The Law of Demand and the flow of information
Published Thu, Dec 11 2008 11:02 AM
One of the principles of a free market is that it's made up of many individuals pursuing their own self-interest. It ends up working because each individual knows what he or she wants, and weighs the cost to obtain it. If the cost of a commodity is too high, they purchase less of it. Falling demand signals the seller that the price is too high, and an intelligent seller reduces the price. This alters the patterns of production and consumption. As long as producers and consumers are able to make informed decisions the exchange system works.
The key is the ability to make informed decisions, and the ability to rationally weight the costs. Consumers don't need to know everything that goes into the production of the goods and services they consume, but they do need to determine what the costs are, and the costs aren't purely monetary in any system. In order to make informed decisions, consumers need reliable information, but only as regards the costs and benefits that the exchange will have for them.
“Just about the most important generalization that we can make about human behavior is that the higher the cost of a particular choice, the less of it will be chosen, and the lower the cost, the more of it will be chosen. This generalization underlies the law of demand.”
— Walter Williams
If the costs are too high, consumers will naturally demand less of a product or service. Reduced demand will result in a lower return for producers. Either the price for their product will have to come down, or they'll have to cut their own costs and produce less, or find a way to increase the benefits that their product provides to entice consumers to increase demand.
This works all the way up and down the exchange system from the production and exchange of raw materials to the production and exchange of finished goods. Nobody needs to know the details of the entire system for a free market to work, but they do need to be able to judge the costs and benefits of the small part that they are involved in. A tiny amount of information passed in this way becomes a powerful signal that drives the market. While individuals only perform small transactions (typically), the large numbers of participants in the market tends to make such a system thrive.
Of course, good information is what participants in such a market need. Human nature being what it is means that there will always be some that are greedy and try to defraud their counterparts in the system. This is where regulation of a free market system might be needed. The type of regulation needed though doesn't extend to price setting, dictation of what may be bought and sold, or restrictions on how much can be bought, sold, or acquired. Rather it needs to ensure that scams and violence don't disrupt the flow.
“Were we directed from Washington when to sow, and when to reap, we should soon want bread.”
— Thomas Jefferson (Autobiography, 1821)
Unfortunately, once government gets its hands into the system it never takes them out voluntarily.
“There are more instances of the abridgment of the freedom of the people by gradual and silent encroachments of those in power than by violent and sudden usurpations.”
— James Madison (speech to the Virginia Ratifying Convention,
16 June 1788)
The Democratic party certainly seems to have a firm grip on the law of demand. They also understand the importance of information when weighing the costs of a given political transaction. Perhaps that's why they seem to want to suppress information about their candidates (viewing elections as economic transactions). Perhaps that's why they obfuscate their intentions as well.
Informed citizens with a firm grip and understanding on the principles upon which our nation was founded will act in their own self interest. There are somewhere close to 320 million people in the country now. Most of them are apathetic. Most of them are ill-educated with regard to civics, economics and with regard to their own rights and responsibilities. The vast majority seem to be obsessed with infotainment, that is entertainment posing as information.
“A good government implies two things; first, fidelity to the objects of the government; secondly, a knowledge of the means, by which those objects can be best attained.”
— Joseph Story (Commentaries on the Constitution, 1833)
“"No people will tamely surrender their Liberties, nor can any be easily subdued, when knowledge is diffusd and Virtue is preservd. On the Contrary, when People are universally ignorant, and debauchd in their Manners, they will sink under their own weight without the Aid of foreign Invaders.”
— Samuel Adams (letter to James Warren, 4 November 1775)
Ill-informed citizens will also act in what they perceive to be their own self interest. As a result, our government has grown almost beyond recognition from the form originally envisioned and created by the founders. The founders envisioned a limited federal government.
“"They are not to do anything they please to provide for the general welfare, but only to lay taxes for that purpose. To consider the latter phrase not as describing the purpose of the first, but as giving a distinct and independent power to do any act they please which may be good for the Union, would render all the preceding and subsequent enumerations of power completely useless.
“It would reduce the whole instrument to a single phrase, that of instituting a Congress with power to do whatever would be for the good of the United States; and as they sole judges of the good or evil, it would be also a power to do whatever evil they please...Certainly no such universal power was meant to be given them. It was intended to lace them up straightly within the enumerated powers and those without which, as means, these powers could not be carried into effect.”
-- Thomas Jefferson (Opinion on National Bank, 1791)
Today's politicians on the other hand conceive of no limits to the powers of government. How does the notion of “bailouts” for example fit with the words of Thomas Jefferson, listed here, and in his autobiography? Today's Congress would not only spend nearly the entire federal budget of the United States government to reward bad investment and lending decisions, but also assume ownership of the very companies it forced to make those bad decisions. Today's government considers pouring billions of dollars into a broken industry, broken by the very act of Congress directing it where and when to sow and reap, and impose further regulations designed to make that industry even less profitable.
Our judges and justices are even of a mind to disbelieve in the notion of limited, enumerated powers. In Justice Stevens had this to say regarding the majority opinion regarding the second amendment.
“The Court would have us believe that over 200 years ago, the Framers made a choice to limit the tools available to elected officials wishing to regulate civilian uses of weapons, and to authorize this Court to use the common-law process of case-by-case judicial lawmaking to define the contours of acceptable gun control policy. Absent compelling evidence that is nowhere to be found in the Court’s opinion, I could not possibly conclude that the Framers made such a choice.”
— Justice Stevens dissenting in DISTRICT OF COLUMBIA v. HELLER (554 U. S. ____ (2008))
That's where we've come through apathy and ignorance. Politicians and judges can't conceive of the Framers making the choice to limit government's reach. Our government has grown beyond the boundaries placed upon it by the framers. It engages in “charitable works” that are outside its powers and interferes in day to day commerce. It amasses powers for itself and that small portion of the people that hold public office by usurping the freedoms of the people. It ignores the restrictions placed upon it by the framers and neglects the duties given to it — all because the people choose not to be informed, and because the political hacks, in both parties, try to suppress the information that would be damaging to them.
Free markets work because of the flow of local information. A free market works because individuals are interested in getting the best deals they can. They weigh the costs associated with their transactions before deciding to engage in them. Relative costs influence demand, and a wise producer adjusts supply to meet demand.
Limited governments work because of the open exchange of information. An informed citizenry will weigh the costs of their votes because they are interested in preserving their liberties within an ordered society. Governments lose their limitations and the people lose their liberty when information is suppressed, or when the people stop gathering the information and acting on it. Without good information weighing the cost of one's vote is impossible.
A free flow of information helps to eliminate corruption in government. For an example, look at what voters did in Louisiana a few days ago. Yes, hurricanes helped, but the new Representative from New Orleans isn't likely to be keeping bribe money in a freezer. We may see a bit of a change in the Chicago machine too thanks to the free flow of information. It's certainly going to affect at least one Senate seat.
Corrupt politicians and bureaucrats have an interest in keeping information out of the public's reach. If we really want the best government we can get we have an interest in ferreting out whatever good information we can. Only then can we truly weigh the costs of all of the things that our government purports to do “for” us.
If we want to take back our government, one of the first steps must be to educate ourselves. Without a solid grasp of our foundations we have no place to stand. Without open information about the doings of our government and our politicians we have no way to weigh the future.
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Layla responded with:
 | It is too bad that so many Americans do not think for themselves. They listen to every stinking pundit on any network, including some moonbats on Fox these days. If people really followed the Constitution the way it was intended to be implemented we would not see all this division and strife in our nation. |
Perri Nelson responded with: Intent and understanding
 | Sadly, something less than 50% of elected officials could pass a basic civics test. Only slightly more of the general population can.
With odds like that, getting anyone to follow the Constitution as it's intended is like pulling teeth. That's why I included the reference to Justice Stevens incapacity to understand that the Constitution and it's amendments are intended as limitations on government. |