Challenging the law of scarcity

According to Paul Samuelson's introductory text in economics, the central problem of economics is the allocation of scarce resources to satisfy the unlimited needs of society. Plentiful goods are dubbed free or non-economic and are excluded from the analisis. Samuelson summarizes this by stating that the starting point of economics is the "law of scarcity", namely the basic fact that resources are scarce and wants unlimited.

I wish to challenge this notion. I posit that scarcity is (at least partly) culturally determined. A culture of opulence leads to an economy of scarcity, and a culture of paucity leads to an economy of abundance.

The basic needs of people are food, clothing and shelter. Life is miserable if any of them are inadequate, and neither can really be done without for an extended period of time. To presume that people would choose not to feed, clothe or shelter themselves is preposterous, and so hunger and homelessness cannot be blamed on the hungry on the homeless but on an society organizing an economic order which fails to provide for the basic needs of the people who make up those very economy and society.
The world's ability to produce enough food to feed everyone is out of the question. In Development as Freedom, Amartya Sen points out that famines are known to have happened in years of plenty due to inefficient and unresponsive authoritarian social organizations. The European Union subsidizes farmers to produce more food that the Union needs, the surplus then largely going to waste.

I recently started reading Adam Smith's Wealth of Nations. I was a little reluctant to delve in its almost 600 pages of what, I feared, would be unbridled liberalism. Surprisingly, it turns out that Smith, as well as an economic liberal, could aptly also be described as a socialist: the truly great minds escape classification. The book is full of criticism of the way that powerful economic players, such as master artisans, landowners, and industrialists, misrepresent the economic situations and conspire against the public good, and against the welfare of their labourers, and how the political power assists or acquiesces to their machinations when it doesn't crack down on the workers itself. I cannot help but think that a motivation for Smith writing his book must have been to dispel many dangerous interested misconceptions put forth by the wealthy, which unfortunately are still part of the conventional wisdom almost 230 years later. My overall impression, however, is that contrary to popular belief Smith's intent (like that of Machiavelli, by the way) is not normative but descriptive. Smith's economic liberalism or socialism is therefore in the eye of the beholder.

On the issue of scarcity, this is what Adam Smith has to say:

Land in its original rude state can afford the materials of cloathing and lodging to a much greater number of people than it can feed. [...] there is always a super-abundance of those materials, which are frequently, upon that acocunt, of little or no value. [...] In the one state a great part of them is thrown away as useless, and the price of what is used is considered as equal only to the labour and expence of fitting it for use, and can, therefore, afford no rent to the landlord.
[...]
Countries are populous, not in proportion to the number of people whom their produce can cloath and lodge, but in proportion to that of those whom it can feed. Among savages and barbarous nations, a hundredth or little more than a hundredth part of the labour of the whole year, will be sufficient to provide them with such cloathing and lodging and satisfy the greater part of the people. All the other ninety-nine parts are frequently no more than enough to provide them with food.
But when by the improvement and cultivation of land the labour of one family can provide food for two, the labour of alf the society becomes sufficient to provide food for the whole. The other half, therefore or at least the greater part of them, can be employed in providing other things, or in satisfying the other wants and fancies of mankind. Cloathing and lodging, houshold furnitures, and what is called Equipage, are the principal objects of the greater part of those wants and fancies. The rich man consumes no more than food than his poor neighbour. In quanlity it may be very different, and to select and prepare it may require more labour and art; but in quantity it is very nearly the same. But compare the spacious palace and great wardrobe of the one, with the hovel and the few rags of the other, and you will be sensible that the difference between their cloathing, lodging, and houshold furniture, is almost as great in quantity as it is in quality. The desire of food is limited in every man by the narrow capacity of the human stomach; but the desire of the conveniences and ornaments of building, dress, equipage, and houshold furniture, seems to have no limit or certain boundary.

Unlike Samuelson, Adam Smith does not seem to think that the analysis of super-abundant goods is outside of the realm of economics. The obvious fact that the demand for food cannot be larger than what will satiate everybody flies in the face of the common assertion that, given the chance, people will always take more of anything. If food were plentiful and always at hand, there would be no reason for anyone to take more than they need to eat, a fact that introductory economic texts would do well to point out when they introduce the law of supply and demand, since it implies that the demand at zero price is finite and hence subject to economic analysis. He also does not seem to think that food is necessarily scarce, despite the fact that it commands a nonzero price in the market. In fact, throughout the book he repeatedly makes the point that population growth is a measure of how much the production of food exceeds the effectual demand for it.

In physics, as in mathematics, I have held for a long time that it is always worth the effort to go back to the original authors. It never ceases to amaze me how books written three hundred years ago read much more modern than the regurgitations in the latest monograph or textbook. This even with the added difficulty of 18th-century English, which for me only adds to the enjoyment. The same seems to be true of economics, as I have also found it to be in biology. So, read the classics!

The second law of thermodynamics and the law of supply and demand

The most basic example of economic equilibrium is, to judge from popular accounts of economics, the law of suppy and demand, namely that the higher the price of a
good, the larger the supply and the smaller the demand, and that actual prices are determined by the equilibrium between supply and demand.

The mention of equilibrium recalls—to my physicist's minds—the concept of thermodynamic equilibrium. The second law of thermodynamics can
be formulated by saying that

When two systems at different temperatures are put in contact, heat flows naturally from the hotter to the colder system.

Does this have an analogue in economics? Thinking about the supply/demand system, I have come up with the following dual forms of the principle:

• Market share "flows" from the supplier with the higher price to the supplier with the lower price.
  
• Products "flows" from the market providing the lower profit to the market providing the higher profit.
  

The point of this observation is that the equilibrium of supply and demand is not the most natural analogue of thermodynamic equilibrium: thermodynamic equilibrium has more to
do with competition.

We also have the principle that a thermodynamic system is stable if pouring heat into it raises its temperature. The analogues of this in economics are

• A supplier is stable if increasing demand for its product increases the price of the product.
  
• A market is stable if increasing supply of certain goods decreases the price they command in the market.
  

I would be interested in knowing of any actual examples of producers or markets which are unstable in these ways. Of course, such instabilities cannot persist for long periods
of time.