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It's a Wonderful Loaf

Intro

Much of our daily life is the result of plans we make, followed by actions we take. If I want clean dishes, I have to intend to do them and then actually execute that plan using soap, water, and a sponge, or a dishwasher. The same is true of raking the leaves in autumn or shoveling snow in the winter. Or taking a trip to see a friend. Or changing careers. To make these things happen, we have to take charge. If we just sit back and wait for the dishes to climb into the dishwasher, we will wait for a very long time.

Some things in our lives happen on their own without any person’s plan or action. No one has to lean into the curve to keep the earth on its orbit around the sun. I don’t have to remember to breathe when I wake. I don’t have to plan on sweating while I exercise. These things happen naturally without any intention. They are part of our natural world and we take them for granted.

But there is another category in our lives—things that are caused by humans but that aren’t the results of anyone’s intention or plan. The price of housing is higher in Washington, DC than in Wheeling, West Virginia. No one decrees that difference. But if you move from Wheeling to Washington you will find your rent is higher as if it were a law. Wearing shorts and a t-shirt to a funeral is a bad idea even on a hot summer day but who wrote the memo that makes that clear?  On weekdays in major cities, people slow down at rush hour though every driver would prefer a different pace. These outcomes emerge from the individual actions of our fellow human beings but no one is in charge to steer them.

A pattern that emerges without coordination is called an emergent order. These bottom-up patterns often look as if they are designed or intended, but they are not.

The variety and availability of bread at decent prices in cities around the world is an example of emergent order. The variety and availability and the pattern of prices emerges from the interactions of the enormous number of people who want to eat bread or bake it, along with the multitude of people who use flour for some other purpose or who are allergic to gluten, or who want trucks to deliver pizza rather than bread and so on. Somehow, the actions of all these people fit together even though no one actor in this economic drama is in control. Day after day, the drama unfolds without a director or a script.

Emergent order doesn’t mean there is anarchy. The government’s legal system and public infrastructure underpin the process that allows the interactions between buyers and sellers to create the order that feeds the citizens of a great city. But there is no bread czar. No minister of flour. No wizard of wheat. Yet, somehow, my desire for rye doesn’t stop you from getting whole wheat. Your desire for whole wheat doesn’t make life hard for the pizza lover. And there is beer made from the same grain to go with the pizza if you want it. The harmony of our daily lives happens without anyone being in control of the overall outcomes.

It would be something of a miracle if such a bottom-up system, undesigned and unplanned by any human hand to achieve the ends it actually achieves, could do anything nearly as well as a system designed from the top down to achieve the same results. Yet something crazier is the case—the bottom-up system often outperforms the top-down system. Of course this isn't a general rule—there are many results where a top-down approach is necessary to achieve a desired outcome. Think of national defense or pollution control for example. But that uncoordinated specialization and cooperation can emerge to satisfy the hunger of millions without centralized control has been a source of wonder going back to at least Adam Smith and his contemporaries.

The economist’s short-hand phrase for this phenomenon of bread being plentiful throughout a populous city is “the market for bread,” represented by a supply and demand diagram. While this representation is inevitably a crude simplification, it can help us understand the ways in which the price and quantity of bread respond to changes in the desires of buyers and the constraints facing sellers. Supply and demand can also help us understand the effects of various government policies—price controls, taxes, subsidies. This blackboard approach to emergent order has the great attractiveness of simplicity. There is much to learn from it. But it fails to capture the full richness of the process.

“It’s a Wonderful Loaf” is my attempt to capture some of what is magical about bread and other examples of emergent order. The following essays, books, videos and podcasts continue that exploration for those who want to go deeper into the idea of emergent order and its application to economics. Many of these resources are embedded in the annotated text of the poem. On this page you can see them all (and a few more), organized by medium. Enjoy.

Read
Further reading

The ideas in “It’s a Wonderful Loaf” build on ideas from Adam Smith, Frederic Bastiat, and F.A. Hayek. Enjoy their bios and these essays that go deeper into the idea of emergent order.

Bio of Adam Smith
10 min read
Bio of Frederic Bastiat
2 min read
Bio of F.A. Hayek
8 min read
Frederic Bastiat marvels that Parisians sleep well without a food czar
9 min read
“The Use of Knowledge in Society,” by F.A. Hayek
26 min read
While accessible to a general audience, this is a deep and challenging essay from 1945 written in the way economics used to be done. I’ve read it many times and always find it thought-provoking.
“How Markets Use Knowledge,” by Russ Roberts
11 min read
My attempt to take Hayek’s 1945 essay and put its insights into a supply and demand framework. Includes some questions to test your knowledge.
“I, Pencil,” by Leonard Read
11 min read
Read’s classic pamphlet making the point that no one has the knowledge to make even the simplest of products, the pencil.
“I, Pepsi” by Russ Roberts
5 min read
My riff on Leonard Read’s piece using the example of a soda. An immense amount of cooperation that somehow goes smoothly without top-down coordination.
“Where Do Prices Come From?,” by Russ Roberts
14 min read
Where do prices come from? The answer seems obvious: the sellers decide what to charge for their products. But is that really true? This essay explores prices as an example of emergent order.
“The Reality of Markets,” by Russ Roberts
12 min read
An introduction to the idea of emergent order—that there are orderly patterns that are the product of human action but not human design
“A Marvel of Cooperation: How Order Emerges Without a Conscious Planner,” by Russ Roberts
14 min read
This essay grows out of the insight of Bastiat about Paris—somehow there is an incredible amount of unseen and unnoticed cooperation that feeds a great city. The essay captures the underlying ideas of “It’s a Wonderful Loaf.”
“The Ultimate Chain Letter,” by Russ Roberts
9 min read
So much of what we enjoy in life comes from strangers. What creates the trust that underlies these relationships, what Hayek calls the extended order of human cooperation?
“Profits vs. Love,” by Russ Roberts
6 min read
What incentivizes us to take care of one another? Is there enough love to go around as a basis of human cooperation? In this essay I argue that money and love can work together to motivate us to do good deeds.
“Rinkonomics: A Window on Spontaneous Order,” by Daniel Klein
12 min read
Dan Klein uses the metaphor of a roller skating rink to understand how order that emerges compares to a top-down process.
The Price of Everything by Russ Roberts
Read time varies
My novel on emergent order—how unseen forces create economic opportunity and the harmony in our everyday lives.
Watch
Related Videos

Enjoy videos and talks that dive into emergent order, the invisible hand, standards of living and more.

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“200 Countries, 200 Years, 4 Minutes,” with Hans Rosling
4:47
Hans Rosling’s gorgeous visual story of how the standard of living has been transformed around the world.
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“How Do Schools of Fish Swim in Harmony"
6:06
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“The Real Invisible Hand: Hayek, Smith, and Emergent Order," Speech by Russ Roberts
1:08:49
Adam Smith used the phrase “invisible hand” only three times and never in the way we mean it today—of how bottom-up choices by individuals can turn out surprisingly well without top-down command and control. Yet Smith did understand the latter phenomenon and wrote about it best when discussing the emergence of morality and social norms. I explore Smith’s ideas (and Hayek’s) in this talk.
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“The Weaver of Dreams,” Speech by Russ Roberts
1:12:43
This talk is a wide-ranging look at how our choices fit together without a weaver of dreams—someone or some group worrying about how goods and services get allocated. Examples include language, the division of labor, and the number of sushi restaurants in Biloxi, Mississippi.
Listen
Podcasts

A selection of talks that support the economic ideas presented in the poem.

Vernon Smith and James Otteson on Adam Smith
1:04:38
Otteson and Smith discuss the big Smith, Adam, and the differences and similarities between his two books, The Wealth of Nations and the Theory of Moral Sentiments.
Deborah Gordon on Ants, Humans, and the Division of Labor
1:06:09
Ants create incredible order and solve problems without top-down coordination. The lessons are applied beyond ants to the division of human labor.
Matt Ridley on the Emergence of Everything
1:09:51
Ridley applies the lens of emergent order to nearly everything.
Ponder
Check Your Knowledge

Test your knowledge and go deeper into specific concepts presented throughout the poem.

1. Is bread cheap or expensive? The ingredients for a loaf of bread are only a fraction of the price. Therefore you are better off baking your own bread--you'd save so much money over the course of a year. What is missing from this argument?

2. The beginning of the poem asks the question--who takes care of me and you? What is my answer? Does this answer comfort you or disturb you? Why?

3. When I say “of course the results never perfect, but the system’s organic alive,” what do I have in mind? How does this line relate to the Econ 101 concepts of supply and demand, and equilibrium?

4. People in Athens, Jerusalem, Saigon, Warsaw, as well as New York, London, and Paris live in countries where the government’s role in the economy is very different. The level of taxes and government regulation is different. So is the amount of economic freedom. Yet I’m pretty sure that in all those cities you can find bread every day at a decent price and some pretty good choices of different kinds of bread. Yet that isn’t true right now (in 2017) in Caracas, Venezuela. What are the key ingredients (sorry!) that allow for different kinds of bread to be widely available at a decent price in a big or small city? What does the poem say is the answer? Do you agree?

5. Why is "the freedom to shop where you want" an important key to the process that makes bread plentiful and relatively inexpensive?

6. Is it really such a big deal that your bakery almost always has plenty of bread?

7. If it takes dozens if not thousands of people to create a loaf of bread, why isn't it really expensive? Don't each of those people need a share of the final price paid by the customer?

8. Super Bowl Sunday is the biggest day for pizza sales in the United States, yet pizza makers don't get all the flour. How is that all the other products that use flour--bread, pasta, cookies and so on--are still available that day?

9. Super Bowl Sunday is the biggest day for pizza sales in the United States yet the price of pizza isn't higher that day. The price of other things that use flour are also priced normally. Does this refute the law of supply and demand?

10. Over the course of a year, a particular amount of wheat is grown, a particular amount of flour is produced from that wheat, and that flour gets divided up between all the different products that use flour. Who decides the amount of wheat and flour produced in the Unites States in a year? Who decided how the flour gets shared?

11. I say the supply of bread is big enough "to match up with demand." Is this true? Is there almost always too much supply with bakers throwing away bread or discounting the price because of too much production? Does this mean the process is inefficient?

12. I argue that "over time, fewer people go hungry." Is this true? If it is, is there any relationship between this truth and the forces underlying the production of bread?

13. What does the poem mean when it says: "But somehow their plans fit together with the highest degree of precision." Why is this so impressive? Can't a baker just tell her suppliers what she needs?

14. Walter Williams likes to say that he doesn't tell his grocery store when he's coming, he doesn't tell the store what he plans to buy or how much. But if they don't have it when he gets there, he fires them. What part of the poem captures Williams's point?

15. "The system's organic alive." What does this mean? In what system is the process that bring bread to a bakery organic and alive?

16. In what sense are the participants who create a market for bread anything like a school of fish swimming through the ocean or a flock of geese heading home in the spring? In what sense are they different? Why do I bring those examples?

17. Thinking about the availability of bread (and coffee and garlic and fresh-cut flowers and shirts and sushi and haircuts and inexpensive clothing) might make you grateful. Based on the poem, who should you thank?

18. In textbook microeconomics, perfect competition is often described as requiring a homogeneous product, perfect information on the part of consumers and lots of sellers. Does bread fit this model? Does it matter?

19. “How could he know how much to make of each kind every day?” Couldn’t the minister of bread do a survey of what people want? What would be the challenge of doing a survey and using it to determine how much to make of each kind of bread? How would the process change when people’s preferences change or there is a drought in the midwest that reduces the supply of wheat?

20. Read this article on the rise and fall of sliced, sugar-heavy white bread. Why did the market for white bread shrink? Who made sure that new alternatives came along?

 

Check Your Knowledge on the Following Questions:

21. Why do bakers get up early?
22. Why do bakers get up early?
23. Why can't a bread czar outperform the decentralized bottom-up market for bread?
24. Who sets the prices of bread in most cities around the world?
25. When people became aware of gluten allergies, why did gluten-free options appear on grocery shelves?