Living with Shortages; D. Sarroff

Living with Shortages DICK SABROFF 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. Ele mentary notions of .economics, once taught in the schools and in homes, are largely forgotten today. For example, "shortages" are impossible in a free market. In stead, there is a constantly shift ing balance between supply, de mand, and prices. If today's de mand 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 advan tage of the situation; both bid and asked prices go up in a most natural way. Dick Sabroff has taught and worked as an electrical engineer and demonstrates consid erable skill in the practice of freedom. This article is in response to a recent radio broadcast.

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, imper sonal, 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 cor responding reduction of demand, the resulting higher prices elimi nate 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 in crease 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 com petitors appear, too, to get in on the good pickin's. And the in creased demand on pipe and drill ing equipment suppliers produces 259 260 THE FREEMAN May 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 deep er, however. The reallocation proc ess of the market not only causes expansion where needed, but also contracts the very industries con tributing most to the problem. For example, with a gasoline "short age," General Motors' sales tend to decrease, prices are forced down 'ward (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 de signed for production of gas-eat ers. The same contracting forces act in the case of snowmobiles, re sorts, and any other industry or activity tending to increase con sumption of the scarce item. Human resources are reallocated by this marvelous system, too. Layoffs in the contracting indus tries are accompanied by an in creased 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 impar tially.

It goes still further. Higher prices on a "scarce" item, gasoline in our present example, mean greater potential profits from sub stitutes. 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, auto matically again, to such research. And it is likely that the tempo rarily 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 in creased or decreased production as needed, it reduces or increases con sumption both directly because of higher or lower prices and indi rectly 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 behav ior in ways of which we are often unaware, but which are always cal culated to bring about a better ad justment 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 pre vent this super system from work ing is to interfere through legal or illegal actions. It is the job of gov ernment to prevent the latter, but 1974 LIVING WITH SHORTAGES 261 it is government itself which is guilty of the former. A price con trol on gasoline, for example, elim inates the incentive to expand the industry while at the same time encouraging continued high con sumption. It also prevents pur chases from alternate sources will ing to sell at realistic prices. Sub sidizing consumption is another form of interference which has similar effects. In America, for ex ample, we have mostly public ("free") roads. Expressways and the I-system, especially, have en couraged people to live farther from work and to do more travel ling, thus encouraging greater consumption of gasoline. And be cause 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 pro duction.

Fast and Automatic To top everything, a free mar ket would not only solve a gasoline '"shortage" through the price mechanism, but the prices them selves would come back down al most before they went up. As soon as production is expanded and con sumption 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 auto matically 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 inven tions, and so on. "Crises" are un known 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 marvel ous 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 mat ter of education probably has much to do with the almost uni versal ignorance of the basic eco nomics I've touched upon in this letter.

262 THE FREEMAN May Ourselves to Blame One more point. When I speak disparagingly about "govern ment," I'm not referring to the people who make up the govern ment. 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 re sponsibility for. our actions. There are many good people in govern ment, but they have little choice other than to reflect the consensus of opinion; even emperors and dic tators 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 im possible 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 un less 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 un derstanding." Once this initial breakthrough is achieved, a per son is in for a lifetime of unfold ing beauty which at times is al most too much to bear. The joy which accompanies this is also beyond description. To know that things are just fine at the founda tion 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 some thing 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, bests ellers, and so on) are enter taining 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. ~ MILTON FRIEDMAN FEO andthe GasLines As I write this in Chicago, lines are forming at those gas stations that are open. The exasperated motorists are cursing; the service station attendants are fuming; the politicians are promising. The one thing few people seem to be doing is thinking.