#330 / Necessity, Supply, And Demand

Thinking about "necessity," a category that should always be treated with suspicion if it's being discussed with reference to any reality in the world that we create, I got to thinking about the so-called "law" of supply and demand. Or "laws" of supply and demand, as the Concise Encyclopedia of Economics puts it:

The most basic laws in economics are the law of supply and the law of demand. Indeed, almost every economic event or phenomenon is the product of the interaction of these two laws. The law of supply states that the quantity of a good supplied (i.e., the amount owners or producers offer for sale) rises as the market price rises, and falls as the price falls. Conversely, the law of demand (see demand) says that the quantity of a good demanded falls as the price rises, and vice versa. (Economists do not really have a “law” of supply, though they talk and write as though they do.)

One function of markets is to find “equilibrium” prices that balance the supplies of and demands for goods and services. An equilibrium price (also known as a “market-clearing” price) is one at which each producer can sell all he wants to produce and each consumer can buy all he demands. Naturally, producers always would like to charge higher prices. But even if they have no competitors, they are limited by the law of demand: if producers insist on a higher price, consumers will buy fewer units. The law of supply puts a similar limit on consumers. They always would prefer to pay a lower price than the current one. But if they successfully insist on paying less (say, through price controls), suppliers will produce less and some demand will go unsatisfied.

In essence these two "laws," as described above, outline a theoretical reality in which the supply and the demand for economic goods must always come into balance. As we know, however, these "laws" are not like the law of gravity, so the postulated balance is not always achieved. An oversupply of goods and materials, and the opposite case, in which we find demands unsatisfied, are both realities with which we are acquainted. Nonetheless, there is a lot of truth to the idea that supply and demand do balance out, over time.

Here's my question: what if supply and demand don't balance; what happens then? How is that balance going to be achieved?

In the human and political world that we create by our own actions, human beings determine how to balance demand with supply. It isn't automatic. There is no "necessary" result. We can talk about the balance being achieved as though this occurs through the operation of the "laws" of supply and demand, but these "laws" are definitely not like the "law" of gravity. When, and if, a "balance" between demand and supply is achieved, it is because certain choices were made, and because certain actions were taken, and not because some self-actuating "law" makes it happen.

If that is correct, decisions on how best to balance "supply" and "demand" are political decisions, and it is not "necessary" to increase "supply" to balance off an increase in "demand." That has tended to be how we have done it, and new demands of all kinds have usually lead to the development of new supplies. From an environmental perspective, though, that is going about it in the wrong way. 

The human demand to consume more is, effectively, boundless. Whatever we already have, we are always ready to consume even more. Because this is true, human beings have continued to insult and injure the natural environment, as we find new ways to "supply" the endless demands for more consumption (demands that are stimulated, of course, by an advertising "industry" that is constantly prodding us to want more).

There is a different way to achieve the balance. Rather than balancing supply and demand by always making political decisions that increase supply, we could make a political choice to reduce demand, to match the supplies already available. 

In other words, we could decide to live within the existing limits of the natural environment, instead of trying always to find ways to exceed those limits to supply more, to keep up with insatiable demand.

The effort to modify the genetic characteristics of existing living things, to make such living organisms produce more of what human beings are "demanding," is only one of our possible avenues towards balance. 

Let's think about this! Maybe the day after Thanksgiving is a particularly appropriate time to do that, since this is a day that stimulates and celebrates overconsumption of food, followed by that Black Friday (today) that celebrates a mad effort to buy and consume more tangible goods.

Yes, you heard me right. I am suggesting that right now (today), would be a good time to start reducing demands, to balance with supplies available. 

Ask Mother Earth. That's what she'd say!

Image Credit:

http://www.investopedia.com/video/play/law-supply-and-demand/