At any time during the working day, I can get up from my desk, walk down to the cafeteria, and find a container full of hot coffee from which I can pour myself a cup. The fact that the coffee is there waiting for me is not a consequence of careful preparation for my arrival by the cafeteria staff. I could go across to the next building, where I have never been before, walk into the basement café and sitting there waiting for me would be a similar container also filled with coffee. Not only coffee, but food, clothes, houses, and everything else I need for modern living appears perfectly regulated for my needs. When I want something it is there waiting for me. When things are not readily available—for example, nice houses being difficult to find; the supply of the latest game machine running out just before Christmas; or no coffee available in the cafeteria at 11am— this becomes the subject of intense discussion about how the suppliers should act to rectify the situation. These situations are then often quickly rectified, as demand increases and supply decreases, or new businesses appear to fill the gaps in the market. Consumers expect and receive supply that is regulated to suit their needs.
Regulation of supply and demand does not require central planning by me or anyone else. I do not have to call down to the café in advance and ask them to switch on the percolator; the cafeteria owner does not have to know when the next boat of coffee beans is coming from South America; and the shipping agent does not need to check that new plants are already in the ground for the next year’s crop. Through a series of local economic interactions I am provided with a regular supply of coffee. It was both an amazement and an understanding of how unmanaged and unguided activities of humans produce equilibriums in supply and demand that led Adam Smith to describe the economy as if being guided by an invisible hand. For me, this amazement and understanding is best expressed in the opening sections of Thomas Schelling’s book Micromotives and Macrobehavior(1978). Schelling identifies the importance of the fact that “the market works” not just in economics, but in all forms of collective behavior.