get and enjoy the cup of coffee that I fancy getting for myself free of charge or at a lower price. My greedy focus on myself blinds me also to the likely response of Peet’s to my stealing a cup of coffee or refusing, once I have the coffee in hand, to pay for it the full price of $2.50.

“Peet’s is a rich corporation,” I might ‘reason,’ “and so it can afford to part with its products at prices lower than it posts on its menu.” I – in my economic ignorance – might even get all philosophical about the matter and conclude that corporations, by charging consumers the prices that they charge and by paying workers the wages they pay, are ripping off consumers and workers. I might then rush to the polling place to vote for Bernie Sanders, Elizabeth Warren, or Alexandria Ocasio-Cortez.

Because at every moment in a market economy some individual or sub-group of individuals can be made materially better off if the rules of the market economy are broken, the market economy appears to the economically illiterate to unjustly deny to some worthy people gains that those worthy people ‘should’ have – and, at this moment, can have. Of course, being economically literate involves stepping back to look at the larger and longer and fuller picture. And when one does this stepping back, one sees all sorts of ill consequences that are missed by the economically illiterate. These ill consequences include, but are not limited to, reduced incentives to produce.