Today’s Quote of the Day is from Page 19 of Jack Hirshleifer, David Hirshleifer, and Amihai Glazer’s textbook Price Theory and Applications, 7th Ed.
Perhaps this idea, that self-interested motivations can lead to actions that end up helping other people, seems obvious. Yet many people, in Adam Smith’s and in ours, believe that the only way to help others is by intentionally “doing good.” More sophisticated individuals appreciate, as did Adam Smith, that in helping others trade can be more effective than charitable aid.
Still, it is not immediately evident just how self-interested behavior manages to avoid mutual harm or even total chaos. Los Angeles is fed by converging food shipments from all corners of the earth – without any benevolent dictator to make sure the Kansas farmer, the New England fisherman, and the Florida orange grower deliver food to the city. Though no one is ordered to do so, and none of these suppliers need be motivated by any particular love and concern for Angelenos, the city is fed. Why? Because Kansas farmers simply find it more profitable to ship their wheat to Los Angeles than to eat their crops themselves, and similarly for all the others.
Indeed, it is through this specialization of trade and profit motive that allows Angelenos to consume wheat, oranges, and fish, and allows Kansanians, New Englanders, and Floridians to consume entertainment that LA produces.