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Quotation of the Day…

… is from pages 128-129 of Matt Ridley’s insightful 2015 volume, The Evolution of Everything (original emphasis; link added):

It is the sea herself who fashions boats. It’s in this radical re-imagining the the new wave of thinking about the evolution of technology in the current century is turning the world upside down.

Indeed, as Peter Drucker wrote in his classic 1954 business book The Practice of Management, customers shape companies in much the same way: ‘It is the customer who determines what a business is. For it is the customer and he alone, who through being willing to pay for a good or for a service, converts economic resources into wealth, things into goods.’

DBx: This insight is important, yet typically overlooked.

No economic activity is valuable – no economic activity is truly economic – unless it serves, ultimately, some consumption end, whatever that end might be. The consumption end might be sybaritic, such as a massage or a cellar full of 1985 Chassagne-Montrachet, or it might be ‘higher,’ such as helping to build a new hiking trail for your neighborhood or accumulating savings to better secure your family’s economic future. Consumption is not a synonym for frivolity or experiencing sensual pleasure. (Persons who wish to dismiss the free-market case built on Adam Smithian economics often argue to the contrary, insisting mistakenly that those of us who support free markets do not understand that many people value experiences higher than maximizing hauls from malls.)

To the extent that government policy protects producers from the spending decisions of consumers, that policy prevents raw materials, intermediate inputs, and labor from being employed as productively as possible. The ‘value’ that appears to be produced as a result of tariffs or subsidies is artificial; it exists only because things of higher value are prevented from being produced.


I do not go quite as far as Peter Drucker and say that the consumer alone ‘converts economic resources into wealth, things into goods.’ The creativity, willingness to take risks, and hard work of entrepreneurs should be given some credit. But Drucker is correct not only to note the crucial role that consumption decisions play in shaping the economy, but also to give primacy to consumption over production as the ultimate determinant of economic value.

Baker Bob might work tremendously hard to fill the shelves of his shop with anchovy-and-Froot-Loops pies, but if no one chooses to purchase these pies, Baker Bob has produced nothing of value – which means that, economically, Baker Bob has not produced; he has wasted. And if government restricts consumers’ freedom to purchase foods other than Baker Bob’s yucky pies, the resulting sales that Baker Bob makes of such pies, while celebrated by protectionists as evidence of the efficacy and brilliance of their policies, will of course in reality not represent a commendable economic outcome.


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