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.
