The Demand Curve

What do you think causes the demand curve?

Mechanically, it’s pretty easy to describe the laws of demand. The way pretty lines shift to the right or the left from shocks. It’s possible to deduce the real, rough, shape of the demand curve for a product (It just takes a lot of courage!). We can import all the knowledge about demand, segmentation and price discrimination. We can describe a demand curve just fine.

Why does it exist? What causes it to exist?

If intelligence didn’t exist, demand wouldn’t exist. It’s fun to think of a machine generating it’s own preferences, independent any human input. Most of human trainers of such machines seem to keep them on a short leash. Monkeys, too, create demand curves. Intelligence is a necessary condition for a demand curve to exist.

I can think of two angles to explain why.

In the first, an intelligence instantiates the curve, as an act of creation. Consider razor sharp flakes of black stone. Somebody figured out how to hit obsidian to create razor sharp edges. They found them useful. The inventor of skillfully striking obsidian with a stone to create razor flakes instantiated a demand curve for those razor flakes. They created the demand curve with that act.

In the second angle, people thought that razor sharp stone flakes were likely to be useful, so they wanted them. Then somebody wanted it so badly that they were willing spend a lot of time pushing through their discomfort and frustration and finally invented it. And then they told stories about it. Word spread. How much one was willing and able to pay depended a lot on the severity of their need, their belief in the truthfulness of the story or claim that razor flakes were sharp, and their trust in who was selling it to them. Pretty soon, everybody wanted them. But they were all willing to pay a different amount, based on their beliefs, need, and capability. The demand curve is caused by popular knowledge and popular imagination. The capacity to feed that imagination, and supply razor sharp stone flakes at scale was so powerful that it became the basis for some civilizations.

It’s very hard to think of a demand curve existing without an inventor to bring it into existence, and a group of people that share stories to keep it in existence. Even the demand for clean water and clean air are inventions. The idea of the word clean comes from somebody, doesn’t it? Word on the street is that both things are good for you. You should want them too.

It’s fun to think of all the stories people used to believe about demand. Like one story from the early 20th century about a department store that displayed a $1000 dollar hat on their top floor. People mobbed the department store to get a look at the $1000 dollar hat. A gentleman even showed up to buy the $1000 dollar hat. Of course, there was nobody truly willing to pay that sum. The man that showed up was a marketer and he was reimbursed by the department store. The stunt drove a crowd. I don’t think that tactic would work nowadays. Though, there are a lot of people that believe a handbag is worth $50,000 dollars because of the stories people tell. Price boils down to belief. And beliefs are invented.

Whether it’s tulip bulbs, canned corn, or bitcoin – their demand was invented, and was sustained by, human intelligence. The wider the knowledge, the deeper the belief, the stronger the demand. The market has power because we give it power. We invent that power.

What do you think? Does it boil down to belief?