I think it's important to note that in your fishing rod example, you are using the fisherman as the end point. But you could think of the entire process up to the retail store that sells the fishing rod. Or the construction business or transportation business. Each of them is making a profit along the way to incentivize them. The owner of each of those businesses has roundabout processes that lead to them, and each of them is an endpoint of sorts.
What a person desires in life is a properly boiled egg. This isn't as easy as it seems.
There must be gas and a stove, the gas requires pipelines, mastodon drills, banks that dispense the lozenge of capital.
There must be a pot, the product of mines and furnaces and factories, of dim early mornings and night-owl shifts, of women in kerchiefs and men with sweat-soaked hair.
Then water, the stuff of clouds and skies and God knows what causes it to happen. There seems always too much or too little of it and more pipelines, meters, pumping stations, towers, tanks.
And salt—a miracle of the first order, the ace in any argument for God. Only God could have imagined from nothingness the pang of salt.
Political peace too. It should be quiet when one eats an egg. No political hoodlums knocking down doors, no lieutenants who are ticked off at their scheming girlfriends and take it out on you, no dictators posing as tribunes.
It should be quiet, so quiet you can hear the chicken, a creature usually mocked as a type of fool, a cluck chained to the chore of her body.
Listen, she is there, pecking at a bit of grain that came from nowhere.
"Imagine trying to explain the occupation of “influencer” to someone born in 1900."
A bit of a nitpick but I'm pretty sure people in the early 20th century were well acquainted with the concepts of hucksters, snake oil salesmen, and con artists. The idea for a graduate of the Gary Conservatory class of Aught-six didn't spring up out of nothing. I think we tend to imagine we've advanced much more than we really have.
You'd probably have more trouble explaining how we came to believe treating people unequally is supposed to lead to equality.
Re: "We call our economic system 'capitalism.' But we really ought to call it roundabout production processes."
Any economic system has roundabout production processes. Production was roundabout in early communities of hunters-gatherers, the feudal manor, the antebellum slave plantation, and planned economies in the USSR and Maoist China.
A thought experiment: Were for-profit firms banned in a modern economy, a resultant economy of not-for-profit orgs would generate complex roundabout production processes. Prices would play a large role in shaping roundaboutness.
Capitalism does roundaboutness more and better. To understand why, we need also other concepts (institutions, mechanisms) besides the price mechanism; for example, "self-ownership," "profit," and "transaction cost."
This explanation is perfectly clear to me and is a very useful perspective as shown here, but I remember being confused at my first encounter, perhaps via a Mises intermediary that struck it in relief against the Evenly Rotating Economy, itself a conceptual challenge. Roundabout production and the related idea of capital structure both crystallized around the same time for me.
I like "roundabout" and think I can use it with friends.
Regarding regulation, one thing that comes to mind is that with experimentation, there is failure. So we want a culture and a legal system where it's allowed and even encouraged to try things, even when they don't work out.
I'd like to link up roundabout production with PSST.
Let's suppose you live in an isolated community and the guy who has a comparative advantage (and absolute advantage) in net making is a huge douchenozzle. He forces his young kids to work making nets all day, he starts fights with neighbors, and strategically undermines everyone else.
And every so so often, the guy who makes the nets does something like create a big nuisance that drags everything to a halt in the village and mess up al the other roundabout production. How do we account for and incorporate these costs?
"Vincent Ostrom, a prominent economist and political scientist, developed the concept of economic polycentrism as a framework for understanding the organization of economic systems. Polycentrism refers to a system where multiple, formally independent decision-making centers (polycentric units) operate under an overarching set of rules, rather than a single, centralized authority."
The question of regulation in a roundabout economy of course calls to mind his wife Elinor Ostrom's Nobel Prize lecture on "Beyond Markets and States: Polycentric Governance of Complex Economic Systems" in which she stated:
"The most important lesson for public policy analysis derived from the
intellectual journey I have outlined here is that humans have a more
complex motivational structure and more capability to solve social dilemmas
than posited in earlier rational-choice theory. Designing institutions to force
(or nudge) entirely self-interested individuals to achieve better outcomes has
been the major goal posited by policy analysts for governments to accomplish
for much of the past half century. Extensive empirical research leads me to
argue that instead, a core goal of public policy should be to facilitate the
development of institutions that bring out the best in humans. We need to
ask how diverse polycentric institutions help or hinder the innovativeness,
learning, adapting, trustworthiness, levels of cooperation of participants, and
the achievement of more effective, equitable, and sustainable outcomes at
multiple scales.
To explain the world of interactions and outcomes occurring at multiple
levels, we also have to be willing to deal with complexity instead of rejecting
it."
Perhaps a key to unlocking the wisdom in this observation might be found in the transactions cost economics work of Ostrom's Nobel co-awardee, Oliver E. Williamson:
"The basic proposition is this: absent the use of credible commitments to
support exchange, the contractual hazards associated with many transactions
would be perceived to be excessive. Generic investments would replace
transaction specific investments if the latter pose too great a risk. Some
transactions would be taken into firms. Some would never materialize.
Credible commitments sometimes come into place spontaneously, as
where a history of good experience with a trader leads to a positive reputation
effect. Often, however, credible commitments take shape as economic actors
consciously agree upon mechanisms that provide added assurance.
These can take the form of information disclosure and auditing mechanisms, the development of specialized dispute settling mechanisms, whereby the parties rely
more on private ordering than court ordering , and sometimes involve
Thus it would seem decentralized private ordering and the local norms and social practices that propagate it are important factors in much of production and exchange at the transaction level. This might even be seen as compatible with concepts of patterns of sustainable specialization and trade. Unfortunately, the field of economics in general seems to have disregarded Williamson and the Ostroms. One rarely if ever hears of the Bloomington School anymore. I don't follow the econ journals enough to have much of an idea of whether Williamson is looked to anymore, but it seems transaction cost economics are not a particularly hot area in contemporary economics. It seems top-down preferably via supranational entities, highly centralized, AI determined, technocratic optimization is the answer to everything. One might wonder at what cost.
With respect to regulation, if the burden of regulation on an economic process exceeds the benefit to the shareholders, if transaction costs are low enough, the tendency will be for that process to shift to a jurisdiction with a more favorable regulatory balance. A series of processes that might otherwise be integrated instead then becomes more roundabout.
If the regulatory environment is better in Cathay than Kentucky to weld widgets, widgets will be welded in Cathay and not in Kentucky assuming that transaction, shipping, and coordination costs are low. The US and European regulatory states never really adjusted to the post-Vietnam War world in which transaction, shipping, and coordination costs per unit dropped to almost nothing, but the private sector did. Regulatory advantages help economic actors to develop real comparative advantages, and regulatory disadvantages encourage the development of comparative DISadvantages (e.g. all the workers in the generationally high-regulation jurisdiction become too high on fentanyl, SSDI payments, and TikTok videos to become effective widget welders ).
Hamilton was very aware of this dynamic, and it helps to explain the design of the Commerce Clause and the early jurisprudence around the Commerce Clause. The post-New Deal Commerce Clause interpretation sought to reduce regulatory competition between the states and to instead introduce an equalizing body of federal regulation. So a constitutional structure that should have been adaptive to regulatory competition instead became very slow to adapt, and thus began developing massive comparative disadvantages.
"how do regulation and compliance fit into the roundabout production framework?"
Maybe horse and buggy didn't require regulation and compliance but I doubt we could have cars without it.
Someone mentioned capturing social costs. We have pollution we'd prefer to eliminated and pollution we are willing to allow but tax. Zoning is a type of pollution control to include noise and visual. Sin taxes. Monopolies, both the ones acceptable and not. I'm sure there's more we could think of.
Regulation is generally a floor or ceiling. Many cars exceed regulatory requirements. My 20 year old car exceeded regulations when it was made, not anymore. Housing regulations are generally a floor (even electrical). Many houses exceed regulations. my 1945 house would not pass modern regulation requirements. It still works.
In both cases, would it be better if newer house or car? Certainly for environment, certainly for safety, but those add cost and make the new choices more expensive. I am cheap.
“Roundabout” is a poor choice—“ specialized ” would be better: more clear and less ambiguous.
Roundabouts are becoming a frequent traffic management option, many prefer to lights.
The focus on prices is very clear, so “price-based” production would also be better, or True Price. The strongest argument for most govt regulation is that there are social costs not included in the price, so the price is too low.
Private property is what most folks have, as compared to govt property—never actually public property. The biggest mislabeling is falsely calling govt property, or policy, public property or public policy. If it was public, any member of the public could make decisions about its use—they can’t because govt has decided rules about the use. Think govt schools, roads, parks, military storage yards of WW II equipment in the desert.
It’s good to note that free humans usually find they have much more material wealth by working & producing for money, to buy/trade to get other stuff they want. With all the desires & known possibilities being communicated to the interested decision makers thru prices. For many men, working for the most money they can get is the key decision variable, tho often oil worker in barren Alaska or N. Dakota is passed for a lower paying but better in other ways job.
Prices, budgets/money, and desires. All leading humans to very efficiently and effectively Co-ordinate their production and consumption decisions. The Free Market means the freedom of humans to make their own decisions.
I think it's important to note that in your fishing rod example, you are using the fisherman as the end point. But you could think of the entire process up to the retail store that sells the fishing rod. Or the construction business or transportation business. Each of them is making a profit along the way to incentivize them. The owner of each of those businesses has roundabout processes that lead to them, and each of them is an endpoint of sorts.
A Quiet Life
What a person desires in life is a properly boiled egg. This isn't as easy as it seems.
There must be gas and a stove, the gas requires pipelines, mastodon drills, banks that dispense the lozenge of capital.
There must be a pot, the product of mines and furnaces and factories, of dim early mornings and night-owl shifts, of women in kerchiefs and men with sweat-soaked hair.
Then water, the stuff of clouds and skies and God knows what causes it to happen. There seems always too much or too little of it and more pipelines, meters, pumping stations, towers, tanks.
And salt—a miracle of the first order, the ace in any argument for God. Only God could have imagined from nothingness the pang of salt.
Political peace too. It should be quiet when one eats an egg. No political hoodlums knocking down doors, no lieutenants who are ticked off at their scheming girlfriends and take it out on you, no dictators posing as tribunes.
It should be quiet, so quiet you can hear the chicken, a creature usually mocked as a type of fool, a cluck chained to the chore of her body.
Listen, she is there, pecking at a bit of grain that came from nowhere.
Poem Copyright 2008, Baron Wormser.
Nicely related.
"Imagine trying to explain the occupation of “influencer” to someone born in 1900."
A bit of a nitpick but I'm pretty sure people in the early 20th century were well acquainted with the concepts of hucksters, snake oil salesmen, and con artists. The idea for a graduate of the Gary Conservatory class of Aught-six didn't spring up out of nothing. I think we tend to imagine we've advanced much more than we really have.
You'd probably have more trouble explaining how we came to believe treating people unequally is supposed to lead to equality.
Influencers seem very different from hucksters, con artists, and snake oil salesmen to me.
Treating people unequally to get equality or equity is not a difficult concept.
https://dawnxhenderson.medium.com/challenging-the-image-on-equity-and-equality-c3bb93ff0fb0
It's the deciding when and how that's difficult.
Re: "We call our economic system 'capitalism.' But we really ought to call it roundabout production processes."
Any economic system has roundabout production processes. Production was roundabout in early communities of hunters-gatherers, the feudal manor, the antebellum slave plantation, and planned economies in the USSR and Maoist China.
A thought experiment: Were for-profit firms banned in a modern economy, a resultant economy of not-for-profit orgs would generate complex roundabout production processes. Prices would play a large role in shaping roundaboutness.
Capitalism does roundaboutness more and better. To understand why, we need also other concepts (institutions, mechanisms) besides the price mechanism; for example, "self-ownership," "profit," and "transaction cost."
Black markets exist for many reasons.
Very good article.
This explanation is perfectly clear to me and is a very useful perspective as shown here, but I remember being confused at my first encounter, perhaps via a Mises intermediary that struck it in relief against the Evenly Rotating Economy, itself a conceptual challenge. Roundabout production and the related idea of capital structure both crystallized around the same time for me.
I like "roundabout" and think I can use it with friends.
Regarding regulation, one thing that comes to mind is that with experimentation, there is failure. So we want a culture and a legal system where it's allowed and even encouraged to try things, even when they don't work out.
I was expecting a mention of Leonard Read and I, Pencil
I'd like to link up roundabout production with PSST.
Let's suppose you live in an isolated community and the guy who has a comparative advantage (and absolute advantage) in net making is a huge douchenozzle. He forces his young kids to work making nets all day, he starts fights with neighbors, and strategically undermines everyone else.
And every so so often, the guy who makes the nets does something like create a big nuisance that drags everything to a halt in the village and mess up al the other roundabout production. How do we account for and incorporate these costs?
The first thing that came to mind seeing the phrase "roundabout production" was Vincent Ostrom's work (https://ostromworkshop.indiana.edu/library/bibliographies/ostrom-vincent.html ) on economic polycentrism:
"Vincent Ostrom, a prominent economist and political scientist, developed the concept of economic polycentrism as a framework for understanding the organization of economic systems. Polycentrism refers to a system where multiple, formally independent decision-making centers (polycentric units) operate under an overarching set of rules, rather than a single, centralized authority."
The question of regulation in a roundabout economy of course calls to mind his wife Elinor Ostrom's Nobel Prize lecture on "Beyond Markets and States: Polycentric Governance of Complex Economic Systems" in which she stated:
"The most important lesson for public policy analysis derived from the
intellectual journey I have outlined here is that humans have a more
complex motivational structure and more capability to solve social dilemmas
than posited in earlier rational-choice theory. Designing institutions to force
(or nudge) entirely self-interested individuals to achieve better outcomes has
been the major goal posited by policy analysts for governments to accomplish
for much of the past half century. Extensive empirical research leads me to
argue that instead, a core goal of public policy should be to facilitate the
development of institutions that bring out the best in humans. We need to
ask how diverse polycentric institutions help or hinder the innovativeness,
learning, adapting, trustworthiness, levels of cooperation of participants, and
the achievement of more effective, equitable, and sustainable outcomes at
multiple scales.
To explain the world of interactions and outcomes occurring at multiple
levels, we also have to be willing to deal with complexity instead of rejecting
it."
Perhaps a key to unlocking the wisdom in this observation might be found in the transactions cost economics work of Ostrom's Nobel co-awardee, Oliver E. Williamson:
"The basic proposition is this: absent the use of credible commitments to
support exchange, the contractual hazards associated with many transactions
would be perceived to be excessive. Generic investments would replace
transaction specific investments if the latter pose too great a risk. Some
transactions would be taken into firms. Some would never materialize.
Credible commitments sometimes come into place spontaneously, as
where a history of good experience with a trader leads to a positive reputation
effect. Often, however, credible commitments take shape as economic actors
consciously agree upon mechanisms that provide added assurance.
These can take the form of information disclosure and auditing mechanisms, the development of specialized dispute settling mechanisms, whereby the parties rely
more on private ordering than court ordering , and sometimes involve
creating hostages to support exchange."
(https://www.nobelprize.org/uploads/2018/06/williamson_lecture.pdf )
Thus it would seem decentralized private ordering and the local norms and social practices that propagate it are important factors in much of production and exchange at the transaction level. This might even be seen as compatible with concepts of patterns of sustainable specialization and trade. Unfortunately, the field of economics in general seems to have disregarded Williamson and the Ostroms. One rarely if ever hears of the Bloomington School anymore. I don't follow the econ journals enough to have much of an idea of whether Williamson is looked to anymore, but it seems transaction cost economics are not a particularly hot area in contemporary economics. It seems top-down preferably via supranational entities, highly centralized, AI determined, technocratic optimization is the answer to everything. One might wonder at what cost.
Very high status, plus high pay, top down technocrats, is what most successful economists seem to want to be.
Even at the cost of truth.
With respect to regulation, if the burden of regulation on an economic process exceeds the benefit to the shareholders, if transaction costs are low enough, the tendency will be for that process to shift to a jurisdiction with a more favorable regulatory balance. A series of processes that might otherwise be integrated instead then becomes more roundabout.
If the regulatory environment is better in Cathay than Kentucky to weld widgets, widgets will be welded in Cathay and not in Kentucky assuming that transaction, shipping, and coordination costs are low. The US and European regulatory states never really adjusted to the post-Vietnam War world in which transaction, shipping, and coordination costs per unit dropped to almost nothing, but the private sector did. Regulatory advantages help economic actors to develop real comparative advantages, and regulatory disadvantages encourage the development of comparative DISadvantages (e.g. all the workers in the generationally high-regulation jurisdiction become too high on fentanyl, SSDI payments, and TikTok videos to become effective widget welders ).
Hamilton was very aware of this dynamic, and it helps to explain the design of the Commerce Clause and the early jurisprudence around the Commerce Clause. The post-New Deal Commerce Clause interpretation sought to reduce regulatory competition between the states and to instead introduce an equalizing body of federal regulation. So a constitutional structure that should have been adaptive to regulatory competition instead became very slow to adapt, and thus began developing massive comparative disadvantages.
First I’ve heard of roundabout production. Whatever happened to division of labor?
"how do regulation and compliance fit into the roundabout production framework?"
Maybe horse and buggy didn't require regulation and compliance but I doubt we could have cars without it.
Someone mentioned capturing social costs. We have pollution we'd prefer to eliminated and pollution we are willing to allow but tax. Zoning is a type of pollution control to include noise and visual. Sin taxes. Monopolies, both the ones acceptable and not. I'm sure there's more we could think of.
Regulation is generally a floor or ceiling. Many cars exceed regulatory requirements. My 20 year old car exceeded regulations when it was made, not anymore. Housing regulations are generally a floor (even electrical). Many houses exceed regulations. my 1945 house would not pass modern regulation requirements. It still works.
In both cases, would it be better if newer house or car? Certainly for environment, certainly for safety, but those add cost and make the new choices more expensive. I am cheap.
All true.
When I started my last post I was thinking of roads and traffic control and I didn't mention that. Not sure why I didn't.
“Roundabout” is a poor choice—“ specialized ” would be better: more clear and less ambiguous.
Roundabouts are becoming a frequent traffic management option, many prefer to lights.
The focus on prices is very clear, so “price-based” production would also be better, or True Price. The strongest argument for most govt regulation is that there are social costs not included in the price, so the price is too low.
Private property is what most folks have, as compared to govt property—never actually public property. The biggest mislabeling is falsely calling govt property, or policy, public property or public policy. If it was public, any member of the public could make decisions about its use—they can’t because govt has decided rules about the use. Think govt schools, roads, parks, military storage yards of WW II equipment in the desert.
It’s good to note that free humans usually find they have much more material wealth by working & producing for money, to buy/trade to get other stuff they want. With all the desires & known possibilities being communicated to the interested decision makers thru prices. For many men, working for the most money they can get is the key decision variable, tho often oil worker in barren Alaska or N. Dakota is passed for a lower paying but better in other ways job.
Prices, budgets/money, and desires. All leading humans to very efficiently and effectively Co-ordinate their production and consumption decisions. The Free Market means the freedom of humans to make their own decisions.