"Kevin, why are these sandals here? Do you know why, Brian?"
Pity my poor sons. I often point out things they may have missed about markets. (Now, what teenager wouldn't love that?) Kevin and Brian are hiding behind the film display by now, because they know what's coming. Necks are craning from other aisles, and two employees peek at me from the pharmacy.
"Are these sandals here because someone in China knew that I was going to break a shoe yesterday? Did they want to provide just the right size sandal, in the perfect garish color, for a ridiculously cheap price?" (Pause) "In fact, how could anyone make a profit on a pair of 'flops at $1.89? Why don't they charge more? I'd pay more, because I really need beach shoes. Someone must really love me! There's no other explanation."
Of course, by now my sons do not love me. This next part is what they really hate. The intro differs, depending on the product, but the punch line is always the same. I go on, as if having an inner argument, "Wait... what's love got to do with it? I've never been to China, and besides these were made weeks before I broke my 'flop. It can't be love. It must be..." (pause; at least a dozen strangers' eyes are on me, my sons moaning behind the cooler) "... it must be that those people shipped these sandals here because they can make profits. And, the best part is this: They would love to charge higher prices, and there is no government regulation saying they can't charge a higher price. Nonetheless, the shoe maker and the drugstore have decided that best price for them (not for me, but for them!) is $1.89."
The boys come out from behind the cooler, because they know our work here is now done. I pay for the sandals, and notice another employee is on the phone, probably calling Child Services. We head for the car, and as we drive back to the beach house my older son says, "Good one, dad," shaking his head.
Do people do things for us because those people are good, because they love us? Sometimes they do. Your family loves you, and your friends would sacrifice things for you. But for most of us, family and friends is a pretty small group. We can't rely on just those few people for all the things we need in the world. Something other than love, and altruism, has to organize all the thousands of activities and choices we all depend on every day.
We can go to restaurants and get excellent service, and delicious meals. Your mechanic says you need brake work; you pay him $1,200 for the repairs, without physically checking in any way to see if the repairs were actually done. And when you go to Buy Mart to get a VCR, you don't check the contents of the box before you pay the cashier, using a credit card number you trust that cashier not to steal.
For more on how markets engender cooperation among strangers, see "A Marvel of Cooperation: How Order Emerges without a Conscious Planner" by Russell Roberts.
All of these actions and choices depend on the cooperation of others, people we don't know, people who might dislike us if they did know us. What keeps them from doing bad things to us? Why don't stores charge us exorbitant prices? Why don't our employers always withhold our health insurance, or cut our salaries in half, or cancel our vacations? Why do we get pay raises, instead of pay cuts? Is it because everyone loves us?
So many people I encounter, smart people, seem to believe that what makes people do good, or prevents them from cheating or acting badly, is personal integrity, good character, and regard for others. I'm not a psychologist, but I wonder if the reason is that they just have trouble with the idea of an intricately interconnected world where all of us are dependent on unknown others. How can we be dependent on others, and not be in their power?
The extended quote from Book I, Chapter I of Adam Smith's An Inquiry into the Nature and Causes of the Wealth of Nations, paragraphs I.1.10-11 of the Cannan edition, (pp. 22-24, v. 1 of the Glasgow Edition [see also the e-book pdf on OLL],) reads:
It is the great multiplication of the productions of all the different arts, in consequence of the division of labour, which occasions, in a well-governed society, that universal opulence which extends itself to the lowest ranks of the people. Every workman has a great quantity of his own work to dispose of beyond what he himself has occasion for; and every other workman being exactly in the same situation, he is enabled to exchange a great quantity of his own goods for a great quantity, or, what comes to the same thing, for the price of a great quantity of theirs. He supplies them abundantly with what they have occasion for, and they accommodate him as amply with what he has occasion for, and a general plenty diffuses itself through all the different ranks of the society.
Observe the accommodation of the most common artificer or day-labourer in a civilized and thriving country, and you will perceive that the number of people of whose industry a part, though but a small part, has been employed in procuring him this accommodation, exceeds all computation. The woollen coat, for example, which covers the day-labourer, as coarse and rough as it may appear, is the produce of the joint labour of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join their different arts in order to complete even this homely production. How many merchants and carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country! How much commerce and navigation in particular, how many ship-builders, sailors, sail-makers, rope-makers, must have been employed in order to bring together the different drugs made use of by the dyer, which often come from the remotest corners of the world! What a variety of labour too is necessary in order to produce the tools of the meanest of those workmen! To say nothing of such complicated machines as the ship of the sailor, the mill of the fuller, or even the loom of the weaver, let us consider only what a variety of labour is requisite in order to form that very simple machine, the shears with which the shepherd clips the wool. The miner, the builder of the furnace for smelting the ore, the feller of the timber, the burner of the charcoal to be made use of in the smelting-house, the brick-maker, the brick-layer, the workmen who attend the furnace, the mill-wright, the forger, the smith, must all of them join their different arts in order to produce them. Were we to examine, in the same manner, all the different parts of his dress and household furniture, the coarse linen shirt which he wears next his skin, the shoes which cover his feet, the bed which he lies on, and all the different parts which compose it, the kitchen-grate at which he prepares his victuals, the coals which he makes use of for that purpose, dug from the bowels of the earth, and brought to him perhaps by a long sea and a long land carriage, all the other utensils of his kitchen, all the furniture of his table, the knives and forks, the earthen or pewter plates upon which he serves up and divides his victuals, the different hands employed in preparing his bread and his beer, the glass window which lets in the heat and the light, and keeps out the wind and the rain, with all the knowledge and art requisite for preparing that beautiful and happy invention, without which these northern parts of the world could scarce have afforded a very comfortable habitation, together with the tools of all the different workmen employed in producing those different conveniencies; if we examine, I say, all these things, and consider what a variety of labour is employed about each of them, we shall be sensible that without the assistance and cooperation of many thousands, the very meanest person in a civilized country could not be provided, even according to, what we very falsely imagine, the easy and simple manner in which he is commonly accommodated....
The answer—markets create interdependencies without forcing subjugation, or even allowing abuse—was one of the key insights of Adam Smith in The Wealth of Nations. He said: "Observe the accommodation of the most common artificer or day-labourer in a civilized and thriving country, and you will perceive that the number of people of whose industry a part, though but a small part, has been employed in procuring him this accommodation, exceeds all computation." In advanced market economies, we are all dependent on others in ways we may not even have thought of.
Of course, I would prefer the "Everyone loves Mikey!" explanation. If I am treated well, it should be because I am special. The fact that markets create dependencies without subjugation means that I am served well for the benefit of the server; other market participants are prevented from treating me badly not by their good character but by their desire for profits.
This becomes most obvious when incentives fail to discipline sloth or iniquity. What I mean is, that markets don't always prevent all misbehavior, ex ante. Sometimes, things go wrong. But even then, the incentives of the market still come into play. Some background: I don't change my own oil. I go to the Happy Lube, or whatever they call themselves. Lube and oil change, $24, and it's quick. I could change my own oil, but it would take longer, and I can spend the 20 minutes at the Happy Lube answering phone calls or using my laptop.
Last time I went, an employee came out to my car, eating spaghetti from a dirty bowl. He said, "What do you need?"
I told him I wanted an oil change. He curtly nodded, and pointed at Bay #2. No other words. This was rather odd, as this was not the way I usually get treated at Happy Lube. Courtesy is what I expect, shining happy employees. To be honest, this guy was kind of cool. Like a Jack Black character in a movie about a downtrodden mechanic. Cocky, crusty, but with a heart of gold. Or not, as it turned out.
The oil change finished, I go up to pay. The same food-smeared Jack Black guy starts to ring up the charges. I hand him my $10 coupon. He says, "just put it down there; I'll get to it." I did.
But he didn't. Get to it, that is. He rang up the charge without the coupon. I didn't notice, and gave him my credit card. After I signed, I saw that there was no credit for the coupon. When I pointed this out, he said, "Well, there's really nothing I can do about it now. I already rang up the order. You should have said something."
So, I turned and made a brief speech (I wish my sons could have heard it) to the other customers: "What you have just seen would be a tragedy in any other country. But in the U.S., it is okay. Satisfactory alternatives, Puffy Lubes and Hinky Lubes, are located not too far from here and eagerly await our arrival, though they have no idea who we are. From now on we should all go somewhere else. Because this shop is peopled by thieves, and what you have witnessed here is theft."
All the other customers tried to pretend they were watching Oprah. Which was hard, because the TV was tuned to local news.
Jack became angry about my theft remark. He said loudly that anyone could make mistakes, that I wasn't perfect either... and so on. This was in front of other customers. By this time they weren't pretending to watch anything, except the worst employee in the history of the world. He was shouting at my back as I went out the door.
I sent a letter to the manager. He called two days later, laughing. "This is a great story. Did he actually say, 'What do you need?' " Turns out he had fired Jack as soon as he got the letter, since this was third or fourth major complaint he had gotten in that one day. This, mind you, had been the manager's first day at the new job: TO DO LIST: Day one—Fire Jack Black guy.
And, when the manager stopped laughing on the phone, he offered me a free oil change in compensation. I found this utterly charming, because it proved the manager loved me. Sure, we've never met, but I could feel the love over the phone. As for myself, I love Happy Lube. And God bless America.