Certainly, we should not make fun of those trying to make the world a better place and we won't do so with Chittagong Deputy Commissioner Elius Hossain who urged onion traders to only make a “just” profit.
We will not make fun of the person but just use the statement as an example of getting economics entirely and wholly wrong. We want the onion traders to make as massive a profit as they can, assuming that they remain within the bounds of the law of course.
It is often pointed out that economics is amoral -- rightly so.
One of the major reasons being that it's not a normative science, telling us how things should be. Rather, it's a positive one, telling us how things are.
A crucial aspect -- the price system -- which is not there to enforce any particular result nor the notion of fairness but rather just to tell us how much of whatever is out there, and how much do people want.
If there are fewer things than what people wish to consume then we desire the price to go higher, if more then lower. Because that is then the information that flows through to all consumers and all producers.
Consider what happens if large profits are being made from high prices. Here, onion farmers will look at market prices and rapidly begin to calculate the profits that could have been made by themselves if only they'd planted more onions a few months back.
So, what do they do now? They plant more onions for the next harvest. This brings prices back down again -- in time, of course.
We also know that farmers do this, for we can readily observe that high prices for the last crop lead to greater supply of the same comestible in the next harvest. This is why farm output “yo-yos” up and down so much -- in a pattern that's been repeating for millennia.
Similarly, high prices make consumers purchase and use less of the item in question. Sure, onions are a vital part of the cuisine but still, it's entirely possible to go light on the onion bhajis and heavier on bhindi bhajis, for example.
And in a time of expensive onions, when there is a shortage, we'd probably like to be urging menu planners to do that. A high price performs that task for us.
Thus we don’t want people to moderate their prices in a time of dearth at all, we want those prices to be as extreme as the market will bear so that producers are incentivized to deliver more.
Yes, we can start to say that food is different because it takes time to grow. But we also have that possibility of trade and that's a much faster solution. It is vanishingly rare that growing conditions -- presumably the cause of the shortage and price rise in the first place -- deteriorate in all growing regions around the world at the same time.
So, we want price movements and profits -- those are the very things that reduce the shortage. On both sides, supply and demand.
There is a deeper point here as well. That very concept of a “just price” stems, in English at least, from St Thomas Aquinas, who was the cleric who reintroduced Aristotle into philosophic discussions. This was a dead end for economics, sadly, as it attempted to be that normative delineation of value.
There was, is, some “just” value to an item. One which, according to Aquinas, it is sinful to charge more than. The belief in God's justness here is as you wish to believe but the argument that there is some knowable, even un-knowable, absolute value to anything is simply incorrect. It always depends upon the supply and demand of the good.
Take something as simple as water. We cannot say that a litre of water is “worth” Tk20. Or any other number at all. It depends. The middle of summer, a hot day at the beach, and we'll willingly pay that and more for a cold bottle. The middle of the monsoon and the same water's flooding the basement and we'll happily pay people to pump it out -- it now has a negative value.
Value always depends. Which is the one thing that morals and moral values don't.
Yes, we entirely get the point that the deputy commissioner was making. It's really saying “don't be unfair.” Which is an excellent guide to a happy life but it's not how we want prices to be set. For there is no fairness about prices, they are simply information.
And it's only if we get the full and correct information about what is happening that we can go solve the problem.
Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.
