Nitopadesha #2: Markets

An interesting story in Nitin Pai’s Nitopadesha is the “The Case of the Wilting Orchards”. A wise but unconventional cat is invited to a kingdom where the orchards had started dieing slowly and the vegetable gardens were failing. What was the cause, they wanted this cat to find out.

 

After going all over town, the cat mentions that that a large number of rats were moving up and down a hill in the town. Do you know why, he asked his host. To prospect for gems which are abundant in this region, his host responded, but can you get back to the mystery at hand. After thinking a bit, the cat says he had found the answer! The rats, he said, are digging everywhere searching for gems. Their digging is damaging the roots of the trees and plants. The gemstone hunters are either unaware or don’t care about the side-effect of their activity.

 

What is the solution, asked his hosts. Should we kill the rats? No, said the cat, they are just earning their livelihood and that is not wrong. But they cannot be allowed to cause damage to others, even if it is unintended. Impose a tax on usage of the paths going up and down the hill. Make it high enough to reduce the rats that travel (and thus do damage).

 

The moral? Different activities in an economy can have side-effects. The folks causing it may either not know of it or may not care. Market forces (capitalism) will never prevent such occurrences. Instead, it is the state’s responsibility to frame laws and rules to keep a check on the damage, regardless of the cause being greed or lack of awareness.

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Another tale is about a bear that makes excellent pots. When the drought hit, the water bodies began to thin out, the heat intensified, and water was both needed and scarce. Storing water became critical. The bear’s high quality pots became the most in demand item in town.

 

Seeing the huge demand, the bear started increasing prices bit by bit until it reached a price where anger in the population began to grow. The bear’s rivals went and told the mayor that the bear was hoarding pots and it was immoral to profit like this in a time of such grave crisis.

 

The mayor, sensing an opportunity to make himself popular, declared a limit on pot prices. But with few producers in town, this only solved the price half of the problem, not the demand half. At this point, the mayor declared the bear was hoarding pots and threw him into prison.

 

With the bear out of the way, his competitors who made inferior pots were the only suppliers left. And soon they too began to raise prices, and people had to pay those prices for the only pots in town…

 

The moral of this story? Rulers rarely achieve any good when they try to set prices. Why? Because market forces are complicated. Compelling sellers to sell at low prices makes them close shop. Forcing people to pay high prices will cause demand to fall. And the more the rulers intervene in such matters, the more it sets off lobbying by various groups to attack their competitors. The intended purpose is almost never achieved by such interventions.