It's a Wonderful Loaf

It’s a Wonderful Loaf

If you look down upon a city with the

This opening verse was inspired by the great French economist, Frederic Bastiat, who marveled that the million residents of Paris sleep peacefully without worrying about the multitude of food and drink that must flow into the city every day to keep people from starvation. What secret power manages to coordinate the incredibly complex cooperation that keeps Paris or any great city supplied with what its people want without enormous shortages or waste? Read Bastiat’s text here. 

You might wonder how it functions, who takes care of me and you?

Who makes sure there’s food for vegans, and for carnivores as well?

It seems like there’s a wizard who has cast a magic spell

Just think of one small part—who makes sure there’s so much bread?

You want rye, she wants

My Italian friend Pietro tells me I mispronounced this word, at least the way it would be pronounced in Rome. It’s “cia” as in chocolate not “cia” as in Sheboygan. My apologies to my Italian friends.

, or make it sourdough instead

A baguette or a croissant, it doesn’t matter, don’t you see

You get yours and she gets hers,

Super Bowl Sunday is the biggest pizza day of the year. And yet, when you walk into a bakery that day and ask for a bagel, there are plenty of bagels to choose from. We’re spoiled. It's hard to imagine a world where the baker says, “A dozen bagels? Don’t you know it’s Super Bowl Sunday? All the flour went to pizza-making this week. Come back in a few days. We’ll have some bagels then.” But that isn’t what happens. Why not? How can that be?

, how can that be?

One’s buying a dozen bagels to grace an impromptu brunch

One’s using food stamps for a simple loaf to make her children lunch

No matter the amount we require, no matter the choices we make

This unnoticed army, what Hayek called “the extended order of human cooperation” isn’t under anyone’s command. Most are strangers to each other. Almost all are strangers to the one who buys the bread at the end of the chain.

In this essay, I try to capture how marvelous that is, and what holds the army together—a mixture of accountability and culture.

has mobilized to fashion the bread we partake

The farmer who grows the wheat, the miller that grinds the flour

The baker and all the others who work hour after hour

They’re all on their own, each one making independent decisions

But somehow

This uncoordinated cooperation between thousands of people who unknowingly work together, is what allows knowledge and know-how to be de-centralized. Each individual knows one small part of the complex process that leads to the final product. Yet somehow, the market is able to pool that knowledge without a centralized director or process. 

with the greatest degree of precision

So there must be a czar of wheat and flour, of trucks and of bread and yeast

To allocate and oversee and plan at the very least

For the unexpected change.

In “The Use of Knowledge in Society,” F.A. Hayek argues that the central economic problem is how an economic system copes with change—changes in consumer preferences, changes in the availability of raw materials, changes in the particular, often unobservable knowledge that buyers and sellers have about their desires or the process of production. Hayek argued that the adjustment of prices allows for the coordination of the actions of consumers and producers so that order—the consistent availability of products—persists.  And here is my attempt to put Hayek’s insights into a supply and demand framework and show the subtlety with which prices steer resources using information that no one person or group of people could collect.

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It never is, though, is it? So who keeps chaos away?

Because there’s order all around us—things look as if they’re planned

Like the supply of bread in a city—enough to match up with demand

And though flour is used for more than just bread, we never have to fight

Over where it goes and who gets what. So why do we sleep so well at night

Knowing

Government has an important role to play behind the scenes in the emergent order that is the bread market. Enforcing contracts and making prudent investments in infrastructure, for example, are what let market forces work so well. So when I say "no one is in charge" I don't mean anarchy. I mean that no one is in charge of allocating or pricing flour or trucks or determining any of the details of the complex coordination that emerges from the individual choices of buyers and sellers of bread. The complexity of the bread market--how many types of bread there are, their price and the extended order of specialization and cooperation used to produce bread, emerges from the bottom-up rather than being designed from the top-down.

, it looks like all is left to chance

Yet in New York, or London as well as Paris, France

No one’s worried the shelves will be empty, we take supply for granted

But it’s a marvel, it’s a miracle, the world’s somehow enchanted

Of course

The result's never perfect--there are still people around the world who struggle to afford bread for themselves or their children. In some places, governments respond with price controls that make bread cheaper to consumers but which can also cause bread to be unavailable at times or of lower quality. The bread market is imperfect in other ways. In the real world, sometimes prices are too high or too low, your favorite bakery might run out of blueberry muffins when you crave one, and a once-great bakery may survive for a while on its reputation even when its quality isn't what it once was. The dynamic nature of consumer desires and the challenge of meeting those desires means that perfection is unattainable under any economic system or set of regulations.

, but the system’s organic, alive

Over time

In this beautiful video, Swedish professor Hans Rosling explores the incredible transformation of human material well-being over the last 200 years.

and more and more bread-lovers thrive

And if you’re allergic to gluten, there are

Why does anyone go to the bother of making gluten-free bread for people who want to be gluten-free? Is it because of the potential for profit or is it basic human decency to help out others in need? Or is it both? I explore these issues here.

, too

Your choices expand and what you demand is created and waiting for you

I have my tastes and you have yours, we each have our own urges

Yet somehow there’s no conflict, a harmony emerges

Our dreams can fit together like a quilt that someone weaves us

But

The economy is a complex array of desires and dreams of both consumers and producers. Some people want to be doctors. Or bakers. Or haircutters. Or economists, even. Who decides how many jobs there are of each kind? Who decided how many kinds of bread get made? Who decides how long a haircut should take and how much it should cost?  For the most part, these decision are under no one’s control. No government agency and no czar is in charge. How is it that these myriad dreams can co-exist so peacefully? If I dream of baking bread and you dream of a new kind of pasta, we don’t fight over how much wheat is planted or how much flour gets produced. And if it means more land for wheat, why isn’t there a conflict with the people who want that land for growing soybeans, dreaming of a new use for tofu?

There is no weaver of dreams, yet somehow our plans don’t lead to conflict. In this talk I gave at SMU on emergence, I explain just how remarkable it is that our dreams fit together without conflict.

, reality deceives us

And here’s the crazy thing, if someone really were in charge

To make sure that bread was plentiful, with the power to enlarge

The supply of flour, yeast and of bakers and ovens, too

Would that person with that power have any idea of what to do?

Could a minister of bread do even half as well?

Would there be enough of every kind of bread upon the shelves?

How could he know how much to make of each kind every day?

There’d be

The animation of this section of the video is an allusion to what Adam Smith calls “the man of system.” In his book, The Theory of Moral Sentiments, Smith writes of the leader who imagines he can direct the members of society as easily as someone can move the pieces on a chessboard. Such hubris, Smith says, ignores that reality that on “the great chessboard of human society,” the pieces on the board have their rules of motion—their own desires and knowledge of their own situation. Attempting to manipulate them without taking those desires and that knowledge into account leads to misery and disorder. Read the passage from Smith (and a related quote from Hayek), here.

and waste and much dismay

You might think the job is easy--if the top seller’s rye

Then for every variety push production up that high

Then no one’s disappointed, bread eaters will rejoice

When they see that every bakery is filled with so much choice

Bread eaters, yes, but “Help!" the forgotten pizza lover cries

All the flour’s gone to baking bread there’s none left for the pies

Of pepperoni, deep dish, thin-crust and Sicilian

You’ve solved the bread challenge, yes, but

In his book, The Fatal Conceit, F.A. Hayek writes: "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

Problems. No problem! We’ll just grow lots more wheat

But that means

There is no free lunch and no free rye bread. Expanding the land devoted to growing wheat means that land isn’t available for other purposes. Economists give this simple idea the slightly fancy name of “opportunity cost.” It might seem obvious that doing one thing means not doing another, but applying that idea can be subtle and powerful. Here’s my essay on the concept.

that people like to eat

Which only makes the puzzle of the harmony around us

Much more puzzling—this order, this peace has to astound us

So many things we count on, yet

In the movie, The Wizard of Oz, Dorothy’s dog Toto unmasks the wizard by pulling back the curtain as he works all the levers and knobs to make the wizard seem scary and all-powerful. And the wizard calls out “Pay no attention to the man behind the curtain.” Sometimes we assume there must be someone in control of the levers and knobs of the economy to make sure it stays on track--the President or the chair of the Federal Reserve who is protecting and taking care of us. But most of the time, we are taking care of ourselves. No mastermind is actually in charge. Which is for the best. True economic maestros are as rare as unicorns.

No wizard, no controls, yet the supply of stuff--near certain

Every morning the bakers rise early to make sure your bread is fresh

And the world gets more complicated but the plans just continue to mesh

Every morning the bakers rise early, though not under anyone’s command

Where in the anatomy textbooks can I view

The invisible hand is the most famous metaphor in economics. Adam Smith only used it once in The Wealth of Nations and once in The Theory of Moral Sentiments. In those two cases, Smith didn't mean what it has come to mean today—that things can work pretty smoothly without anyone being in charge of the market for bread, say. Yet Smith did write quite a bit about the idea that harmony and order can emerge without a conductor or coordinator. I talk about Smith’s vision of harmony in this video.

?

So who is in charge of prices? Who makes sure that they communicate knowledge and the possibility of order and planning? My introductory take on these questions is here. For more advanced treatments read Hayek’s article or my supply and demand treatment.

is prices and the freedom to shop where you want

Competition among all the bakers, makes sure that they rise before dawn

To make sure the bread’s near perfection, to make sure that the buyer’s content

You don’t have to know economics to know when your money’s well-spent

We know there’s order built into the fabric of the world

Of nature.

A flock of birds can be flying at 40 miles an hour and turn sharply as if on command to avoid or chase a predator. Yet no bird is in charge and the choreography is spontaneous. The flock emerges without explicit coordination. A group of fighter planes, steered by some of the best pilots in the world and having the advantage of language and radio communication can only match the flock by a pre-designed set of plans. We are just starting to understand how birds can manage this.  Enjoy this beautiful video of the murmuration of starlings. Poetry in motion.

 

!

Like a murmuration of starlings, schools of fish look choreographed but of course, there is no choreographer and no set of instructions for the group as a whole. The simple actions of each individual fish—stay close to your neighbor but not too close—result in an order that is self-organized rather than designed by a leader. The resulting school evades predators as if it were choreographed, a beautiful example of emergent order.

! And every boy and girl

Delights in how the stars shine down in all their constellations

In this interview I did with Jim Otteson and Vernon Smith, Vernon points out that Adam Smith was born while Newton was still alive. Newton was interested in the harmony of the heavens—how the planets stay on track and keep the most sublime relations with each other. Newton discovered an unseen force that created that order—gravity. Smith saw the same harmony in human relations. In The Wealth of Nations he looked at the harmony of markets. In The Theory of Moral Sentiments, he looked at social harmony—our ability to get along with each other. I explore these two versions of harmony in this speech at Duke University and tie Smith’s ideas about harmony to F.A. Hayek’s ideas on emergent order.

and keep the most sublime relations

With each other. Order’s everywhere. Yet we humans too create it

It emerges. No one intends it. No one has to orchestrate it.

It’s the

This phrase is an allusion to a quote from Adam Ferguson, a contemporary of Adam Smith’s. Ferguson, writing of the evolution of society and the institutions and norms that surround human activity described those institutions as “the result of human action, but not the execution of any human design.” You can read more about Ferguson, and his influence on Hayek.

but no single mind’s designed it

There’s magic without wizards if you just know how to find it