Demand: Where It Actually Comes From

You wake before dawn on October 23, 1984, in Addis Ababa. On your desk is a classified report from the Wollo and Tigray provinces. The harvest has failed for the second consecutive year. Rainfall was 30 percent below average. Grain stores are exhausted. Field officers estimate that 7.75 million people face starvation within weeks.

You have two options, and the cabinet meets in four hours.

Option A: Flood the market with subsidized grain. The government purchases grain from international donors and distributes it at heavily subsidized prices through state channels. This costs foreign currency reserves Ethiopia can barely spare. It also risks undercutting local traders and discouraging future private investment in grain markets, which your economic advisors warn will create dependency and market distortions for years.

Option B: Trust the market signal. Private grain traders are rational actors. If 7.75 million people desperately need grain, that need will register as demand. Prices will rise. High prices will attract traders from surplus regions. The market will route grain to where it is needed. Government intervention, your advisors argue, historically creates bottlenecks, corruption, and misallocation. Let the price signal do its work.

The logic of Option B is not absurd. Markets have solved distribution problems across history. Price signals coordinate the actions of thousands of dispersed traders faster than any central planner can. Your economic team, trained at universities in London and Chicago, can cite chapter and verse on the failures of Soviet grain management, on the Bengal famine of 1943 and the role of government hoarding, on the distortions created by price controls.

And yet something nags at you as you stare at the field report. The farmers in Wollo are not holding back their purchases strategically. They are not waiting for a better price. They have sold their tools, their livestock, and in some documented cases, the corrugated iron from their roofs just to eat through September.

What does the market actually see when it looks at these 7.75 million people?

You have four hours. Choose.