Tuesday, March 25, 2014

Free Enterprise Is Always Managing Change

"It is not the strongest or most intelligent who will survive but those who can best manage change."

Charles Darwin (1809 - 1882)

Darwin carved a niche for himself as someone who is respected and someone who is reviled.

The above quote, typically associated with his thinking about "natural selection," could very easily be applied to economics, and capitalism, as well.

Darwin was a reader and fan of Adam Smith.  He understood how economics creates change.  Applying this thinking to his other studies he posited the above quote.

Just as he applied his thinking of random variation and selective survival to various species, it can be applied also to economics.

Markets are complex and creative.  Markets change all the time.  Markets destroy to recreate.  Joseph Schumpeter called that "creative destruction."

It could be said that nothing is really invented, but is a recombination of what came before.  The much-read historian L.T.C. Rolt once said that the automobile was "sired by the bicycle out of the horse carriage."  If you look at the first car designs, that is very true!

Consider technology.  How long do new things survive?  How long is a program of software, for example, used before it is changed, improved, modified, magnified, or whatever?  How often do apps update on your phone?

But consider any product.  If I go to buy tires for my car, do I contact the synthetic rubber manufacturer, the vulcanizer, the tread designer, the tire producer, the shipper, the wholesaler, et al, before I make my way to a retailer to select and have my tires installed?  I don't have to!  The market does that for me.

It is exceptionally unlikely that the chemist altering the formula for synthetic rubber to make a longer-lasting tire has personal involvement with the clerk or tire installer where I purchase my tires.  He might!  But it is exceptionally unlikely.  And the chemist, or the shipper, do not do what they do to satisfy anyone in particular, but to satisfy the general demand for what they are participating in out of self interest.

These individuals in the chain of events operate entirely out of self interest.   THAT is the invisible hand of the marketplace at work.

The marketplace is exceptionally complex.  And very destructive.  Tires popular just 10 years ago have given way to the newer design, longer-tread wear, quieter, smoother-riding tires that I purchased just a couple of months ago.

And when I chose my tires, I had my pick of many characteristics and prices to choose from!

Tire manufacturing and distributing and selling companies have managed to deal with change.  And have survived.

It is all chaos to be sure.  But exceptionally-managed chaos.  Something no gubment, institution, law writer, council or overlord could ever, ever manage.

Managing change happens invisibly, naturally, continuously and necessarily -
when free markets are in charge.
Creative destruction is the natural order of free enterprise.

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