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Wednesday, June 6, 2012


Foundation of Economic Education


  Leonard E. Read

  To be accused of charging “all the traffic will bear” for goods or services makes one a scalper, gouger, sharp practitioner or, at least, not graced with the milk of human kindness. Persons who think that charging all the traffic will bear is an antisocial practice will likely advocate such “corrective” socialistic steps as price or production or exchange controls.

  Most of us shop around. We look for sellers who will offer us the best product at the lowest price, and for buyers of our own goods or services to whom we can make the most advantageous sale; to say that you and I act on the opposite principle would be arrant nonsense.

But let some good or service on which we have become dependent—a necessity, we call it—fall into “short supply,” then let the fortunate few who possess the good or service charge all the traffic will bear, and watch the epithets fly. “The Shylock!” And for acting precisely as most all of us act when free to choose.

  We would be less apt to destroy the free market, willing exchange, private property way of life were we to think less harshly of those who charge all the traffic will bear. On the contrary, we should shower them with our kindest sentiments when this so-called “short-supply-high-demand” situation most seriously threatens our economic welfare.17.1 Actually, such pricing in response to the signals of a free and unfettered market can most quickly and justly bring supply and demand toward equilibrium. Charging all the traffic will bear is identical in principle to its economic opposite, the fire sale to dispose of burdensome stocks. Each is a rectifying, remedial action. To curse the former which tends to irritate us is as senseless as to condemn the latter which tends to please us. Each allocates available resources to the uses we prefer, as indicated by our buying or not buying.

  The free market—freedom in exchange, with prices freely responsible to changing supply and demand—is, in fact, an enormous computer, far superior to any electronic computer man has ever devised, or ever will. Data from all over the world, of the most varied and complex nature—only fragments of which any one man or set of men can even be aware of, let alone assemble and feed into it— are automatically and quickly processed, answers coming out as prices. These prices are, in effect, stop and go signals which clearly say to all would-be enterprisers: “Get into this activity at once, the supply is comparatively short and the demand is comparatively heavy” or “Get out of this activity now, the supply is comparatively bountiful and the demand is comparatively negligible.”17.2

  It makes no difference what good or service is used to illustrate how this marvelous, impersonal computer works. Mowing lawns or operating a machine tool would do, as would a bag of wheat or a steel casting or a money loan or tomatoes.

  Tomatoes, let us say, are suddenly in “short supply.” Millions of people relish this fruit and, thus, the demand continues high. The few growers fortunate enough to have escaped the destructive blight discover that they can sell their small supply for two dollars per pound—and they do! Salad lovers who cannot afford to pay this “exorbitant” price are inclined to think unfavorably of these growers: “Why, they’re highway robbers.” Yet these fortunate few are only adhering closely to the computer’s instructions; they are behaving precisely as you and I act when we accept an increase in our wages. This is splendid!

  Assuming the market to be free, what would happen in this situation? Several corrective forces would automatically and immediately go to work. First, the high price, with promises of exceptional profit, would entice others to grow tomatoes; and even more important, it would miraculously lead to the development of blight-resistant strains. In the shortest possible time, there would be tomatoes galore, perhaps at a dollar per bushel—within the reach of all.

  For contrast, imagine the other extreme: A law to keep the price at its old level. What would be the probable results? At that price (where competition had compressed profits to their lowest possible level) there would be little incentive for new tomato growers to enter the field. And, thus, favoritism instead of prices would necessarily determine the allocation of the reduced supply of tomatoes. It is conceivable that the hard feelings generated by such a system of allocation could even cause the remaining tomato growers to get into some less emotional business; tomatoes could even become extinct!17.3

  This fantastic computer—the free market and its pricing—presupposes freedom in exchange. Whenever price or wage or production controls are permitted, the data fed into the computer are made inaccurate; and when this happens, the signals it gives must to that extent be erroneous. This explains why we have huge quantities of wheat, butter, cotton, and other produce wasting in tax-paid storage—surpluses which frighten rather than please us.

  The signals which emerge from the computer will be useful relative to how accurately the data fed into it reflect the supply-demand situations of all people on this earth. A socialistic sentiment, such as disapproval of those who charge all the traffic will bear, tends to set in motion distortions of the data. How? Economically unsound sentiments feed the fires of government controls. Instead of an automatic computer, the astounding services of which are “for free,” we get a bureaucracy attempting an impossible task of data collection at a cost of many billions of dollars annually.

  And, eventually, we’ll get no tomatoes!

  When all the ramifications are considered, the seller who refuses to charge “all the traffic will bear” is rendering us a positive disservice. He is failing to allocate scarce resources to the most desired uses, as you and I determine them by our buying or abstention

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