A quiet historical coincidence happened in America’s special year of 1776.
The Scottish social philosopher and pioneer economist Adam Smith (1720-1790) published An Inquiry into the Nature and Causes of the Wealth of Nations. In his work Smith explained the social concept of rational self-interest. Smith’s theory spoke of man’s desire to do the best possible in his own self-interest, a natural tendency and goal, and consistent with what everyone does. According to Smith, what makes virtue out of this seemingly egotistical vice is an individual’s ability to define his behavior within a set of ethical guidelines—or moral prerequisites. These ethical values become moral obligations that keep the individual’s behavior rational. He explained how placing a sufficient number of rationally motivated individuals within a competitive economic framework would produce an affluent civilization.
America’s take on rational self-interest—compared to that of any other nation—allows America’s GDP today to exceed $18 trillion while second-ranked China—with a population four times the size of the United States’—lags at just over $11 trillion, with every other nation significantly trailing these two.
Extrapolating Smith’s economic theory to potato grower economics, let’s take his points one at a time:
1. What is a potato grower’s moral obligation? With his farm’s economic health his primary responsibility, a potato grower’s moral obligation would be to understand every aspect of the potato growing business that influences profitability—not just the production part but the market part as well. After all, market dynamics determine price, and price can determine profitability to a far greater degree than efficient production management ever can. Whatever a grower’s particular market sector might be—fresh, frozen process, dehydrated or other, lower prices result when the supply/demand balance is ignored. And you can literally take that to the bank.
2. As a potato grower, what is rational behavior as opposed to irrational behavior? Examine any farm you wish, and you will quickly conclude that the most successful organizations know where their farm’s production fits into the local and national supply/demand/price equation. This is rational. As irrational as it would be not to fertilize or water one’s crop, it is just as irrational not to fully or accurately consider where one’s production fits into the local and national potato economy. Clearly, more money can be made when the market is evenly supplied than when it is over-supplied.
3. How can placing a sufficient number of thusly motivated individuals within a competitive framework produce affluence? A sufficient number of “thusly motivated” individuals would indicate a preponderance of growers that include supply/demand balance in their production plans. Consider the opposite: Consider every potato grower in his own silo, paying little or no attention to overall supply. Such irrationality supplies the market haphazardly, and price reacts haphazardly. In strictly economic terms, the potato supply/demand/price equation is highly inelastic; the market wants what it wants and no more. In fact, the market severely penalizes price when even a modest oversupply occurs. Place a sufficient number of growers who understand the effect of supply on price in the potato-growing business, and you have one of the highest remunerating farming businesses known. Another term that fits here is working together or perhaps cooperation.