It is interesting to ponder how an economic system can come to exist. Afterall, it is completely a human made invention with the lofty intention of improving the lives of humans. Economics as a discipline cannot pin its origins to naturally occurring phenomena such as biology, physics, and chemistry. Also, there was no stone tablet handed down from an omnipotent being with economic principles etched upon it. Rather, as we humans evolved individually and collectively we developed concepts, beliefs, and speculations about how to work with the environment we found ourselves in—with all its resource limitations and abundances—to craft a system leading to the best lives possible.

To better understand how economic systems such as the market economy of capitalism or the command economy of socialism were formed historically it is useful to look at the role played by philosophy. Philosophy has endeavored to discern the human condition and state of mind of a person at its most basic levels, giving insight into the roots of political and economic motivations. A philosophical strategy to determine the reason an economy becomes what it is involves knowing as much as possible the fundamental urges of discreet individuals regarding survival and flourishing. It is there, at the source of human self-awareness, a state of nature if you will, where the scrutiny needs to begin.

The Chinese philosopher Mozi (c. 470-391 BCE) depicted a state of nature in which individuals determined and followed their own “moral” rules. Not surprisingly, he recognized this led to social disorder. The remedy according to Mozi was to establish and apply a single moral order enforced by a powerful ruler. A generation later and in another part of the world the Greek philosopher Aristotle (384-322 BCE) alleged that “man is by nature a political animal”. This obvious but simplified observation however does not tell us enough about people’s intrinsic pre-political nature. It took the Italian expert interpreter of Aristotle, Thomas Aquinas (c. 1225-1274), to develop Aristotle’s remark within a state of nature context.

Thomas Aquinas agreed that humans are instinctively social and political. Even so, Aquinas delved deeper by articulating what he saw as natural law or practical and rational standards that incline people toward moral goodness. It is natural, according to Aquinas, that people innately want to accept that “good is to be done and evil avoided”. Natural law was the path to divine or eternal law or God’s way. Being teleological, Aquinas saw proper collective action as an extension of the ethical purposiveness of the person. Since humans are fundamentally social, then natural law lays the rational and moral groundwork for how people are to conduct both their individual lives and their communal or political lives.

Centuries later, during the years leading up to and including the Enlightenment there transpired a more widespread attempt to identify the raw pre-political state of mind of humans. The impetus for this effort was embedded in the political philosophy of the time to settle on a humane and functional theory of social contract. The need for a more just, humanitarian, and functional set of rules, laws, and habits to guide society and government took on an increased urgency beginning in the sixteenth century. Philosophers held that by better understanding the natural state of humans as a starting point a superior social contract better binding the members of a social collective could come about.

Prominent at the outset of this trend was the Englishman Thomas Hobbes (1588-1679). Known among many as the philosopher who famously claimed the life of man was “solitary, poor, nasty, brutish, and short” and who saw human nature as entrenched intrinsically in self-preservation. Such hard wiring meant humans, if left to their impulsive selves, would be perpetually at war and conflict. A social contract that emphasized curtailing some individual freedom in return for order and security was crucial for a society to survive and to thrive.

John Locke (1632-1704), also from England, had a more a charitable view of the human state of nature than did Hobbes. Locke speculated that humans fundamentally viewed themselves as grounded in equality and freedom. He nevertheless recognized that disputes do arise among people and that a social contract codifying basic human rights of life, liberty, and property was necessary. The Frenchman Charles-Louis de Secondat, also known as Montesquieu (1698-1755), attributed self-preservation as the primary motivation of humanity. Community and society were fashioned out of fear that without fellowship among all people the lives of individuals would not be sustainable.

Also from France, Jean-Jacques Rouseau (1712-1778) maintained a favorable view of people as essentially a good and peaceful lot who enjoyed their freedom. Where he differed from the other thinkers I have mentioned is that he saw society, and particularly the institution of private property, as degrading influences on the core purity of the individual. The necessary social contract according to Rousseau was one aimed at restoring the authentic equality and freedom of people.

In the twentieth century the American political philosopher John Rawls (1921-2002) reformatted the state of nature concept to one he called the “original position”, a pre-political position in which individual people live behind a “veil of ignorance” regarding the needs, desires, and statuses of others. He did not concern himself with what natural proclivities were possessed by people in a natural state as did Hobbes et al. Rather Rawls was trying to get at what would constitute a universal system of societal justice. For Rawls, the original position ensured a greater degree of fairness and objectivity free of prejudices necessary for the formation of a social contract leading to a just collective.

Historically, social contract theory has been fundamental in the formation of advanced moral, political, legal, and economic structures. The history of thought highlights the types of social contracts exercised by communal and collective groups whether of traditional cultures or of modern nation states. What has persevered is a set of constructs accentuating the most pertinent values defining social life. Ethical principles such as consent of the governed, rule of law, natural rights, limits of power, codification of constitutions, social order, welfare of all citizens, and obligations of the individual among others lead to a civic virtue sustaining the common good.

From this political and philosophical churn appears economics, the modern versions of which can be said to be an outgrowth from social contract theory. There exist standards of reciprocal responsibilities between individuals and the collective which delineate the rights of each, identify regulations of goods and services, specify methods of production, and stipulate means of resource distribution that together make up an economy. To view the economy of a society is to regard the way the people think of themselves and each other. A moral code is in part reflected by the economic practices and conditions exhibited within a wider community.

The most common economic models in the developed world at present are the market economy, the command economy, and the mixed economy. The market economy, also popularly referred to a capitalism, emphasizes encouraging private interests and business to control production and the distribution of resources. The calibration between the supply of goods and services relative to consumer demand for those goods and services determines prices and distribution with minimal influence from government. Voluntary consumer and producer choice, competition, profit motive, and private ownership are key features of the market economy.

The command economy, generally thought of as socialism, places significant control of the economy with government as a centralized authority. Resources, production, consumer choice, prices, distribution, and economic planning are state controlled. The mixed economy blends parts of the market economy and the command economy and is the most common economic style of the developed world. Government and private enterprises interact to greater and lesser degrees of collaboration resulting in a hybrid economy.

At this point, I am interested in examining one particular feature of the market economy that has intrigued me for a few years now. That is the phenomenon of scarcity. Why would an economic system like capitalism tolerate scarcity of a good or service that is in demand? And if only a segment of the population experiences scarcity while another segment does not, why is that permitted? There seems something fishy about scarcity to me—as if it is a flaw of either the economic system or of the people accepting such a system. So, I decided to look into the matter.

To be clear, I am not talking about what I guess we could call natural scarcity. If I am sitting at home in New Hampshire during the month of December craving fresh New Hampshire strawberries, the kind that are only available in late June or early July, well no economic system is going to provide those to me. Similarly for fresh surface water in the middle of the Sahara Desert or clean air in downtown Bangkok. Falling short of having availability of desired resources at a wished for time in a limited location is often the way life is. We may not like it, but we have to either accept it or try to move heaven and earth to satisfy our sought-after desires.

Rather, the scarcity I am questioning can best be illustrated using some examples. There are obviously people around the world who need food. However, in a capitalist system governments or agribusiness will sometimes intentionally destroy or limit access to food in order to maintain a particular price for the food products, instead of getting unsold foods to people who need them. Another example involves the current housing shortage. Construction and sales of new housing are curtailed through stringent zoning laws in order to keep property values and rents high and to restrict population growth in a desirable location. There can actually be homelessness and vacant properties within a short distance of one another. Finally, within the electronics industry planned obsolescence of popular devices and appliances cause them to fail sooner fostering purchases of replacements more frequently than is technologically necessary.

The above examples are known in economics as artificial scarcity. This is a purposely planned for scarcity designed to inhibit market abundance and preserve the highest prices possible. It turns out that artificial scarcity is a major feature of a market economy. So, how did that happen? To find the answer we need again to take another peek back into history.

Starting as early as the twelfth century, but most significantly from the fifteenth century on, there occurred in England a practice known as the Enclosures. In pre-capitalist agriculture arable land was common land. A relatively informal utilization of the land’s use was self-managed among the populace. Private ownership was not yet a dominating force. However, as privatization became a more accepted practice land owners forcefully expelled peasants in effect creating land scarcity. The argument from ownership was that this new system was more efficient, a claim that remains to this day although the language has changed to terms like price control stability.

Capitalist thinking largely rests on the notion of supply and demand. Price is determined as a function of determining the level of demand for a given supply of goods and services. If demand is high, but supply scarce, then the result is a higher price per unit of supply. The inverse of low unit prices for weak demand and abundant supply is of course true also. Therefore, it is rational for consumers to make purchasing decisions based on what is perceived as a fair price and for suppliers to set prices based on demand. A supplier will want to have enough supply to meet demand, but at the highest price possible.

It helps to view artificial scarcity as manipulated or controlled scarcity. This often means suppliers manipulating or “optimizing” supply in order to set the highest price possible. We can think of this practice as profit incentive. There are a variety of means used by business to achieve optimal profits. In general, a supplier is motivated because they believe they can offer a good or service that is in demand at what is for them is the best price. This motivation finds expression in a number of actions.

Intellectual property laws, such as patents, copyrights, and digital rights management, are used to earn a return for creators’ insights and toil. Another effect is to constrain access of production to only those willing to pay a high price. Issuing limited editions and marketing exclusive brands can have a similar restraining effect. In the realm of commodities or more basic and common products actions like price supports are often used. Typically, a government practice, price supports such as production quotas, subsidies, and price floors help to structure scarcity by bypassing a more natural competitive balance.

Sometimes scarcity management can get extreme. Destroying unsold inventory, including even food, to engender shortages. Paying farmers to keep fields fallow to prevent over-supply. Stockpiling and hoarding “surpluses” to control item prices. As mentioned earlier, limiting housing construction by local governments or by property developers to maintain high property values and rents or to curb population growth. Also, designing planned obsolescence into a manufacturing process to ensure customers keep coming back for more. There are a lot of tricks to induce scarcity.

And this leads us to the obvious morality-related criticisms of artificial scarcity. The common good suffers from intentional impediments being placed on the availability of food, housing, and other goods and services required for everyone to have a chance at living a flourishing life. Reduced supply and artificially set high prices essentially is a restriction of inventory to a portion of the population. Additionally, resources are squandered when manufactured goods are destroyed, housing not constructed, and food left to rot. This leads to negative environmental results with wasted reserves and to economic consequences that sustain poverty. It can also be argued that intellectual property protections actually slow the rate of innovation and stifle competitiveness monopolistically.

At its essence, the dispute between a pro-capitalist rationale for artificial scarcity and a more cautionary perspective on this aspect of capitalism can be described as a lack of agreement regarding the meaning of equality. As I see it, the pro-artificial scarcity side sees allowing for individual economic initiative in the form of inventiveness and hard work as equal opportunity for all, which is as egalitarian as society needs to be. The con-artificial scarcity side would claim that an ethical obstacle emerges when society is bifurcated between those with market might and those who are less economically influential, in other words between the rich and the less affluent or poor.

I cognitively see both arguments but find that emotionally and spiritually I side with the capitalist skeptics who question this ethically weak facet of capitalism. To be clear, I am sympathetic to the equal opportunity position and in many cases realize that guaranteeing equal outcomes is not feasible. I also am not going to lose sleep over price fixing for luxury items that are not necessary for the wellbeing of low-income people. However, when it comes to essentials, such as food, housing, medicines, and care services, artificial scarcity has no justification. There is no such thing as surplus when there are people whose welfare is being threatened due to a lack of essentials.

Artificial scarcity intensifies inequality. The extreme inequities between the richest Americans and everyone else is now accepted fact in the US. This threatens democracy and has in large part given rise to the demagoguery of Trump and the MAGA movement. Most importantly, institutionalized inequality is contrary to a key tenet of the Declaration of Independence, one of the founding documents of the United States and one of the most direct links between the origination of the US and the Enlightenment. It was in the writing of the Declaration that the principles of individual rights, freedom, and equality became beacons of light for the new country.

Capitalism has undeniably provided great abundance and a higher quality of living for many millions of people than would have been possible under previous economic systems. Nevertheless, unfettered capitalism can lead to a number of social ills, including erosion of community solidarity, unfair treatment of labor, environmental degeneration, and over-commercialization of basic goods and services, among other misfortunes. An appropriate degree of governmental and internal industrial regulation is required in order to check the troubling consequences of pure capitalism. Controlling for the more harmful varieties of artificial scarcity is among the justifiable actions to be taken.