Dr. North Is editor of Biblical Economics Today, available free on request: P.O. Box 8567, Durham, N.C. 27707.
This article is reprinted by permission from the April 1979 issue of Commodities magazine, Cedar Falls, Iowa.
Auction prices are still front-page news in my city, Durham, North Carolina. Anyway, tobacco auction prices are. You can still go down to the tobacco warehouses and listen to the incredible sound of the staccato-voiced auctioneers, just like the fellow on the old Lucky Strike radio commercials. It’s a heck of a lot more interesting than reading computerized signals on some cathode ray tube.
The auction process seems to me to be the quintessence of market exchange. An economy really is a giant auction, with buyers and sellers assembled together in order to see who is willing to pay the highest price (or offer the most goods) to get what he wants. The fact we always tend to forget in a supermarket is driven home to us on the floor of an auction: buyers compete against buyers, not against the sellers. And since people can always go to another auction, sellers compete against sellers. Only insofar as the auctioneer succeeds in getting the highest bid from a buyer can he be said to be a competitor to a buyer—and then only to the next-to-the-last buyer. The seller is the spinner of dreams, the master in presenting the vision of previously ignored opportunities, and the buyers always have the option of foregoing yet another dream or potential opportunity.
As you may infer, I like auctions. They fascinate me.
I suppose this fascination with auctions led me to the following fantasy. Imagine the floor of some country auction. Fifteen enthusiastic bidders are standing in front of the auctioneer’s booth, and he has just brought forth some splendid example of a previously ignored opportunity. The bidders begin to drool. Each one knows that he just has to have it. Today.
Imagine also that the rules of the auction are simple. Each bidder has a can full of money behind him, and in order to make his bid, he has to reach into the can, pull out a quantity of paper bills equal to his bid, raise them into the air, and call out his bid. No cash—no bid.
The bidding begins. Everyone meets the opening price of $95 suggested by the auctioneer. He knows now that he has a hot one on his hands. Upward climb the bids, with all 15 participants staying in the competition.
Enter the Money Man
Then a most peculiar thing takes place. A man with a uniform begins to dart behind one or another of the shouting bidders, almost at random (yet not quite), depositing newly printed currency in their money cans. Each participant smiles when his refill comes. The bids continue upward. No one leaves the floor.
After the price has climbed steadily to $250, the participants begin to worry. The highest bid ever offered for one of these was $198, back in 1974. Yet the bidding is only warming up. The uniformed man scurries faster, shelling out the cash. Up and down the bidders go, like drunken marionettes, leaning over to grab more cash, standing up again to wave ever-fatter fistfuls of money at the auctioneer.
At $275, some of the bidders start dropping out, grumbling about the insanity shown by the others. They start calling for some sort of government regulation of bidding. This panic has to be stopped before it gets out of hand, they say. Yet the uniformed man keeps scurrying, and the others continue on, undaunted: $300, $350, $475. It’s pandemonium on the floor.
Even those still bidding start grumbling. Maybe the government really ought to do something dramatic, to bring people (other bidders) to their senses. But not one of them thinks to tell the frantically scrambling man with the money to stop putting new cash in his bucket. After all, that fellow represents the government, or a properly chartered agency of the government. He’s supposed to know what he’s doing. Besides, each person thinks to himself, "maybe—just maybe—that guy will stop right after he makes his final deposit in my bucket." But he doesn’t stop.
Finally, only eight people are left on the floor. With one breath they cry out a bid, and with the other they call for some sort of Federal intervention, such as controls on panic-induced prices. It’s up to $750. How long can this go on, anyway? (The answer is fairly simple: about as long as the fellow in the uniform keeps on passing out the paper money, plus a few more bids. When the cans are empty, this auction is over.)
By Order of the Government Market Closed
Finally, in response to tremendous political pressure from the bidders, a second government official steps onto the floor. This one is wearing a badge. Under his coat there is a bulge, and it doesn’t appear to be a wallet. "That’s it, ladies and gentlemen," he announces. "No further bids."
At last, the government has acted decisively. The participants are relieved. The insanity—their insanity—has been officially called to a halt. "The auction has been saved," announces a high-level government official, "from itself."
There is a problem still remaining, however. Eight people are still waiting on the floor, and each one is as convinced as before that the item in question ought to be his. Each one knows in his heart that his next bid would have been the final one, the one which would have driven his competitors from the floor. Now the bids are legally frozen. Each one feels cheated out of what was almost rightfully his.
Question: Who gets to take it home? Another question: What criteria should be used, not to mention will be used, to determine who takes it home?
There are several possibilities. There is "first come, first served." Who made that first high bid in the round immediately preceding the freeze? Who was quickest? (Had he guessed that a freeze was imminent? Had be been tipped off?)
Another possibility: Who has been coming to this auctioneer’s auctions the longest, spending the most money over the years? Who deserves a favor? "Buddy, you’ve got it!"
Then, again, there’s good old Phil Turner. Sheriff Phil Turner. "Well, it looks like you’ve bought it, Phil," says the auctioneer. "I sure hope you like it. Don’t forget where you got it."
Of course, there’s the old "39-2436" method. "You, my dear, just bought the prize. Pick it up in my office, right after the auction." A time-honored method, to be sure.
Yet it’s altogether possible that the auctioneer doesn’t regard any of these approaches as the best. Maybe he decides that this little gem ought to be saved to be auctioned off some other day. Why not take it home? Why sell it at a rigged price?
Is this fair? Is any one of these methods fair? After all, the auctioneer is a profit-seeking seller. Why should he be allowed to make these decisions? The official with the badge may call over the official with the cash, peel off a few bills, hand them to the auctioneer, and announce: "The people need this. The people shall get it." Then he takes it back to the office. Or perhaps to the local office of the GSA.
I’ll tell you this much. There will be other auctions. The auctioneer will be back. But future auctions will not be advertised openly. "Midnight auctions" will take the place of open ones. Officials will not hear about many of them in advance. Not the guys wearing badges, anyway.
The money-providing officials will be approached by all participants beforehand, each one pleading for his refills before the next auction. Some people will get their money, too, since there’s plenty more where that came from these days. The bids at the midnight auctions won’t be getting any lower. Count on it.
So if you decide to show up, if only because these will be the auctions where the serious bidders and auctioneers will gather to auction off the only goods worth paying for, then make your plans early. Get a very large can, and find you one of those money-producing officials. Get your pitch ready now; you’ll need a good one.
And for those of you who plan on sticking with the open, buyer-protected auctions approved and licensed by the government, come early, and bring along a couple of gifts for the auctioneer. In any case, you’re only going to get those items left behind by the guys with the badges.