orb@whuxl.UUCP (SEVENER) (03/01/85)
> From the illustrious Danny McK: > Given a free market, for a cobweb phenomenon to persist, instead of > spiralling-in to equilibrium, two unlikely conditions have to be met: > > 1. The slope of the supply curve must be the additive inverse of the > slope of the demand curve (eg: If the slope of the demand curve > is -$1/bushel, then the slope of the supply curve is +$1/bushel). > 2. Producers must be too stupid to realize what's going on, and > either too stupid to understand when the situations is explained > to them, or somehow prohibitted from getting such an explanation. > > Condition 1 is, again, unlikely; and condition 2 is a ridiculous insult to > the intelligence of the farmer. > Those seeking an explanation for the plight of the farmer in a free > market cobweb will simply have to look elsewhere. I'm afraid this excuse just doesn't cut it, Danny. The whole idea and rationale for the "free market" is that it *doesn't matter what producers intend*. No one producer can affect the price significantly, nor can any *individual* producer significantly affect total output. All the *individual* farmer can decide is: given last year's prices, which I am likely to assume is the best estimate of next year's prices, is it profitable for me to plant my crops or not? Also given that I already have enormous fixed investments in land, machinery,etc. is it worth it to spend the variable costs of fertilizer, gasoline, pest control, etc. in the risk of achieving a profit this year ( and at what level is it worth spending for these variable costs?) The individual farmer has no way of knowing what other farmers in the country will decide on these things. If he did he would leave farming and make a killing in the futures market. In most cases the decision here for farmers will probably amount to: continue farming and try to produce as much as possible, because no matter how much *I* as a farmer produce it will not affect the overall price for what I produce. Or two, leave farming altogether and produce nothing. OR, the variant of two we are talking about right now: being *forced* to leave farming by a foreclosure and, again, production of nothing. These are the workings of the free market: the very fact that the free market *system* produces certain results *regardless* of the intentions of those involved is touted as one of its great benefits by Adam Smith and its proponents since his day. Adam Smith's use of this argument was to say that individual greed leads to improvement in the social welfare. I find it curious that now to defend against one of the proven theoretical deficiencies of the free market that suddenly all its premises are abandoned and instead some sort of intentionality invoked! If people could decide or *know* what the optimum level of production should be then why do they need the free market? Such ability to affect overall production implies control over the market which the free market already assumes does not exist. Sorry, Danny. You are caught in your own "cobweb of contradiction" in trying to argue against the cobweb effect: either the free market assumes individual producers cannot affect overall production *regardless* of their intentions or it does not. Please be consistent. tim sevener whuxl!orb p.s. very nice exposition of the cobweb effect, tho. Even if your rationalization of it was a contradiction. It is a pleasure debating you!