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Aspiring entrepreneur hopes to make killing, gets shamed

May 20, 2020 - 10:56am
David Surdam
Empty shelves covid19

You may recall a recent news story and photo of a young, enterprising man with a garage full of toilet paper, hand sanitizers, and other merchandise. This was early in March, and he decided to invest money in items that might escalate in value. Although there was a “run” on toilet paper, the young man certainly did not “corner the market” on these commodities. He broke no laws or used any inside political advantage. Other people were free to stuff their garages with toilet paper and hand sanitizers.

I suspect, however, that many readers thought to themselves, “Greedy so-and-so,” and “what a hoarder.” Businesspeople, however, might have more charitably and accurately thought of him as a speculator. To be honest, the term, “speculator,” probably does not engender any more respect than “hoarder” among the general public. I understand that the authorities prohibited him from charging higher prices or selling his wares on the Internet.

This individual joins a long cavalcade of folks, who astutely (and sometimes not so astutely) recognized potential shortfalls in the supply of desired goods. I will be the first to admit that toilet paper is a rather prosaic item with which to dabble in speculation (“when the apocalypse comes, will it find us tussling over toilet tissue?”).

Years ago, talk show host Johnny Carson made a flippant comment about an impending “toilet paper shortage.” People apparently believed a late-night talk show host and ran out and stocked up.

Economists recognize the social benefits resulting from an astute speculator. Throughout history, people under threat of a siege, for instance, worried about grain supplies, or they feared poor harvests. Someone who recognized the potential shortfall of grain and attendant price increases could make profits by retaining more grain in inventory than usual or buying up stocks in advance. If the siege or poor harvest occurred, the speculator mitigated the shortfall. To be sure, the speculator charged higher prices, but the speculator also moderated the price increase. Had the speculator not acted, the shortfall would have been greater and prices would have been even higher; the suffering would have been greater in the absence of the speculator’s inventory.

Speculators do not always reap profits. The speculator is assuming the risk that the siege or shortfall does not occur. The speculator incurs the costs of storage, pilferage, and waste. The speculator also runs the risk that unscrupulous or ignorant legislators will expropriate his/her inventory. In many cases, legislators punished speculators, including execution.

I understand that it is too much to ask society to thank successful speculators, but greater understanding of the speculators’ beneficial aspects is in order. The speculator, of course, may not have been interested in benefiting society; as Adam Smith pointed out, such motivation need not be present for the speculator to benefit other individuals.

I think the authorities should have let the enterprising young man get whatever prices he could by selling on the internet. Perhaps he was enabling people to avoid going to crowded stores or helping people shut in their homes, who could not venture forth. And, of course, he might have ended up with a supply of toilet paper to last his lifetime; to use a gratuitous pun, he could have been wiped out.

The views and opinions expressed are those of the author and do not imply endorsement by the University of Northern Iowa.


David Surdam

David Surdam

David Surdam received his Ph.D. in Economics from the University of Chicago. His dissertation, "Northern Naval Superiority and the Economics of the American Civil War," was supervised by Nobel-Prize Winner, Robert Fogel. Professor Surdam has taught at the University of Chicago, Northwestern University, Loyola University of Chicago, and the University of Oregon.

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