Freeman

ARTICLE

Economic Prediction and Entrepreneurial Success

SEPTEMBER 01, 1985 by DENNIS L. PETERSON

Mr. Peterson is a free-lance writer in East Greenville, Pennsylvania.

While traveling in my car recently, I was intrigued by an illustration given on an audio cassette presentation to which I was listening. It set me to reflecting on the power of the human spirit in a free environment and the futility of government attempts to regulate and predict that spirit.

The speaker was Thomas J. Peters, author of the best-selling In Search of Excellence. In the process of discussing his thesis, Peters described a man who defied all the negative predictions and forecasts of the “experts” and created an $800 million company. According to the “experts,” what he did was impossible, and he did it in an area that would qualify for the “Least Likely to Succeed” award.

In every single year since 1930, the “experts” predicted that American consumers had had it with chicken. There was just no more demand for it on the market. Despite the same gloomy prediction for 54 years, Frank Perdue “made it” with chicken! And he did it in the economically “depressed” Delmarva Peninsula. From that unlikely spot, he has successfully expanded into the largest urban areas of the eastern United States, including New York and Philadelphia. His lowest share of any of these market areas is 58 per cent.

On the reverse side of the same tape I had just heard author and lecturer Earl Nightingale recount another story of the economic success that comes from a free human spirit. He told how a milkman named Stew Leonard was seemingly forced out of business when a major highway construction project ran through his small dairy.

Rather than surrender to this intrusion by government “progress,” Leonard borrowed some money and built another store. Since then, he has expanded it 25 times. Today it is the largest dairy specialty store in the world. It covers 8.5 acres, is patronized by more than 100,000 customers each week, and sells in excess of 10 million quarts of milk a year. This is to say nothing of the “1 million pints of cream, 1 million cartons of yogurt, 100 tons of cottage cheese, 3 million quarts of orange juice, more than 500,000 pounds of butter, 520 tons of salad . . . 1,040 tons of hamburger meat and 1,820 tons of poultry products—oh, and 1.56 million ice-cream cones!”

The accomplishments of Frank Perdue and Stew Leonard could not be predicted by government economists. Their successes are due to the imagination, creativity, and purposeful actions of free individuals in the free enterprise marketplace. They were spurred to these entrepreneurial heights by the desire to make a profit and thereby improve their lot in life. In the process, they met the needs of millions of similar individuals. None of this could have been accomplished by the mere manufacture of charts, graphs, and “guesstimates” by government’s economic “experts.”

Charts and Statistics

One of the fallacies promulgated and perpetuated in many high school and college economics courses today is the idea that economics is charts, graphs, statistics, and predictions. Economics, when taught in such a manner, is perceived as a very complex and mysterious realm into which only the “experts” dare venture. All the rest of us, then, are expected to act and react according to the predictions, presuppositions, and economic philosophies of these “experts.”

“The only function of economic forecasting,” Ezra Solomon stated, “is to make astrology look respectable.” Another wag declared that if all the economic experts who ever lived were stretched out head-to-toe around the earth, they would never reach an accurate conclusion.

While charts, graphs, and statistics are appropriate for the study of past economic events, activities, or trends, they have little to do with predicting the quantitative actions of individuals in a free market. The impression that “figures give you all the answers is wrong,” Earl Nightingale concluded. “Figures don’t give you the answers. Figures merely give you the questions.”

No less an authority than Ludwig von Mises showed the futility of government planning and prediction in the economy. “The most that can be attained with regard to reality is probability,” he stated. “The fundamental economic problem,” he continued, “consists in the neglect of the fact that there are no constant relations between what are called economic dimensions.”

Statistics can also be distorted to fit the views and purposes of whoever is using them. As one of my college economics professors once said, “Figures don’t lie, but sometimes liars do the figures!”

There are those who will argue, however, that whereas it may be true that government forecasting and planning were not necessary in the early stages of our nation’s economic development, today’s rapidly-changing and highly technical industrial society make it essential. Joseph P. Kennedy firmly believed this. “An organized functioning society,” he contended, “requires a planned economy. The more complex the society, the greater the demand for planning.”

Once government officials adopt this fallacy as public policy, there is no end to the extremes of regulation and experimentation that government will undertake. It is this interference in the free market, more than any other single factor, which brings about inflation, unemployment, scarcity, and depression. And, ironically, these problems then lead to increased demands for government intervention.

John Chamberlain addressed so succinctly the problem created by such government interference in the market: “Where government tries to substitute itself for the economic motor, there is the inevitable confusion between the starter, the accelerator, and the brake.”

“Fellows with Schemes”

Reduced to its simplest, government interference through planning is the attempt by a few to tell the rest what is best for them, as though the individual is too ignorant to determine his own self-interests. Humorist Will Rogers might have had this in mind when he commented, “World ain’t going to be saved by nobody’s scheme. It’s fellows with schemes that got us into this mess.”

Socialistic planners think in terms of a nebulous nonentity called “society.” They think “society” produces goods and services. They think “society” consumes the goods and services “society” produces.

In reality, only individuals produce and consume. There is no economic action of the masses but only of individuals. Government actions in a free economy, therefore, must be based on this foundation principle. This precludes all government planning and interference in the economy beyond the requirements of defense and general safety.

After thinking about the phenomenal successes of Frank Perdue and Stew Leonard, I wondered where we would be today had these entrepreneurs and others like them permitted government predictions to cloud their visions. Literally millions of consumers would have had needs unmet. Billions of dollars in economic activity would have been redirected into other channels. Many profitable jobs would never have come into existence. The experts’ predictions would have been “proven” by self-fulfilling prophecy. The myth of economics as the realm of the experts would have been further perpetuated.

But these and other believers in the free market refused to be kept down by the gloom and doom forecasts of the planners. They knew that if they worked hard to meet the needs of consumers, produced quality products, and served their customers courteously, they would have a fantastically profitable market at their fingertips. They put their knowledge and imaginations to work and, with faith in the free market system, made their dreams realities.

The attempts of such individuals—both their successes and their fail-ures-are what the free market is all about. And it will continue to survive and thrive in spite of government interference. It operates best, however, when it is permitted total freedom.

ASSOCIATED ISSUE

September 1985

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