May 8, 2024


Investing and Stocks News

The Magic Food Cupboard

One of my favorite cartoons chronicles a man who lives in an apartment with an aggressive cat and a nice dog. The animals can talk, and argue, but their ability to reason is about what you’d expect: crude inference based on limited observation.

The man is constantly irritated by what the cat and dog call “The Magic Food Cupboard.” In the pet’s minds, the shelf where their kibble is stored is literally “where food comes from.” They attribute the process to magic, of course, because that makes as much sense to them as some elaborate supply chain of purchases and delivery. As Arthur C. Clarke famously put it, “Any sufficiently advanced technology is indistinguishable from magic.”

I have some New York friends whose views of “where food comes from” are not different from “the magic food cupboard” in the comic. Food comes from the grocery store: every time you go there, the shelves are loaded, and the produce racks are bursting with fresh, appetizing fruits and vegetables. Of course, my friends will concede that those things are all put there, and it’s not literally magic.

But it might as well be, since my friends also believe that all of this could be done better, faster, and cheaper, by a different kind of magic. For them, that magic is called “socialism.” Food “should be free,” just as it is for the cat and the dog in the cartoon. If only we abolished capitalism, food would be more plentiful and less expensive. 

That’s their theory. Like I said: magic.

Very few people understand the actual technology of commercial systems, the elaborate emergent supply chains that ensure that the grocery stores are full of things that I want when I’m in New York. The system works even though none of the stores have any idea that I’m even visiting, and they don’t know how long I’ll stay. Market systems cause stores to try to anticipate what shoppers will want, and price systems dictate how those products will be obtained and how they can be most cheaply delivered.  F.A. Hayek, in his famous 1945 paper on “The Use of Knowledge in Society,” noted the problem that no one understands how markets accomplish this remarkable feat:

I am convinced that if it were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this [price] mechanism would have been acclaimed as one of the greatest triumphs of the human mind. Its misfortune is the double one that it is not the product of human design and that the people guided by it usually do not know why they are made to do what they do.

As I argued about a year ago, it is the generation of knowledge about scarcity and value, not the calculation of scarcity values, that is the “magic” behind those full grocery shelves. The failure to understand this process, the failure of people to understand why each of us does what we do in our small part in the system, is what makes the belief in socialism so pervasive. After all, how hard can it really be?  The food supply operates automatically, by magic!

No. That’s wrong. The aggregation of many small parts, operating independently, is precisely what makes capitalism work. The fact that there is no means of coordinating an analogous set of independent actions under command-and-control systems is what makes socialism fail.

There are instances where writers have noted the importance of the small, focused actions of people acting in constant support of the greater system. I will limit myself to two, one from Adam Smith, and one from George Eliot.

In The Theory of Moral Sentiments, Smith argued that the fact that we are satisfied to work in our “humble department,” the care of our own happiness, is sufficient to operate a system that serves all quite well, without central direction or control.  As he puts it in Part VI, Section 2: “The most sublime speculation of the contemplative philosopher can scarce compensate the neglect of the smallest active duty.” Every small aspect of the work that people do to deliver and stock those Whole Foods grocery shelves is noble, in its own way. Dismissing the parts as meaningless fails to understand the power of the larger system, which depends on people doing their parts.

Later, in Section 3, Smith continues:

Temperance, decency, modesty, and moderation, are always amiable, and can seldom be directed to any bad end. It is from the unremitting steadiness of those gentler exertions of self-command, that the amiable virtue of chastity, that the respectable virtues of industry and frugality, derive all that sober lustre which attends them.

The technology of commerce allows the pursuit of individual self-interest to cause a system of mutual care to emerge. The system is preserved by the fact that each of us can actually obtain what we need, when we go to the store or when we go to a restaurant. No one understands even any substantial part of this system, but it operates as if it had been extensively planned and operated for our benefit.

Perhaps the most remarkable statement of this “diffusive” good of private acts on public welfare is in the closing line of George Eliot’s Middlemarch), where the narrator describes the life of one unremarkable character, Dorothea:

[T]here is no creature whose inward being is so strong that it is not greatly determined by what lies outside it…[T]he effect of her being on those around her was incalculably diffusive: for the growing good of the world is partly dependent on unhistoric acts; and that things are not so ill with you and me as they might have been, is half owing to the number who lived faithfully a hidden life, and rest in unvisited tombs

Socialism would only work if each of us specifically intended the good of others, and had the information about what would serve others best. That really would be magic. Commercial capitalism economizes on the need to intend good, and the need to know what is good, relying only on the technology of self-interest, modulated by a system of enforceable property rights and voluntary exchange. Thus, even if people were motivated primarily by self-interest, the system would chug along pretty well.

But commercial capitalism also cultivates what Dierdre McCloskey has called “the bourgeois virtues,” actual habits of right action that really do amount to caring for one another, and for practicing industry and excellence in our daily work lives. Virgil Storr has illustrated the fact commerce creates “moral spaces,” where people serve each other in complex, and often innovative ways, simply because that is the right thing to do. 

Socialist economies, which claim to cultivate virtue, in fact have consistently produced the sort of farce where “we pretend to work, and they pretend to pay us,” time after time. Planned economies always fail on both the incentive and information grounds, as I argued a few weeks ago. The socialist “magic food cupboard” is always empty.