Most people see a supply and demand graph and either get a feeling similar to an orgasm, or they get a feeling similar to when your teacher ranted on about how Romeo’s vocabulary is what won thy Juliet’s heart. Then you get people who look at the graph and draw the wrong conclusions. Why? Because the independent variable, that is price, is on the vertical axis and not on the horizontal axis (I know, right). And who do we have to thank for that? Well, that would be none other than Mr Alfred Marshall.
In 1890, dear old Alfred decided to write a book. He called it Principles of Economics. And the principles he laid bare are actually bloody brilliant. I just wish that Alfred took the time to read Bertrand Russel’s The Principles of Mathematics that was published in 1903. Why? Because then he would’ve retracted his own book so as to correct his grave error of placing an independent variable on the vertical axis of a graph. Did he not for one moment foresee how irate it would make me?
Those of us who know that price is the independent variable in its relationship with the quantity supplied and demanded, are able to make some very sound deductions. For instance, we know that a change in the equilibrium price level leads to a change in quantity supplied and demanded, and not the other way around. If the price rises, output rises. This is because an economic incentive is created: you get more in return for what you supply. Alfred, however, failed to see that his apocalyptic blunder would lead to a lot of people to assume the exact opposite, and thus anger me.
If people assume quantity is the independent variable, the logical deduction that they would make is that the equilibrium price level changes in response to a change in quantity supplied and demanded. In essence, they would conclude that businesses increase prices when they increase production.
This would be pretty nonsensical, as an increase in the price level leads to an increase in quantity supplied because there’s more profit to be made. But thanks to Alfred, people won’t automatically know that quantity is the one who responds to price. This, unfortunately, leads a lot of people to assume that businesses are simply greedy. And that is what angers me the most about Alfred’s blunder.
What has by this time come to be known as ‘The Great Blunder of 1890’ has led people to perpetuate the false narrative that businesses, especially the big ones, are just plain greedy. In all honesty, I’d also believe it to be so if I thought that businesses will simply keep increasing their prices as they get bigger and bigger. I’d also want to limit the size of companies to keep price levels as low as possible. I’d also think that businesses are only interested in charging us more and more. Hell, I’d even go stand in the street with a placard whereon I rant about how capitalism is only bad and then go grab a soy latte at the nearest Starbucks. All in all, I’d be what a lot of people are these days: ignorant.
And that, Alfred, is why I’m angry at you. It’s not because I’m a fundamentalist about on which axes variables go. It’s not because I don’t understand how supply and demand works. It’s not because I hate neoclassical economists. It’s because there are people in the streets shouting about a problem that does not even exist, all because you decided to be different. Or is it just me?