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TitleThe Seen, the Unseen, and the Unrealized: How Regulations Affect Our Everyday Lives
File Size1.5 MB
Total Pages252
Table of Contents
                            Title Page
The How of the Market
The Price Is Right
What Prices Communicate
Unbeatable, Imperfect Markets
The Seen and the Unseen
The Market and Natural Disasters
Taxation and Regulation
Attempts to Perfect the Market
The Unrealized
Implications for Our View of Society
About the Author
Document Text Contents
Page 2

The Seen, the Unseen, and the

Capitalist Thought:
Studies in Philosophy, Politics, and Economics
Series Editor: Edward W. Younkins, Wheeling Jesuit University

This book series is devoted to studying the foundations of
capitalism from a number of academic disciplines including, but
not limited to, philosophy, political science, economics, law,
literature, and history. Recognizing the expansion of the
boundaries of economics, this series particularly welcomes
proposals for monographs and edited collections that focus on
topics from transdisciplinary, interdisciplinary, and
multidisciplinary perspectives. Lexington Books will consider a
wide range of conceptual, empirical, and methodological
submissions, Works in this series will tend to synthesize and
integrate knowledge and to build bridges within and between
disciplines. They will be of vital concern to academicians,
business people, and others in the debate about the proper role
of capitalism, business, and business people in economic

Doug Bandow Stephen Hicks Douglas B. Rasmussen

Walter Block Steven Horwitz Chris Matthew Sciabarra

Douglas J. Den Uyl Stephan Kinsella Aeon J. Skoble

Richard M. Ebeling Tibor R. Machan C. Bradley Thompson

Mimi Gladstein Michael Novak Thomas E. Woods

Samuel Gregg James Otteson

Page 126

unaffected apple-growers—like Adele—who are likely to realize
the shortage sooner than those further down the chain. They
will require a higher price to sell their apples because they
imagine the lower supply is not met by a lower demand which
means the market will bear the higher price.

What this means is that a shortage does not necessary have
to be realized before the adjustment process begins. In fact,
consumers may not see empty bins but only a higher price tag
—because entrepreneurs throughout the supply chain will have
adjusted their buying and selling in anticipation of how
consumers will react to the lower supply. And the consumers
may in fact be completely ignorant of the sudden large-scale
scab infection of orchards. They don’t need to know the details,
[2] but need only react to the prices that entrepreneurs ask for
apples: if the price is too high, too few of them will buy; if it is
too low, too many of them will want to buy. As a result, the
entrepreneurs will either realize their mistaken anticipated price
and make the proper adjustments up or down, or will end up
bearing the full cost of their mistake. The entrepreneur’s task,
after all, is to attempt to correctly anticipate consumers’ true
valuation of the good they offer for sale and in what quantity—
and bear the uncertainty thereof.

So we see that exogenous shocks to the “economic
organism” are handled just as endogenous such as by
decentralized, bottom-up adjustments to prices and offerings. In
our example, apples were infected by apple scab, which
reduced the supply. As the general tendency in any market is to
find the proper balance between supply and demand through
price, an exogenous shock to supply is not different from an
endogenous shock from changing consumer preferences. It is
also not different from an endogenous shock to supply through
disruptive innovation, which can completely change what is
produced and how it is being produced. But can the market’s
decentralized and “automatic” adjustments be sufficient in a
time of real crisis? What if there is not a scab affecting apples,
but an earthquake or hurricane devastating a whole city?


Page 127


A disaster, whether it is devastation due to natural forces such
as earthquakes, volcanic eruptions, tsunamis, and hurricanes or
man-made destruction from wars or rent control,[3] can,
economically speaking, be understood as an abrupt and radical
increase in scarcity. While the apple scab is also an increase in
scarcity (the scab diminishes the supply of apples), it affects a
single good and one that is likely inessential for the population.
Disasters, in contrast, have a huge impact on the supply of
essential goods such as food, shelter, and power; they greatly
reduce the supply—or even wipe it out—and therefore put
people in a very delicate situation. In other words, they create
abject scarcity of essential goods within a very short time

For it to be a disaster, the change needs to be
unanticipated. As we discussed above, market production is
continuously adjusted toward the anticipated future by
entrepreneurs attempting to outdo each other by finding a
better use for resources available or invented. If the supply of
essential goods is dramatically reduced but the change is
anticipated, then prices and production structures have already
been adjusted to account for this change, and the disastrous
effects are therefore mitigated if not even avoided. A disaster is
therefore different from other radical change because it is rarely
anticipated if at all as well as affecting most or all goods across
the board.

So how would the “market” respond to for instance an
earthquake that breaks bridges in two, wrecks and flattens
houses, and causes mayhem? The answer is no different from
above: by finding prices where supply meets demand and by
reallocating resources toward their better uses. Following a
disaster, there are fewer resources available than before but
there are still resources. Of course, the initial and direct
response to a disaster is likely to be in the form of community
and voluntary efforts rather than organized for-profit
entrepreneurship: neighborhood communities, churches,
families, and other associations, new and old, get together to
pool their resources in order to help those in greatest need. For

Page 251

imputed, 1 , 2 , 3
subjectivity of, 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9


Williamson, Oliver E., 1 , 2 , 3

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About the Author

Per L. Bylund

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