Econ 101. The Auction

The following few short paragraphs provide the reader with one of the essential foundations of economic thought. It will be simple and easy to understand because it will be free from the complications and self-contradicting delusions of so-called experts who are blinded by their psychosexual need to be “stimulating.”

The economy can be accurately modeled as a simple auction, an activity that easily demonstrates the convergence of supply and demand but in terms that can be related more easily to our common experiences. In an auction, a seller offers to supply a good to the highest bidder. Prospective buyers bid against each other until there is only one buyer remaining, who, by making his final bid, sets the price of the good.

The bidding usually begins at a very low price and there are a number of persons bidding against each other for the good. The initial large number of bidders represents the large demand for the good at its initial low price. As the bids become increasing larger, the number of bidders drops, reflecting how the demand for the product goes down as the price of its supply goes up.

If there is more than one seller of the same type of good, the resulting prices will be correspondingly lower, reflecting how the increase supply of the good causes the demand to go down. In the same way that the buyers competed with each other to drive the price up, the sellers must compete with each other and drive the price down. Because the buyers have a large number of alternative sources, they can purchase the good at the price set when there was a large number of bidders in the original auction.

In the end, each seller will be forced to sell at nearly the same price, the so-called “market price” for the good. Economists graph this market price at the convergence of two lines on a “supply and demand” graph, one line representing the supply of the good and the other line, sloping in an opposite direction, representing its demand. Without the art work, it is really just an auction.

Every seller will be able to dispose of his good as long as he is willing to accept the highest bid. This is known as Say’s Law. Alternatively, the seller may exercise his option to not sell the product at the market price. The seller’s choice to not sell can be interpreted in two different ways:

1. Reasonably. The seller has just decided that, in his judgment, the good is more valuable than the money offered for it. Perhaps, it will bring a better price tomorrow.
2. Hysterically. The failure of the good to “clear the market” is a sign of economic stagnation, a recession, or even a depression.

The reasonable interpretation leaves the seller (perhaps a labor seeking employment) with the freedom to sell his product at the price and time of his choosing, eventually finding a better price or lowering his expectations and accepting the current bid.

The hysterical interpretation believes that the seller is a victim of bidders who need stimulation. Invoking the delusional teachings of John Maynard Keynes, a man who didn’t have a real understanding of auctions or other economies, the followers of the hysterical interpretation allow themselves to be the pawns of power-hungry politicians who promise to stimulate the bidders. According to these “Keynesians,” by giving everyone more money, the value of money will go down and the bidders will be willing to bid higher for the unsold good – they will be “stimulated.” Of course, this all depends upon the seller being too stupid to get as stimulated as the bidders and demand more of the devalued money for his good. The economy’s wealth remains the same; there is just more green paper.

Economics is the easiest social science to intellectually comprehend; however, it remains an obscurity because the government needs to make people believe that they can produce wealth by stimulating consumers and fooling producers.