All Commentary
Wednesday, May 1, 1974

Living with Shortages


Dick Sabroff has taught and worked as an electrical engineer and demonstrates considerable skill in the practice of freedom. This article is in response to a recent radio broadcast.

Dear Mr. _______  

I’d like to comment on a question you raised a couple of days ago. You wondered if shortages were not something beyond our control and with which we must live. You thought that in such a situation Uncle Sam “had to” step in.

To me this is very sad. Elementary notions of economics, once taught in the schools and in homes, are largely forgotten today.

For example, “shortages” are impossible in a free market. Instead, there is a constantly shifting balance between supply, demand, and prices. If today’s demand is higher than yesterday’s, or the supply lower, prices tend to rise. This is due as much to buyers’ bidding up of the price as to sellers’ desires to take advantage of the situation; both bid and asked prices go up in a most natural way.

People tend to see in this only “greed” on the part of sellers. The thing on which to focus, however, is that the market is doing its job of allocating scarce resources in the beautiful, impersonal, automatic manner that only a market can.

The ways in which the market does this job are far more subtle than the schemes of men. If the supply of gasoline, for example, temporarily drops without a corresponding reduction of demand, the resulting higher prices eliminate the least necessary purchases so that the available supply goes where it’s needed the most. But that’s only the beginning. The higher prices also temporarily increase profits which encourages Exxon and Mobil and others to expand their facilities in order to sell more and, hopefully, earn more of those high profits. New competitors appear, too, to get in on the good pickin’s. And the increased demand on pipe and drilling equipment suppliers produces similar effects; higher prices, higher profits, expansion. This sort of thing spreads to every industry needed to produce a greater supply.

Market Directives

The beauty of it goes still deeper, however. The reallocation process of the market not only causes expansion where needed, but also contracts the very industries contributing most to the problem. For example, with a gasoline “shortage,” General Motors’ sales tend to decrease, prices are forced downward (new 1973 full sized cars are still for sale at bargain prices), and profits tend to decrease. GM and others are urged, if not forced, to liquidate plant investment designed for production of gas-eaters. The same contracting forces act in the case of snowmobiles, resorts, and any other industry or activity tending to increase consumption of the scarce item.

Human resources are reallocated by this marvelous system, too. Layoffs in the contracting industries are accompanied by an increased demand for workers in the expanding ones. This might mean retraining and moving for some, but the market is doing the best thing that can be done and doing it fast, automatically, and impartially.

It goes still further. Higher prices on a “scarce” item, gasoline in our present example, mean greater potential profits from substitutes. This will spur industries and individuals to seek new ways — atomic cars or moving sidewalks or something. Investment of money and effort will be allocated, automatically again, to such research. And it is likely that the temporarily depressed industries, such as auto manufacturing, will lead the way.

Thus, an unhampered market acts immediately to solve so-called shortages and surpluses. Through the price mechanism, it causes increased or decreased production as needed, it reduces or increases consumption both directly because of higher or lower prices and indirectly by contracting or expanding capital in industries which affect consumption. It reaches into every nook and cranny of our lives, and it changes our individual behavior in ways of which we are often unaware, but which are always calculated to bring about a better adjustment of economic factors. It acts so fast and so effectively that most of the time we don’t even know that a potential problem has been averted.

The only thing required to prevent this super system from working is to interfere through legal or illegal actions. It is the job of government to prevent the latter, but it is government itself which is guilty of the former. A price control on gasoline, for example, eliminates the incentive to expand the industry while at the same time encouraging continued high consumption. It also prevents purchases from alternate sources willing to sell at realistic prices. Subsidizing consumption is another form of interference which has similar effects. In America, for example, we have mostly public (“free”) roads. Expressways and the I-system, especially, have encouraged people to live farther from work and to do more traveling, thus encouraging greater consumption of gasoline. And because these roads are not owned by stockholders such as you or me, the market can’t do much to reallocate resources from highway building and maintenance to gasoline production.

Fast and Automatic

To top everything, a free market would not only solve a gasoline “shortage” through the price mechanism, but the prices themselves would come back down almost before they went up. As soon as production is expanded and consumption decreased, prices must be lowered to solve the potential “surplus.” Add in the benefits of research also born of the high price situation and one can see that prices may well be lower than before with quality and service improved to boot. We could even end up selling to the Arabs for less than their costs of production. As mentioned previously, all of this happens so fast and so automatically in a really free market that we are unaware that there ever was a problem. We see only that prices fluctuate slightly and constantly, reflecting changing conditions, new desires on the part of people, new methods and inventions, and so on. “Crises” are unknown in an unhampered free market economy.

The relative stability and quiet efficiency of a free market dull people’s minds to a realization of the millions or billions — probably even trillions — of decisions and adjustments that are made every day by 200 million people acting and interacting, planning their futures, and so on. This marvelous system clearly transcends the abilities of men. Any attempt to replace this near-perfect, natural, moral system with the political actions of a relative handful of people is as pitiful as it is naive. The fact that the free market has been largely frustrated in the matter of education probably has much to do with the almost universal ignorance of the basic economics I’ve touched upon in this letter.

Ourselves to Blame

One more point. When I speak disparagingly about “government,” I’m not referring to the people who make up the government. The behavior of government is determined by the rest of us through our ignorance, our greed, our envy, our jealousy, and our childish belief that someone else can run our lives better than we and thereby relieve us of the responsibility for our actions. There are many good people in government, but they have little choice other than to reflect the consensus of opinion; even emperors and dictators must face this if they wish to persist. Government officials, then, are not proper targets for our complaints. In our ignorance we have given government an impossible assignment and the blame for our troubles lies wholly with us.

Sincerely,

Dick Sabroff

P. S. Please forgive me for preaching. I’m trying to avoid pressing my views on anyone unless asked. You didn’t ask me, but you did sound sincerely puzzled and that seemed like my cue. I’ve known a few who have broken through the myths, superstitions, propaganda, ignorance, and self-delusion, to discover the divine nature of freedom; a harmony and beauty which truly “passes all understanding.” Once this initial breakthrough is achieved, a person is in for a lifetime of unfolding beauty which at times is almost too much to bear. The joy which accompanies this is also beyond description. To know that things are just fine at the foundation is a source of great comfort. It’s a faith achieved by very few, but I’ve never heard of anyone losing it once he found it. Your interest suggested that you might be ripe and I would always feel guilty if I did nothing. People like me are often regarded as kooks and I’m used to it, so if you choose to disregard this letter, that’s fine. There’s nothing lost. But something could be gained if you are motivated to reflect more on the subject; you might even discover the wonderful world I’ve said is reserved for a select few. Should you care to delve more deeply, I suggest that the truth is not easy to come by and one should be highly skeptical of the popular sources of information. These sources (newspapers, television, bestsellers, and so on) are entertaining and informative, but they largely reflect the thoughts and desires of the masses and we’re talking here about something much more elusive and profound—Truth.