by Joe Kernen
And it was. The gins of Gujarat, India, where the cotton in Scott’s shoelaces comes from, are more than just bigger, higher-powered versions of Whitney’s original; modern cotton-stripping machines pound the cotton with rollers, bats, and brushes and knock the cleaned bolls onto a conveyer, but the principle is the same. The shoelace manufacturers don’t need to know much about growing cotton, though, any more than the cotton farmers need to know how to make a shoelace.
They do have to know how to raise a crop of cotton bolls before bollworms—moth larvae, an even bigger threat today than the boll weevil that terrified cotton farmers in the early part of the twentieth century—can eat the profits right out from under them. Spraying cotton plants with insecticides, though, has a lot of nasty side effects, which is why some really clever chemists came up with a new variety of cotton that modified the plant’s DNA so it could produce a bacterium with the tongue-twisting name B. thuringiensis. No central planner told the folks at Monsanto to come up with Bt cotton,17 and neither the cotton farmer not the shoelace maker really knows—or needs to know—how they did it.
Cleaning cotton is only the first step on the way to Scott’s shoes, though. Those two- to three-inch-long fibers need to be twisted, or spun, at an angle into a much longer and stronger thread, or yarn. The yarn then needs to be woven—with polyester filaments, about which more below—into the quarter-inch-wide strings that can eventually hold a shoe on an eight-year-old foot.
Indian cotton workers have been using spinning wheels and spindles to spin high-quality cotton for centuries—so much so that Great Britain passed laws in 1700 and 1720 to prohibit imports of the stuff from its own colony. But India’s productivity advantage (essentially a really huge labor force; a lot of India’s productivity still depends on its population) had vanished by the late eighteenth century, when a bunch of British inventors came up with a whole raft of inventions to automate the spinning and weaving process: the spinning jenny, for example, a spinning wheel turned on its side, operating multiple spindles simultaneously, and powered by either water or steam. Or the “mule,” which tied a spindle carriage to a loom, or weaving frame, and was therefore able to convert cotton into cloth in one powered operation.
India’s cotton producers got the message, though not as a result of central planning. The country is now covered with cotton mills that use the latest version of this technology to produce thirty-five million bales—a bale of cotton is about five hundred pounds—annually, for everything from sailcloth to underwear . . . to shoelaces.
Of course, the woven fibers that will eventually become Scott’s shoelaces wouldn’t really pass muster unless we could buy them in a color he found appealing: bright red. The manufacture of dyes that are used to turn the dirty-white color of the natural cotton into something that could be used on a fire engine is a pretty huge industry itself. The Gujarat plants that supply the dye—“direct dye,” which bonds chemically to the cotton fibers—to the neighboring cotton mills are, like the farmers planting genetically modified seeds, the inheritors of thousands of years of applied science. Also, they don’t care about shoelaces, but they love vivid colors. Come to think of it, just like Scott.
But neither the cotton farmer nor the mill worker (nor the manufacturers of the picking, spinning, or weaving equipment, much less the inventors of the original technology behind Bt cotton or the automated looms) actually has any interest in shoelaces. Each of them performs a single indispensable function and neither knows or needs to know anything much about the stuff everyone else is doing.
“So, Scott, now that you know how cotton balls get turned into the kind of fabric that we’re going to make your shoelaces from, I’ve got another question for you.”
“Okay.”
“How many people, do you think, does it take to just grow, spin, and weave the cotton?”
“Five thousand? No . . . five million? No . . . a billion!”
“Let’s just use the small number for now. What that means is that five thousand people get up every morning and go plant or pick or spin cotton, some of which is going to end up in your shoelaces. My question is: How do they know what to do?”
While some shoelaces are made out of 100 percent cotton, Scott’s are made out a combination of cotton and polyester, which is one of a whole lot of products we call “synthetic” but whose raw material was originally organic: crude oil.
Here’s how it works: The oil that’s pumped out of the ground—in Saudi Arabia, for example—is like a really complicated stew, the ingredients of which are valuable for something used in making a pair of shoelaces. The “lightest” parts (the ones that are lightest in color are the ones with the most carbon) are the easiest to burn, so they’re turned into the gasoline that powers the trucks that carry the components of those simple laces (also the aviation fuel used on airfreight carriers and the diesel used by ships and trains). The darker parts, though, are just as important. Making the molecules that will turn into the polyester that is combined with the cotton in Scott’s laces is the job of both the refineries that “unmix” the stew (the process is called “fractional distillation”) and the petrochemical plants that take the heavier parts of the crude oil and turn them into propene, and eventually polyester.
“So, Scott, where do your shoelaces come from?”
“Arabia?”
Not yet, they don’t. The petrochemical plant where the polypropylene is manufactured is in China, in a place called Jinjiang City. The thousands of people who work in the plant wear shoes, of course, but they don’t have to know that part of their job is making the stuff that will be attached to the shoelaces that keep the shoes on their feet. They just have to know that there’s a buyer for their plastics and a seller where they can, in turn, buy their raw materials.
“How do they know what to do?”
“Do you think someone is telling everyone what to do, Scott?”
“Yeah! That’s it.”
“Who?”
“The president? No . . . the richest man in the world?”
“Neither one. In fact, no one is telling them what to do, or rather, everyone is telling everyone what to do.”
“I don’t get it.”
Those shoelaces weren’t, of course, just hanging on a shelf all by themselves. They were attached to a piece of cardboard that told us how long they were, how much they cost, and who made them (and, luckily for me, where they were made).
The cardboard didn’t come from Arabia or China or India, though. That piece of the story took us to a pulp mill in Canada, where trees are turned into paper. Those shoelaces, therefore, are indirectly depending on hundreds of other machines: In pulp mills, debarkers remove the bark from trees, chippers turn the remaining wood into usable sizes, and digesters use chemicals to transform the chips into something resembling wet oatmeal. And then, in the paper mill, a single machine uses rollers, dryers, and formers to convert the wet oatmeal—okay, the slurry—into all kinds of paper—in the case of Scott’s shoelaces, cardboard.
By now, the yarn, plastic, and cardboard have traveled just about halfway around the world, encountering thousands (at least) of people operating different machines at just about every stop. I suppose someone could make a shoelace or a shoe—or even Leonard Read’s pencil—by hand. No one does. There are literally thousands of different machines needed, from the cotton harvesters (which not only pick the cotton bolls but also remove their seeds) to the automated spinning and weaving machines that turn it into yarn and cloth. Then there are the oil derricks and pumps that extract oil from under the sand and the fractional distillers that turn crude oil into dozens of different products: fuel to operate the trucks, ships, and trains that transport every item needed for Scott’s shoelaces, and also the detergents that clean them and the plastic used for the polyester in the fabric. Other machinery is used to turn trees into cardboard and cotton/polyester into yarn.
None of the people who manufacture (or even operate) those machines know much about anything b
ut their own little piece of the operation, of course. They don’t even know anything about the equipment by which the steel used to make them is made from the iron dug out of mines all over the world and melted into something called “pig” iron: the open hearths, blast and arc furnaces, and rolling mills. Scott’s shoelaces even need machines to make other machines: lathes, shapers, grinders, and dozens more (most of them now operated by computers, but you get the idea).
Up to this point, however, Scott’s five thousand (or one billion) workers have been sort of laboring in the dark. Only at the last stop—the shoelace factory—do people really see the final product. That’s where shoelace-braiding machines, each of which looks like a really big wagon wheel laid on its side, weave those polyester-cotton yarns from India together like ribbons round a maypole. A long string—a very long string—emerges from each machine every twenty seconds or so.
Then a different machine puts acetate tips—which I’ve just learned are called aglets—on them.18 It dips the braided strings in a solvent called acetone (yet another petrochemical made from polypropylene), heats the acetate, and wraps it around the braids at intervals that are the length of Scott’s shoelaces. What comes out the other end is a long piece of shoelace with a transparent acetate band every few feet, and when the bands are cut in half, so are the braids. Presto: shoelaces.
One more machine later—the pairing machine—the shoelaces are wound into pairs, sent to the blister-packing machine, heat-sealed in plastic (more petrochemicals), put in boxes (more cardboard), and sent to a loading dock, where trucks pick them up.
“Got it now?”
“Nope.”
“What don’t you understand?”
“How can everyone tell everyone else what to do at the same time?”
I sometimes think that Scott’s question underlines the biggest difference between Progressives and free-market conservatives. The idea is pretty counterintuitive, after all: How can such a system function at all, much less provide the abundance that permits, for example, a pair of shoelaces to be available wherever and whenever anyone needs them?
The key is information: Information is what allows a cotton farmer or oil refiner or lumber mill to decide how much they should be selling to the dozens of manufacturers who eventually use their raw materials to make a pair of shoelaces. Scott’s notion—that the president or the “richest man in the world” can provide that information—is, essentially, the argument for socialism: Government bureaucrats can do the job best.
Now, I know that Progressives aren’t all, or maybe even mostly, socialists, but that’s a little like saying that they only have a chronic head cold instead of tuberculosis. When it comes to the economy, Progressives have a reflexive distrust of the market, and for the same reason that Scott does: They believe that it’s just as sensible to trust an economic system designed and operated by no one as it is to be a passenger in a car without a driver. Progressives, who are reliably hostile to the idea of intelligent design in human evolution, are positively ecstatic about it in economic planning.
Of course, intelligent design in biology at least argues that the designer is divine and resides in heaven; in Progressive economics, it just assumes that the designer has a PhD and lives in Washington, DC.
The counterargument—that economies not only don’t need a designer but do better without one—is that prices and information are, essentially, two ways of talking about the same thing. This is because cotton or oil or wood can only be compared in terms of the money someone is willing to pay for them. When farmers decide how much cotton to ship to the mill that will, eventually, turn it into the yarn in Scott’s shoelaces (or, for that matter, how much cotton to plant, as opposed to some other crop), they get the information they need from the price that the cotton can command.
More than sixty years ago, the political philosopher Friedrich Hayek19 showed that prices, therefore, were a kind of index to all the local and personal knowledge about what people want. He called this self-organizing system catallaxy: “the order brought about by the mutual adjustment of many individual economies in a market.”
Well, he wasn’t always a very good phrasemaker, but the idea is more important than the word.
“Think of this another way, Scott. When you want to buy a new video game—”
“Spider-Man?”
“Okay. Spider-Man. When you go to the store, and you want to buy one, but they don’t have a copy for sale, what happens?”
“They get more copies?”
“Right. From where?”
“Activision!”
“And what does Activision do?”
“They make more?”
“They do indeed. Your wanting the game is how they know how many to make, but they only know if you offer to pay for it.”
“Okay.”
“But now imagine that even more people want another game from Activision, like Call of Duty. Now they can only make so many copies, so they have to use all this information to decide whether to make more copies of Spider-Man or Call of Duty—and maybe they don’t make enough copies of Spider-Man.”
“Not fair!”
Sigh. Well, that’s why the Progressive agenda still has so many supporters, despite a century’s worth of experience with central planning (North Korea, anyone?). To anyone who wants what he wants when he wants it—and at the price he wants—the market can seem a little, well, unfair.
But everything seems unfair to someone. To me, a fair exchange is one where the thing I sell is worth more than the thing I buy—and vice versa. The more things everyone has to freely buy and sell, the fairer the system is.
A free market produces just about everything more efficiently than any other system, but it might be that the most important thing it produces is information: It turns out that millions (or billions) of people choosing where to spend their money creates a gigantic pool of information that millions (or billions) of people can use to choose where to invest their labor and resources. The way to produce the kind of abundance that makes $3 shoelaces and $50 video games available is actually pretty simple, though hard to understand: Just get out of the way and let the information flow both ways, in the form of price signals. That’s how the self-organizing magic works.
This is what Adam Smith had in mind more than two centuries ago when he described the “invisible hand”—you know, the one that produces infinitely more than any visible one. Here’s how Smith put it: Every individual is led by “an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. . . . It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest”
Or as Leonard Read ended I, Pencil:The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society’s legal apparatus remove all obstacles the best it can. Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand.
You bet. No matter how much evidence you muster to show that leaving “all creative energies uninhibited” is why the modern world is so much more prosperous, healthier—just plain better—than at any other time in history, you’ll still find a lot of people inventing new and exciting ways of inhibiting them. You can’t buy Scott’s shoelaces for a couple of bucks because of central planning or taxation or regulation. They exist, like every other thing we buy, because millions of people—farmers, engineers, truckers, miners, and everyone else—are free to communicate their wants and needs to one another and to respond to them in the most efficient and inventive ways they can devise.
That’s the real magic of free markets.
CHAPTER 5
December 2009: WALL-E -conomics
December 2009 is best remembered
in the Kernen household for Blake’s tenth birthday and the opening of James Cameron’s megahit movie Avatar. Both events got us thinking about what you can learn about the free market by watching TV and movies. It isn’t what you think.
People who work in and write about the movie and TV business tend to refer to it as the Industry—capital “I,” if you please—which is pretty irritating, but not wrong. Filmed and televised entertainment generates more than $30 billion annually in the United States alone and is one of America’s most profitable exports. Even those of us on the far outskirts of the world of Dancing with the Stars and CSI benefit from the enormous infrastructure—from the fiber-optic cable that transmits signals to the thousands of skilled craftspeople who capture images and sound on film or tape—created to compete for the attention of the country’s 115 million households, both at home and in movie theaters.
Which is why the general attitude of the producers of filmed and televised entertainment toward business seems, to me anyway, mystifying. TV and movies don’t just bite the hand that feeds them; they chew it into something that resembles hamburger.
This would be just a curiosity if it weren’t for one thing: People believe what they watch. A recent study suggested that more than three-quarters of Americans get their primary information on business from television—and CNBC aside, TV isn’t very happy with the way business is practiced. A survey of more than one hundred primetime programs over the course of two seasons revealed, for example, that businesspeople commit four times as many crimes as gang members and five times as many as terrorists. Businesspeople committed as many murders and kidnappings as drug dealers, child molesters, and serial killers combined. I’ve met my share of ruthless businesspeople, but when I walk down a dark alley at night, I’d actually feel less nervous if I knew the sound of the footsteps behind me was being made by wingtips.