The Seen, the Unseen, and the Unrealized
Bylund starts off this portion of The Seen, the Unseen, and the Unrealized by talking about how working in groups as a society is both productive and harmful. He explains how it is productive because you can become mainstream and very experienced in a certain field and focus all of your energy there. At the same time, someone is doing the same thing in a different industry, and then you can benefit from each other. There is a downfall to this. The downfall happens when the group is too large, and there are people who are not contributing, but they are expecting to still receive the benefits from the other members of the group. Bylund dumbs this down to use a group of 100 people as his example, but this model is really about our economy as a whole. (Bylund, 2016)
This whole concept Bylund refers to as the separation of production and consumption; meaning that you can spend your whole life working in the fashion design industry and never learn a thing about car production, yet you can still buy / drive a car. This model leads to the attractiveness of certain goods and services to certain consumers, and finally, this model drives market cooperation. There is a much higher incentive to work hard on contributing your piece of the puzzle when you are relying on so many other people to do the same.
Another way of expressing this is to say that actors in a market benefit individually and collectively from specializing. (Bylund, 2016, pp. 52)
Specializing saves time, produces experts in specific tasks, and it ends up allowing automation in certain tasks. There is something to be said about the hierarchy of it all. There are obviously certain tasks and markets that are considered to be more valuable than others. However, Bylund references David Ricardo in his statement that it is so important to let everyone do what they can. Even the inferior producers are vital to the structure of this system. This system works if we just allow everyone to be productive to the highest degree possible for them personally, and not shut down the lower levels of production even though they seem less vital.
Adam Smith speaks about innovation within this system and how that plays a role. Bylund summarizes his ideas with the idea that as new ways of doing certain tasks arise, these certain tasks will be replaced with more efficient ways of doing them which ultimately affects the entire market. This affects the entire market not because of the innovative change itself but because of the possibilities that it opens up within other areas.
Bylund then dives into the foundation of this system. It seems like a bit of an endless circle to think about. Why would someone begin pouring time, money, and resources into producing a whole lot of something that they don’t personally have a need for if there was no market in which to exchange these goods for goods that they actually need? And why would a market develop in which this exchange could happen if everyone just produced what they needed? THe answer is that there is a natural element to it. People have access to certain resources depending on where they live, their economic class, and their education. This access is different for different people falling in different levels of these categories. This means that it really is not a complicated question as to how these markets develop, because it happens quite naturally.
Bylund then goes into the example of Becky and her nail making business. Bylund discusses Smith’s ideas of innovation and growth and how that applies to Becky and her business. Bylund makes a really good point to highlight the fact that growing Becky’s nail making business could have pros and cons. In short, Bylund explained that it is essential for Becky to do the market research and determine how many nails her customers are willing to buy and for what cost, and then that is the production level in which she should aim to produce her product. Producing 1,000,000 nails at 1 cent per nail is not necessarily better than producing 50,000 nails at 3 cents per nail if Becky does not have the market to sell 1,000,000 nails.
All trades, no matter how intensive the specialization, are separated through the division of labor with a single purpose: to bring about increased production for the satisfaction or wants. (Bylund, 2016, pp. 68)
This translates to the simple fact that all production is interdependent and the more that labor can be divided up and specialized, the more profitable and productive our system will be. Specialization, however, leads to alienation. Alienation occurs when the person specializing in a certain level of production is far from the actual finished product.
It is also possible that people have multiple skill sets and could be relatively self-sufficient. In other words, Becky could be good at making nails, baking bread, and growing apples. In theory, she could be somewhat self-sufficient and just produce what she wants. However, the issue is a lack of time. The trading system is ultimately more effective.
PRODUCTION AS SOCIAL COOPERATION
Going back to the example used in the last chapter in regards to Adele and the apple orchard, Bylund dives deep into every level of specialization that went into every level of production that Adele goes through at her apple orchard. He then takes this example to discuss the idea that production happens in stages. There is a whole equation behind the conclusion that production happens in stages, but in short, this is valuable to entrepreneurs for a few reasons. First, if production happens in stages, this makes diagnosing a problem easier. For example if innovation is happening in a certain stage and then something starts going wrong in the stage right after that, then we can figure out that the changes being made to one stage is negatively affecting the whole system and needs to be reevaluated.
Every change that occurs within this system affects something else in the system. For example if the price of steel goes up because something has happened to make steel harder to come by, manufacturers who buy steel to use for their own production may decide to purchase a different material that is less pricey. This trickles down to every level of production all the way back to Adele’s apple orchard. Now the shovel that she is using to prepare her land to plant apple trees is made of a different material than steel, but it costs her less money to purchase which means she can sell her apples for less money (in theory).
This whole idea of specialization creates a reliance between producers. Adele can specialize in producing apples on her orchard because hundreds of people before her specialized in different areas to make the resources necessary readily available to Adele, and the cycle continues before and after Adele. The next level might be a pie shop, the owner of the pie shop can specialize in producing pies and selling them because Adele, along with countless others specialized in the production of an ingredient that the pie shop owner will purchase in order to mainstream the production of her pies. This is social cooperation in this system.
OPPORTUNITY COST AND OPTIONALITY
Next, Bylund dives into what opportunity cost is and how it is relevant to entrepreneurs. He uses an example of Adam being gifted an apple. He can choose to eat the apple, trade it for three loaves of bread, or trade it for half and dozen nails. It is completely up to Adam to determine which of these is of more value to him. Let us say for this example that he chooses the three loaves of bread. The equation for opportunity cost might look a little something like this :
The cost of the three loaves of bread = the nails and the apple
Bylund then talks about waste and the conclusion is that in such a complex and layered market, waste is inevitable and often a result of human error which is also inevitable. This means that the system that we have been talking about is never at its highest potential of “efficiency” yet it is an unmatchable system in which people can use their own skills and resources to trade for what they ultimately want. This is a system that satisfies human desire, and that is ultimately what people are looking for is for their desires to be met. (Bylund, 2016)
The Process of Creative Destruction
I think that Schumpeter is trying to deconstruct the idea that capitalism produces maximum productivity. Or maybe he is simply trying to say that capitalism is ever evolving? The phrase creative deconstruction was a difficult concept for me to grasp, but I think it is actually much simpler than I originally thought. I think the Schumpeter is just trying to say that, like the process discussed by Bylund above, as new innovative systems arise in the economy, old ones are pushed out. It is unrealistic and not wise to assume that systems can stay in place for indefinite amounts of time. There must be growth. I think that Schempeter sees this process as a very natural one. (Schempeter, 1962)
Capitalism, then, is by nature a form or method of economic change and not only never is but can never be stationary. (Schempeter, 1962, pp. 82)
This is a quote that just sums up the idea that Schumpeter has that capitalism is never stagnant.
SOURCES
Bylund, P. L. (2016). Chapter 4: Unbeatable, Imperfect Markets. In Seen, the unseen, and the unrealized: How regulations affect our everyday lives (pp. 47–72). essay, Lexington Books.
Schumpeter, J. A. (1962). Chapter VII: The Process of Creative Destruction. In Capitalism, socialism and democracy (pp. 81–86). essay, Harper Torchbooks, Harper & Row.
Hi @averyroark1 , I enjoyed reading your thoughts and interpretations of the articles this week. In my essay, I focused more on the production explanation from these readings, while it seems you focused more on the system as a whole. However, overall, I think we basically came away with the same ideas and could agree on a lot of things regarding these articles. For example, the concept that one producer, Adele, specialized in selling apples and the other producer, Becky, specialized in selling nails because they focused on what they were best at versus trying to produce two completely different items. In my essay, I also talked about the importance of business owners finding their specialties. For entrepreneurs, this is essential because they do not want to waste time producing something that someone else is already doing and could do it better and faster. This is why the market and trade are important. Each individual works to create things that are of value to other individuals in the production of their product and vice versa. You used the quote,
Both in your article and in my understanding, this quote expresses the idea that individuals who specialize in producing what they are best at will be able to produce more and go to market faster. Also, you explained the concept of separation and consumption very well, better than I was able to understand it from Bylund. You used the example of being in the fashion industry and not knowing much about cars, yet you are still able to buy both. Just because an individual can produce one thing does not mean that it is the only item they can sell. Lastly, the article by Schumpeter was also a little difficult for me to comprehend. However, I believe that we both had the same understanding of the creative destruction concept. As a product or service gets old, new products or services come in to replace them and this is how our market works and evolves. In general, I am glad we read these articles because I was able to learn more about the importance of specialization in production.
Peer review -Jadyn Hanson
I enjoyed hearing your takeaways from the concepts brought up in this chapter of Bylunds book. More specifically when you talk about the downfall of having people who do not contribute but expect rewards. This, I believe, is a common issue in today's economy. The effects are very negative and leave an imbalance. Byland's separation of production and consumption ultimately drew me to understand the importance of competition and its role in the economy. I agree that in order for an economy to operate correctly, specialization is needed. Bylund drew out the significance of the division of labor in economies and its relation to production. (Bylund, 2016, pp. 68)
My takeaways on Schumpeter's idea of creative destruction were very similar to yours. What I believe he was stating was that capitalism is ever changing and improving. His focus through his writing seemed aimed towards innovation and its relation to growth. Large innovations usually come at some expense to the economy. Sometimes a loss of jobs, or sometimes a whole new area of employment. They also usually lead to growth in the economy. He also brings up the significance of entrepreneurs to this process. Entrepreneurs are a very essential part of the economy and they pave the path to new areas of growth. They ultimately allow production to come to a point of exchange.
This idea of creative destruction caused me to think about apples and its contribution to the economy. Many of the consequences and benefits are still continuing to expand. With the innovation of technology we have seen many jobs that can now be replaced with robots or simple computer programs. All of these innovations have effects on how the economy operates and levels production. The technology also allows for specialization through machinery which must also leave large changes to production and exchange.
Bylunds writing on opportunity cost helped me to see how value is exchanged. It is ultimately up to the consumer how much a product will cost. The exchange of value is a reflection of how much people are willing to exchange for the product. I enjoyed hearing your takeaways from Bylund and Schumpeters writing and gained similar insights.
Peer review
The author first starts this article by discussing how working in groups particularly very large groups can struggle to form a symbiotic relationship. If you have a group that is too large you may come across the issue of some people not pulling their weight and simply benefitting from the work of others.
Another thing that the author discussed is what Bylund refers to as the separation of production and consumption. The author of this article even provides an interesting example that has to do with fashion and cars, I thought this was a funny example, but it also does an excellent job of sticking in your head so that you grasp a full understanding of the concept. As the author explained a person can spend their whole life studying one subject, but that does not mean that the person lacks the knowledge to go out and buy something that does not pertain to their field of expertise.
Another point of Bylunds that the author discusses is the relationship between need and want., this is important when looking at entrepreneurship because in order to find a lucrative market you need to understand what people want to spend their money on. This is also important for the exchange that there are products of all kinds so that anyone may find what they wish to trade for. This system is extremely important for the economy, in fact, it is a lot like how the first people handled their economy. Because there was not a currency people would trade item for item. And if they could not find what they were looking for they would look and work until they found someone they could trade with. This is why it is so important that we have so many different products because everyone wants something different and without the variety, we would not be able to have the economy that we do.
In short, the author of this article does a wonderful job of explaining why the economy we have needs the relationship between product and consumer because without it our world would be vastly different than what we know.