#115 Who Made the Market?

Who Made the Market? Whole Foods founder John Mackey said recently, “Capitalism is the greatest thing humanity’s ever done.”  Who gets credit for this marvelous invention?  Who made the market?    Whole Foods founder John Mackey said recently, “Capitalism is the greatest thing humanity’s ever done.”  That’s worth repeating and thinking about it for a moment, “Capitalism is the greatest thing humanity’s ever done.”  My first response is, “Christ coming to earth was greater, but humans didn’t do that.   The capitalist market is where people vote.  It’s really the most democratic of systems.  As the Christian Economist, I would suggest that the market is where we love our neighbor as we love ourselves.  In my little book Economics and the Christian Worldview, I make the statement, “If you love your neighbor you will supply him products and services he demands.  If you love yourself, you will make a profit while doing so.”   In class this week, I tried to simplify the market.  It’s not easy to do.  But, very briefly: Demand changes because of price, and quantity demanded changes with SPITE.  That’s an acronym for substitutes, population, income, taste, and expectations.  Supply changes because of price, and quantity demanded changes because of SITE, which stands for the number of suppliers, input cost, technology, and expectations.  There are 11 things moving all at the same time.  Now you know why the idea of ceteris paribus is so important.  Because, if I said that demand would go down, because of a price increase, you would argue about any of the other ten.  Ceteris paribus is a Latin term that means, “All else being equal.”  So, when prices increase – all else being equal – demand goes down.  Think about those 11 effects, all moving at the same time.  Who can set prices in such a dynamic environment?   Fed Chairman Jerome Powell can’t do it.  Treasury Secretary Janet Yellen can’t do it.  President Biden can’t.  No one can!   Humility really is at the heart of Christianity and Economics.  The first two steps in Alcoholics Anonymous are: Step 1 – We admitted we were powerless over our addiction – that our lives had become unmanageable Step 2 – Came to believe that a Power greater than ourselves could restore us to sanity The four spiritual laws require humility because we believe we have to admit that God is greater than we are. The first is: God loves me.  The second is: I am sinful and separated from God.   Humility is a critical lesson to learn in Economics as well.  As I’m recording this, in February of 2022, the Federal Reserve Bank is promising to decrease bond-buying and increase the interest rate next month.  They’re probably too late.  I cover some of that humility in podcast #21 titled Economic Humanism, and #41 In the Fed we Trust.     The Benevolent Social Planner I often draw a simple happy face and replace the two “eyes” with the letters “I.”  And, I explain that there could never be a benevolent social planner because that person would need perfect vision through two “I’s”:  Information and Intent.  You should wonder how any supplier sets prices with 11 dynamic effects changing at the same time.  They can’t  No one can.  It’s impossible to predict where all 11 of those are going to land at the end of the day.  My class at Dallas Baptist University starts at 8:00 central time, so the stock market opens at 8:30.  Sometimes I will ask the students, “Do you think the stock market has gone up or down in the last 15 minutes?  They don’t know.  No one knows.  There are three explanations for what moves prices, and the three suppliers of the answers happen to have different worldviews.