Good morning.
Friday in Whitewater will see evening thunderstorms with a high of 74. Sunrise is 6:10 and sunset is 7:39 for 13 hours 29 minutes of daytime. It’s a new moon today.
On this day in 1970, the damaged Apollo 13 spacecraft returns to Earth safely.
People talk about supply & demand, but economic demand is often misunderstood. Recent affordability discussions are regrettable (as they point to a lack of purchasing power for ordinary items). Those fraught discussions, however, do make clear that economic demand is more than mere need or desire. Casually invoking the concepts of supply and demand, when they’re undefined, leaves state and local policy discussions either vacuous or patently false.
Economic demand exists only when there is both need or desire for a good and the ability to pay for that good. This understanding has been foundational to economics for centuries. Consider Smith from Wealth of Nations, describing this as ‘effectual demand’:
The market price of every particular commodity is regulated by the proportion between the quantity which is actually brought to market, and the demand of those who are willing to pay the natural price of the commodity, or the whole value of the rent, labour, and profit, which must be paid in order to bring it thither. Such people may be called the effectual demanders, and their demand the effectual demand; since it may be sufficient to effectuate the bringing of the commodity to market. It is different from the absolute demand. A very poor man may be said in some sense to have a demand for a coach and six; he might like to have it; but his demand is not an effectual demand, as the commodity can never be brought to market in order to satisfy it.
(Emphasis added.) See Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations bk. I, ch. VII, “Of the Natural and Market Price of Commodities,” (1776).
Those looking for a more modern citation will find it in any number of respected, contemporary economic texts. See, e.g., Hal R. Varian, Intermediate Microeconomics: A Modern Approach ch. 1 & ch. 5–6 (8th ed. 2010).
This libertarian blogger, needless to say, believes free markets of voluntary exchange, under conditions of private property and limited government, best preserve liberty while coordinating economic activity efficiently.
In policy debates — over food, housing, childcare, or healthcare — people often say that ‘there’s a huge demand.’ Some of these debates are, in fact, about need (food, clothing, or shelter) where a few have inadequate purchasing power.
And so, and so, if someone contends that the satisfaction of a desire is a matter for free markets, then it’s necessary to ask: do those with that desire have purchasing power? Nothing about correctly noting the vast powers of free markets for efficient coordination (superior both morally and practically to command schemes) denies that market action depends on effective demand. No rational economic arrangement runs on magic.
Someone committed to free market policies as the best arrangement for most occasions should — and to be honest must — consider how to address inadequate purchasing power of a few for basic needs. How have voluntary transactions in conditions of private property been obstructed from supplying more people with purchasing power for basic needs, and are there cases in which even generally superior free markets yet struggle to increase individuals’ purchasing power?
Insisting that the need for food, clothing, or shelter for everyone in Whitewater will simply work itself out, regardless of any additional action — either private or public — is simply ludicrous. It’s obvious that there is more to do.
Opposition to every plan for housing, for example (not here, not there, not this way, not that way), won’t solve Whitewater’s housing affordability problems.
Upcoming posts (in no decided order): The Regents, Claims of Legacy, a Particular Species of Democrat, a Whitewater Comparative Analysis, and Whitewater’s Workforce.
South Korean pianist recreates himself as one-handed performer after paralyzing stroke: