What can ice teach us about economics? We’ll see, but let’s begin with some fundamentals.
Prices, property rights, and profit (and loss) lead to information, incentives, and innovation. This simple statement contains nearly every lesson necessary for a free and prosperous society.
This lesson is exemplified in early nineteenth-century Boston with the rise of the American natural ice trade ..
Meanwhile, as the price of the ice on the ponds rose, the people of Boston gained the information that the ice would bring a higher return in the Bahamas, thus they used less themselves and sold the ice to the Bahamians. In 1840 the ponds in the Boston area were explicitly divided, giving each person on the lake the right to exclude everyone else from harvesting any ice that wasn’t theirs. This allowed Tudor, for example, to invest in his ice and let it freeze longer so that it could better survive the long journey from Boston to India, which entailed crossing the equator twice and sailing around the tip of Africa. As Tudor earned profit from his venture, more people were attracted to the ice.
To continue to earn a profit, therefore, he had to find a way to outcompete everyone else ..
Tudor and Wyeth also experimented with new means of insulating the ice from the heat, discovering that sawdust was not only a fantastic insulator but was also cheaply available from the sawmills around Boston. They also taught their customers new ways to use the ice, including making ice cream and storing the ice in iceboxes to preserve foods longer.
In short the three Ps lead to the three Is: Prices, property rights, and profit (and loss) lead to information, incentives, and innovation. With these firmly in place, a free and prosperous society will follow.