Dr. Arthur Laffer, explaining value theory to readers of his “Thinking Economically” series on the Texas Public Policy Foundation website, has it just right. And here’s how I know.
I remember those Edsel cars he talks about at the start of his essay, in which he notes the automotive public’s frosty indifference to them, as contrasted with the red-hot-wow-gotta-have-it appeal of the Cabbage Patch Doll a couple of decades later. Laffer tells us “value is in the eye of the beholder.” Oh, yes, it certainly is.
As it happened, the Edsel agency in Corsicana, Texas, set up shop in 1958 in the disused brick building my grandfather had constructed during the Roaring ’20s to house his Studebaker agency. The site lay between the Southern Pacific depot on the east and the Collin Street Bakery on the west. As the world passed by, heads so minded could take in the family name chiseled on the building’s facade – “Murchison.”
Yes, it was our second shot at automotive celebrity, even if by then we were functioning merely as landlords. It was likewise the Ford Motor Co.’s shot at broadening its market with a sedan supposedly classier – certainly more striking in appearance – than a plain vanilla Ford.
Down the Edsel’s front grill ran a narrow chrome oval – the mouth, it might have been, of a teenager caught by the Latin teacher smoking in the high school restroom. Chrysler Corp. then was touting its “Forward Look.” A wag said Edsel had achieved “The Surprised Look.”
It was all downhill from there. A couple of years more and the Murchison Building was the site of a cardboard box factory. The marketplace had had its way with the Edsel. A car that cost $400 million to develop simply…disappeared.
The Edsel was in various ways, I am told, a good auto. No matter. Few buyers wanted it. Whereas, by contrast, parents all over the country – as Laffer notes – wanted the Cabbage Patch Doll. I recall without affection those absurd looking contrivances. Having boys, my wife and I went unencumbered by request for Cabbage Patch. As if the manufacturers cared! Everyone else wanted one.
You plain can’t outguess the buying public, whose standards of value remain stubbornly, yes, even gloriously, non-quantifiable: a point that fans of government intervention never get completely through their skulls.
The ancient myth to which Laffer draws our attention is that the “right” price for a commodity depends in some degree on abstractions like cost, labor, or The Social Good. Oh, yeah? Fantasies about the “right” price shrivel and collapse, like the Wicked West of the West, whenever exposed to the actual desires of buyers and sellers.
The “right” price, every time, is that on which a willing buyer and willing seller agree in an encounter perfected by the tender of a credit card or a handful of pennies. A buyer who doesn’t want your Edsel won’t be induced at any price to acquire it. A buyer, by contrast, who truly, deeply wants a certain doll will calculate need, resources, and the present or future availability of this wonderful contrivance. He’ll buy if he wants; he won’t if he doesn’t.
Which, by the way, isn’t to declare the marketplace a morality-free zone. It’s to say that in the establishment of rewards and incentives for economic behavior we do well to keep the government – any government – at bay insofar as practicable. In the ’50s the Soviet bosses thought they knew what kinds of automobile the masses needed, and what they should pay for those cars.
The Soviet clunkers, the Edsel – who misses them? One difference, if you please, between the Edsel and the Soviet-era contraptions: It was the free marketplace, not government fantasies about public needs, that wrecked the Edsel, without corresponding damage to consumer ability to purchase a Buick, a Plymouth, a Ford Fairlane.
Art Laffer, whose faith in individual choice revolutionized our understanding of the good that comes from supply-side tax cuts, strikes again. Trust the buyer: He’ll know what he ought to pay. So will the guy with the doll or the car in the showroom window.
William Murchison is a Senior Fellow at the Texas Public Policy Foundation. The “Thinking Economically” series is available on the Foundation’s website, http://www.TexasPolicy.com.