My Pen Pal Zhu Yuanzhang

Chapter 329 Industrial Chain

"The invisible hand, in simple terms, is the law of the market, which invisibly guides you and the goose farmers in purchasing and raising geese.

In other words, the market adjusts the allocation of resources such as geese through the invisible hand of market laws.

Under this allocation mechanism, a division of labor is formed in society. Some people sell roast geese, while others raise geese. "

With this example, it becomes clear to us, Old Zhu.

Zhu Yuanzhang stroked his beard with satisfaction, feeling a sense of superiority as if his IQ had suddenly increased. Old Li just liked to be mysterious and had the same bad habits as those sour Confucian scholars. Sometimes he liked to use obscure terms that no one could understand to fool people.

Even if Confucius were alive today, he would be frightened by him.

It would be great to give a direct example so that we can understand it at a glance. Although the concept of the invisible hand is indeed a bit abstract, I, Old Zhu, have completely understood it.

The example of roast goose can be replaced by any goods for sale, just like the factories in Yingtianfu, which work day and night to produce orders.

Take white sugar as an example. In order to meet the market demand, sugarcane is purchased from all over the world to make white sugar. In order to meet the needs of sugar factories, sugarcane farmers in Qiongzhou, Guangdong and Guangxi plant sugarcane on a large scale. This is the rational choice made by economic people under the guidance of the market.

Look, what a simple thing.

Zhu Yuanzhang continued reading the letter with a smug smile, and then he lost his composure.

"However, the market is not rational in most cases, and it often goes crazy."

Zhu Yuanzhang’s eyes suddenly widened. What did Lao Li mean? This turn of events was quite unexpected!

“Because the essence of trade is to pursue profit, and how many people can remain rational in the face of profit? Therefore, the market is essentially blind. Let me continue to give you examples.

It is still the story of selling roast geese. At this time, Mr. Zhu, you still sell 100 roast geese every day, and the breeders still choose how many geese to raise according to your needs. The market is still rational at this time, right?"

Yes, that’s right. Zhu Yuanzhang nodded unconsciously following Li Han’s thoughts.

"Just when you, Old Zhu, were selling roast goose day after day and everyone was living a stable life, an uninvited guest suddenly appeared in the market. His name was Xu Da, and he loved to eat roast goose."

As soon as he saw Xu Da's name, Zhu Yuanzhang couldn't help but burst out laughing. He felt that something was missing in the example just now, and after reading it this way, it seemed to be right.

By the way, speaking of roast goose, Zhu Yuanzhang slapped his thigh at this moment. He suddenly thought of something unrelated. It seemed that he still owed Xu Da a hundred roast geese.

Make it up to him next time.

"Xu Da loves roast goose every day. Not only does he love it, but his family members also love it. He likes to treat everyone to roast goose and buys 500 roast geese a day.

What are these 500 roast geese called? They are called new market demand!
All of a sudden the market increased five times. Old Zhu, you must have gone a little crazy. So you started to double the amount of geese you purchased from farmers. As soon as you doubled the amount, the farmers also went crazy and started to increase the number of geese they raised exponentially.

However, you, Lao Zhu, are not the only one who can sell roast goose in the market. Seeing that you, Lao Zhu, are selling roast goose like crazy, others become jealous and start selling roast goose as well.

As more people sold roast geese, the demand for big geese increased, so more and more farmers began to raise big geese.

As a result, more and more people raised geese and sold roast geese. However, there were only so many people who could eat roast geese. Until one day, Xu Da got tired of eating roast goose and decided not to eat it for a while. What would happen at this time?

Seeing this, Zhu Yuanzhang didn't even have to think about it. If the roast geese couldn't be sold, the remaining roast geese would only be lost by the vendors, and the farmers who raised the geese would also be unlucky. There was no other way except to eat them themselves. This was Lao Li reminding himself that the market is blind!

Through two simple examples, Zhu Yuanzhang understood the nature of the market clearly. However, he was not as happy as before, but fell into deep thought.

If such a situation occurs, how should I, as the ruler of the Ming Dynasty, deal with it?

Could it be that this is related to the macro-control that Lao Li mentioned? Then how should this invisible hand of macro-control play a role?

Government decrees and decisions are just methods and means. You can't just order people to stop selling this or that, right?

Then I would really become a tyrant, Zhu Yuanzhang smiled self-deprecatingly. Governing the country and guiding the healthy development of the market cannot be done so simply and crudely.

Let's see what Lao Li has to say first, and he continues reading the letter.

"I think you have guessed the consequences. Yes, when the market reaches saturation and demand begins to decrease, the market demand will return to the original state of 100 pieces, or even less. But at this time, in addition to you, Old Zhu, there are many more sellers in the market.

Then the only thing you can do now is to compete with other sellers for the pitiful market share of 100 pigs. You will compete by lowering prices. You can sell a pig for 60 pigs today, but he dares to lower it to 50 pigs tomorrow and 40 pigs the day after tomorrow...

In the end, everyone fell into a vicious cycle of competition until all the roast geese rotted in their hands.

However, this is just the tip of the iceberg. Those who are involved in the goose farming business may have been farmers or vegetable growers before, but because raising geese makes money, they abandoned their previous businesses, which led to a reduction in grain and vegetables.

I don’t need to tell you what the consequences will be.”

Zhu Yuanzhang frowned. What he feared most was the reduction of food supplies.

Perhaps, before engaging in market trade, the court could conduct research to understand market demand in advance, and then issue decrees to stipulate how many products should be produced. In this way, wouldn't it be possible to better allocate resources effectively and avoid unnecessary losses?

Thinking of this, he couldn't help but get a little excited. He had to ask Lao Li whether this method was feasible.

"So in order to effectively avoid the blindness of the market, the court's visible hand must play a role at this time."

That’s right, that’s right, what Mr. Zhu and Mr. Li think is exactly the same!

“This is also before the railway network in Jiangnan is built. Old Zhu, you must make arrangements in advance to avoid the roast goose incident in the entire Jiangnan area, and even the entire Ming Dynasty.

Here, let us return to the original solution and coordinate regional balanced development!
To illustrate how to do it specifically, let’s take another example. This time, Mr. Zhu, you are not selling roast goose, but the owner of a factory that produces shovels.

The shovel you made was light and strong, and it was very popular because it could dig a sack at a time. In order to find better steel to make kitchen knives, you found Xu Da who ran a smelter, and the two of you reached an agreement that Xu Da would supply you with high-quality steel on a regular basis.

After receiving your order, Xu Da will go looking for high-quality iron ore to smelt steel. So he finds the mine owner Li Wenzhong and asks Li Wenzhong to provide him with high-quality iron ore regularly.

At the same time, in order to mine more ore faster, Li Wenzhong decided to purchase more shovels, so he found you again.

So in this series of actions, you, Xu Da and Li Wenzhong formed a complementary industrial chain. You provided each other's needs, complemented each other and helped each other to become rich together.

Having said that, Lao Zhu, you understand what I mean, right? According to my plan, the entire Jiangnan region will be integrated to form one or more complementary and mutually supportive industrial chains!"

(End of this chapter)