Lessons in a Supermarket
FEBRUARY 01, 1989 by JOHN A. BADEN, RAMONA MAROTZ-BADEN
Dr. John Baden is Chairman of the Foundation for Research on Economics and the Environment (FREE), with offices in Dallas, Texas, and Bozeman, Montana. Dr. Ramona Marotz-Baden is a Senior Associate of FREE and a Professor at Montana State University.
Bozeman, Montana, a town with 30,000 people, contains a modest supermarket that offers valuable lessons. This store has tens of thousands of items of various sizes and brands, genetic labels, and bulk products. Competition for the consumer’s dollar occurs among this and other stores, among brands within the store, and among different products within individual brands.
Information regarding consumer preferences toward items in this huge mix of products is continuously generated by a simple procedure. People make decisions, a process with which we are all familiar. Consumers take their selection of products to the check-out line. There, check-out clerks tally the price and automatically enter information about the sale on the store’s computer by passing the product’s bar code across a scanner.
Among the stores in Bozeman, as elsewhere, the shopkeepers compete in offering differing mixes of service and economy. Even the checkout lines vary in lengths and the degree of service. Each self-interested grocer seeks to attract and satisfy consumers holding varying degrees of wealth, economic sophistication, nutritional knowledge, and body-type preference associated with differing food groups.
Competition responds to differing consumer preferences for health, economy, convenience, and vanity. In these stores we see people as diverse as ranchers who survived the dust bowls of the 1930s, refugees of the counterculture of the 1960s who look like they are in a time warp, Park City blondes from Dallas summering at Big Sky, and neo-Spartan hedonists of all ages who bounce among Montana’s ski slopes, white-water rivers, and mountain trails. We find them all in Albertson’s at the University Mall.
Individuals representing all of these diverse types shop cheek to jowl, sample ice cream and fajita strips in the aisles, and peacefully shuffle through the check-out lines at the supermarket located between the Bonanza Steak House and Yogi’s Vegetarian Bakery. The stores and suppliers who fail to satisfy are passed by in favor of those who offer more attractive products.
This selection of winners is determined by voluntary transactions. The losers gradually lose shelf space. Ultimately they either improve their products or lose out and pass from the scene. The consumer really is sovereign. The market registers his preferences and automatically makes the adjustments which harmoniously reconcile demand with supply.
This process is quite remarkable. It demonstrates that the market is best understood as a system which organizes information with truly amazing efficiency and effectiveness. At root, the market is a social arrangement which efficiently generates information about peoples’ wants and reservations while providing incentives to heed the preferences of others. It is a system which economizes on the information required to make rational decisions.
The recent well-intended but thoroughly pathetic Soviet efforts at economic reform offer a valuable lesson. The Soviet Union’s failing attempts to mimic the market’s ability to respond to consumers’ wants demonstrate the importance of allowing buyers and sellers to communicate freely. They also teach us how difficult it is to coordinate economic activities when people are not allowed to communicate.
Price controls prohibit buyers and sellers from communicating their true preferences with one another. Thus, price controls are best understood as a form of censorship. Fortunately, they are rarely found in their worst form in American supermarkets. That is why these stores work so well.
Despite their success in meeting citizens’ demands, however, supermarkets are often criticized. Some people object to products with a lack of fiber, some to products with an excess of sugar. Some oppose plastic packaging or advertisements that appeal to children.
In this setting offered by a free and open market system, each can satisfy his wants without imposing his preferences on others. In this manner, diversity, freedom of choice, and innovations are all encouraged. In this imperfect world, we can hardly ask for anything more. Yet, there is another huge advantage we normally take entirely for granted.
Surely the store in the mall provides a model for efficiently responding to diverse and rapidly changing preferences. But this efficiency, marvelous though it is, is only the minor miracle. The benefits of harmonious interaction fostered by market exchange in accordance with the rule of willing consent are even greater.
Market exchange, subject to willing participation by full-facultied individuals, permits people with radically differing views to peacefully coexist. In Bozeman we find a substantial number of hard-core vegetarians. They can shop peacefully and amicably with rancher and logger meat eaters who consume vegetables only as a concession to their health.
Bozeman is also a national center for tee-totaling Seventh-Day Adventists. The supermarket accommodates their preference for nonalcoholic wine, and they shop harmoniously with those whose nightly ritual includes a bottle of French wine. This peaceful interaction occurs only because all transactions are voluntary. Imagine the uproar if the decisions to permit the selling of wine were determined in the political arena.
Nearly all analysts who have seriously studied the free market agree that the market promotes efficiency, diversity, and innovations which respond to consumers’ changing preferences. Few, however, appreciate the degree to which private property rights and free exchange foster harmony and peace. This set of social arrangements renounces coercion as a means for making choices. These arrangements enable people who feel strongly about such issues as vegetarianism or prohibition to coexist constructively with people holding antithetical views.
This great benefit of market exchange is often neglected or underrated. Essentially, markets economize on that most scarce resource, love in the Christian sense of the term.
What if the stocking of a grocery store were determined politically? Think of the fights between vegetarians and meat eaters; the teetotalers and those who enjoy wine with dinner; the granola organics who argue against pesticides and the farmers who find chemicals useful; the populists who are strongly opposed to corporate agriculture and those with an interest in these firms; employed mothers who want the stores open 24 hours a day, seven days a week, and the fundamentalists who believe they should be closed on Sunday.
Fortunately, we have pretty much kept these decisions out of the political arena. People make decisions and exercise their consciences instead of imposing their preferences by using the force of the state. Peace, progress, and efficiency are the result we have learned to expect.