Consumers and Producers

The primary producers are the most important, indeed the foundational, species in an ecosystem. In most ecosystems, plants are the primary producers. Without them, there would be nothing for the herbivores to eat, and without herbivores, there wouldn’t be anything for the carnivores to eat (except each other).

Of course, things are more complex than that — you have to have raw materials such as soil and water and sunlight, and if you go back far enough, you will end up with the necessary microbiota — but this lays out the basics of what is required for an ecosystem. In fact, even the necessary microbiota required primary producers before anything else could emerge. In any ecosystem, you have to have producers before you can have consumers.

What is true in physical ecosystems is true in epistemological ecosystems as well. You have to have stories before you have listeners; you have to have writing and stories before you have readers. You have to have music before you have listeners. You have to have paintings before you have viewers. There can be no audience without there first and foremost being art.

And what is true for the artistic/literary epistemological ecosystem is equally true for the set we call the economy. Until and unless there is something produced that someone wants, there cannot be consumers. There must be a supply before there can be a demand. More, the supply in part helps to create the demand in more ways than just from the fact that you cannot have a demand for what you don’t know is even possible. Once it is there, an increase in supply reduces prices, which in turn increases demand. Competition among producers — or even finding cheaper ways to make what you’re making — brings down prices, while competition among consumers drives up prices. This isn’t even remotely controversial among economists. It’s an expression of the law of supply and demand.

This understanding that supply creates demand and not the other way around comes from an understanding that innovation is what drives the economy. Innovation creates wealth by creating things that people value, but did not necessarily even know would or could improve their lives. New values are created — we are in a constant state of revaluing our values precisely because new things or ideas or experiences or services now exist for us to value and to fit into our set of values, resulting in re-rankings of our values. By creating more value, wealth is created. That is the very definition of wealth — increasing value for each party involved. Money merely makes value-exchange more effective and efficient, making value-accumulation (and, thus, wealth) increase more quickly for more people. Its value is in that role and it doesn’t have any value outside of that role. Wealth thus isn’t measured in money, because money doesn’t create wealth — it only facilitates its creation.

The presence of money helps make prices possible, and it’s the presence of prices that makes the market economy the most efficient wealth-producer of all the epistemological ecosystems. In the arts or the sciences (natural and social) or philanthropy, reputation is the equivalent of money. The greater one’s status, the wealthier one is as an artist or scientist or philanthropist. One gains status by giving away gifts — one’s artistic work, one’s scientific discoveries, one’s time and/or money — but these aren’t really the most effective or efficient forms of feedback. At least, not to the degree money prices are.

We may see, though, why so many people respect the gift economy but have little if any respect for the market economy. As a species of social ape, gaining social status makes a great deal of psychological sense. Even (especially?) among egalitarians who insist that the only worthwhile pursuits are in the gift economy. Money as a signal makes no sense whatsoever to us from a deep psychological standpoint, except as a status symbol itself. But money somewhat separates us from the thing we made that gives us status, making it unclear to most that we deserve the status. We mistakenly give Bill Gates status for his billions, when it’s his billions that are a result of the products he made that really ought to be what give him status. His billions are at best a poor compensation (from a primatological point of view) for all the value he created in the world. The same could be said of any market entrepreneur.

Consumers become primary drivers only with well-established products like Coke and Pepsi. But even then, consumer desire, considering consumers as a group, for those products do not change a great deal — a Coke-drinker isn’t going to switch to Pepsi because of a particularly catchy Coke advertisement, or vice versa. But if we consider consumers individually, advertising does matter. If you are a Coke drinker, seeing a Coke ad might make you want to get up and get a Coke. If ads can create consumer desire in that moment, they will over time create more purchases for those consumers. The irony is that if you are a Pepsi drinker, a Coke ad may put you in the mood for your own preferred brown bubbly beverage. The fact that it’s almost always the biggest corporations with the most established goods or services that create the overwhelming majority of the advertising should tell you something about what it is they are really doing. They aren’t creating knowledge about something new, but rather are encouraging the already-converted to consume more.

Consumers drive economic activity, then, only with those businesses that are big and well-established. Economists who focus on consumer-driven factors thus treat the economy as though it was dominated by giant monopolies. But they cannot account for the activities taking place in an entrepreneurial economy, where startups and small businesses are the true dominating force.

Coincidentally, like with natural ecosystems, healthy epistemological ecosystems exhibit power law distributions. There are more small businesses than medium-sized businesses, and very few large businesses. Coca-Cola has around 26% market share, while Pepsi and Diet Coke are both at about 15%, and Mountain Dew, Dr. Pepper, Diet Pepsi, Sprite and “other” make up 9% each — and this is what we would expect to see, this kind of distribution, since 15% is about half of 26% and 9% is about a third of 26%. The same is true in an ecosystem such as the African savanna, where you will find a few species dominating, a medium number of species with less presence, and a great many species found only rarely. There will be very many grasses, fewer shrubs, and only a handful of trees. And the same will occur among the animals represented, whether among herbivores, among predators, or among them all.

I think it is a good idea to understand the economy as a kind of ecosystem. I would argued that it can be understood as little else than a kind of epistemological ecosystem. But that means we must understand both kinds of ecosystems well if we are going to analogize them, and it means that we have to truly, deeply understand where primary producers (entrepreneurs and businesses — with their goods and services like the leaves of the bushes, trees, and grasses), herbivores (consumers), and predators (government) fit together.

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