The one great purpose of free markets in any society is the ability of that market, when left to function without interference from either government or business concentrations, is to effectively and efficiently discover convergence of price and supply points. If we take a farmer, say someone who has an orchard or apples and then let us say that this individual is intelligent enough to count the buds on the limbs of his trees, or if there are simply far too many buds to count, will use statistical processes to discover the approximate number of buds, reduce that amount by expected losses through wind and other normal factors, and come to a figure that would represent the number of apples he may be able to harvest. Further, he may use data from previous years to account for insect damage. losses from blight, and theft by children and hobos. And if he has kept good records on his business he should know at what price point he would break even and what profits might be expected at sales about that price.
Now if he sells only in his community and the scale of operations small enough he may have some idea of the demand that he might expect. Mrs Olsen always buys a bushel because she likes to put away apple sauce. Mr Adkins likes to keep a bushel handy for eating. Mrs Dobbins always takes a peck for the Halloween apple bobbing contest. And so it continues as our farmer tries to match possible inventory to likely demand. On the other hand he may not know that Mr Norton lose his job as a city sewer worker and will not be buying apples this year since he has no income. Mr Daniels, who normally buys two barrels every year was arrested for making illegal apple jack and won’t be buying apple for several years. On the other hand his son might wish to continue the business because it was the only source of income for the family. I use this homey example to make the point simple. The discovery of price and quantity is what supply and demand is about in the economy. Unfortunately we find that all too often there is government interference. This may be in the form f a business license requirement, health inspections payed by the producer, by the distributor, and by the retailer. There may also be taxes on the apples, further inflating their price. Then there is the indirect interference through the use of zoning laws, vehicle requirements and weight restrictions, water assessments for private wells, and the like. We can see that there are a good many items that interfere with this form of discovery. On the other hand the whole town could form a food buying cooperative and force our farmer to sell at or below his cost if he had no other prospective customers. Think of Walmart and its buying power.
But generally this discovery process works well enough. True, there may be some dislocations to the process but supply and demand work. The markets transmit the data of supply and demand to both buyers and sellers, producers and consumers, everyone who has need of such knowledge. Markets determine who gets what, where, when, and how. The problem comes when those, who for a political reason of dumb theory decide that goods and services should be dispensed by the state without regard for the market process. Let us take the case of toothpaste. How much toothpaste does the average individual consume each day, each month, each year? The market would give you a reliable answer, but in a state run economy one would have to do surveys on a sample population and even then such results may not be better than an accuracy of 90%. In a large country that is a lot of tooth paste. The market also tells us where the bottlenecks in our distribution are and provide us with enough date to remedy that situation. Remember, the production of toothpaste shares resources with other goods and services. Price tell us whether we are efficient in making toothpaste or if we have allocated too many resources to its making. Production charts will not give us that kind of information.
Enter Maduro, the successor to Chavez in Venezuela. First Chavez and now Maduro continue to interfere with supply and demand in a number of ways. Subsidizing the poor through official product prices without regard to actual cost is one very intrusive method of interfering with supply and demand in a market. Paying a great deal out on social welfare is another since it distorts demand by increasing it. If everyone needs the basic food to survive, then giving individuals sums of welfare money only increases demand which increases price if demand can’t be met. Thus, every time Chavez or Maduro has interfered with the markets, prices have increased while supply has diminished. And trying to make the producers and the suppliers the scapegoats has only produced shortages. One of the problems is that Venezuela is not self sufficient. It doesn’t have the paper mills to turn out the amount of toilet paper needed to keep the country clean. Maduro has mismanaged the FX accounts to the point that inflation is excessive. There is an official world rate for the Bolivar, there is local rates, and finally, there is the black market rates. All three are totally distorted. But the final crowning glory is that the Pope is expected to name Maduro a true defender of the faith. He has managed to increase the price of a box of condoms to over $755 a box. Simply put, condoms are not being imported because no supplier can pay for the import. He has promised to start a condom factory so as to be able to protect the country’s boys and youth against capitalist pronogrophy. We, what the hell, you got to wait in line for bread, wait in line for toilet paper, wait in line to take a dump, and not wait in line to have sex. Humm…how’s that working out down there?