Tuesday, February 24, 2015

Free Enterprise Always Goes To Market

Rope For Sale
Otavalo, Ecuador, 1975

This photo looks cheap and unprofessional because I took it with my little Instamatic camera when I was a missionary in South America in the 1970s.

The photo is what you think it is.

The couple of people sitting in the center of the photo is selling wares at market.

They are selling rope.  Of course, they made the rope.  They have been making and selling rope for years.  Rope is their business.

Instead of paying for a booth in the town marketplace, at the weekly market, they have set up shop in a gutter on a busy, popular road leading into town.

They have different styles of rope, with different thicknesses and strengths, made from an abundant, and free, local product - hemp.  The ropes are strong and long lasting.  I noticed this couple every week.  They are at market.  This is their marketplace, and their office.  They are practitioners of free enterprise.  Their lunch is in the small basket and they will be open for business all day.  What they don't sell will be packed up at the end of the day and returned to inventory.

If any company wants to go to market with any product - good or service - and someone looked up in any basic marketing book how to do it, they would see something like the following:
  • What product - good or service - will I sell?
  • What is my target market?
  • What price should I charge?
  • What should I do to advertise my product - good or service?
  • Where should I sell my product - good or service?
Every book's information would be basically the same in asking and answering those questions above.   If any company wants to market a good or service it HAS to ask and answer those questions!

The couple sitting in the gutter above has ASKED AND ANSWERED those questions.  They can make rope.  They are set up where they will get good foot traffic.  They are advertising their product two ways - it is laid out in the street and they have a reputation (they have been doing this for years).  What is their price?  You can see they are discussing that with their prospects.  The price will vary depending on many things.

What price will be settled on?  The LOWEST price the buyer can obtain and the HIGHEST price the seller can get.  That is the essence of free market economics. That is the essence of business.

Free enterprise antagonists would call it greed.
Free enterprise protagonists would call it self interest.

That is the way it is.  Whatever you call it, that is how economics works. 

Do you see any implied force in this photo?  Any gubment intervention?  Anyone breaking the law?

The sellers are trying to provide themselves a living and the buyers are trying to satisfy a need with discretionary money.  Each is left to decide if they want to proceed with the transaction.  Whatever you call it, greed or self interest, this is what makes economics go round.

This very process works in a micro-economic fashion for small and large businesses and it works in a macro-economic fashion for countries.  Each of the questions ASKED and ANSWERED above must be considered.  If not, economics does not go round!

How well a company or country does in the marketplace depends on how well they answer the questions!

Free Enterprise Always Goes To Market

Tuesday, February 17, 2015

Free Enterprise Makes Natural Resources More Abundantly Available

"Because we can expect future generations to be richer than we are, no matter what we do about resources, asking us to refrain from using resources now so that future generations can have them later is like asking the poor to make gifts to the rich."

Julian Simon (1932 - 1998)

All this talk about using up our natural resources.

We hear it and hear it and hear it.

Who says we will run out of natural resources?  People who don't understand economics. Economics says that no natural resource will ever go to zero.  We will NEVER use up any natural resource to the point that there is no more of it.

What, then, is economics?  Economics is a social science that tries to understand all of the various processes that govern the production, govern the distribution, and govern the consumption of all the goods and services in a given economy.

Key word:  govern.  The key word everyone forgets is govern!  There are true laws in the social science of economics!  For example:

  • There is the law of supply and demand.  If supply does this, demand will do that.  They reach an equilibrium point.  If someone tries to force a change in the supply or demand of a given good or service, they will each respond, and perhaps in ways not anticipated.  It's a law.  You can count on it.
  • There is the law of diminishing marginal utility.  Sounds like a fancy, schmancy term, but it isn't.  Marginal utility is the gain from an increase or the loss of a decrease of something.  The marginal utility of something, its usefulness, can diminish if there is too much of that something.  If I have a small garden that needs water, there is great usefulness to a first bucket of water.  Maybe a second or a third bucket is just as useful, but the one millionth bucket certainly has no use whatever, and is detrimental.  It's a law.  You can count on it.
  • There is the law of rent.  The economist David Ricardo demonstrated that rent is among the most firmly established laws of economics.  Rent, essentially, is the economic advantage, or disadvantage, of using a given thing productively.  That thing might be land, labor, or even capital.  Using a given factor of production, let's say a farmer's capital, like a wagon, to haul his hay from the field to the barn may not produce much capital gain for the farmer.  But on days not needed for hauling hay, if the wagon was dressed up and put at the side of a busy road, and used to sell produce to passersby, the wagon's value increases, and returns that value to the farmer.  Ricardo said that is rent.  It's a law.  You can count on it.
See the very first post on this blog, written in August of 2011 entitled:  Free Enterprise At Work.
So what is this idea that a given natural resource would never be used up?  Is Julian Simon crazy?

No, far from it.  Nature utilizes this principle itself!  What if a natural disaster like a forest fire caused by lightning or a volcano like Mount St. Helen blows up and destroys the natural forest nearby.  What happens?  Nature rebuilds itself.  It takes time.  But it rebuilds.  (The same thing would happen to a jungle where all the trees are cut down by a lumber company.  It will rebuilt itself.  It takes time.  But it rebuilds.)

What happens if an oil company uses up all the oil it can get to in a given drilled hole?  The hole might be abandoned.  But what happens over time?  Over time many things can happen.  Free enterprise  will create new technologies to come forth that help the oil company get more oil out of the same hole.  (Happening now.)  Or free enterprise  will find new ways to go get any oil that may be in a given area.  (Happening now.)  Or free enterprise  will design new techniques to get oil from the area that could not previously been derived, like from inside the surrounding rock.  (Happening now.)  Or free enterprise  finds cheaper and cheaper ways to create oil synthetically from other materials.  (Happening now.)

Or, theoretically, all of the oil in the world becomes so scarce and becomes so expensive that substitutes are developed that are cheaper and the expensive oil that remains is never used up.  Free enterprise  will always find those substitutes!  That is, if people and markets are free.

The Dr. Simon comment above is simple.  It is a free enterprise  comment!  Where free enterprise  exists markets have grown, those societies have gotten richer, and the people living there have enjoyed higher and higher standards of living.  Where free enterprise  does not exist none of that is encouraged.

Look around.

Free enterprise makes natural resources
 more abundantly available 
and future generations richer.

Tuesday, February 3, 2015

Free Enterprise Doesn't Kill The Goose

The Goose That Laid The Golden Egg

"A man and his wife owned a very special goose.  Every day the goose would lay a golden egg, which made the couple very rich.

'Just think,' said the man's wife, 'If we could have all the golden eggs that are inside the goose, we could be richer much faster.'

'You're right,'said her husband, 'We wouldn't have to wait for the good to lay her egg every day.'

So, the couple killed the goose and cut her open, only to find that she was just like every other goose.  She had no golden eggs inside of her at all, and they had no more golden eggs."

An Aesop fable (620BC - 564BC)

Telling such simple stories as these Aesop was able to lend his wisdom to the ages.  Why do these stories last?  Because they are so full of wisdom that can be applied in every age, and understood by people in many different cultures, that they are passed along and passed along.

Certainly this wisdom can be applied in a free enterprise way!  Free enterprise could certainly be said to be the goose that supplies the golden eggs.  Can a society becoming less and less free-enterprise oriented kill the goose?  Can this magical goose we all benefit from be killed?

Our current entitlement society, and gubments, local, state and federal, want more eggs than are being laid by economic activity.  They spend more and more eggs before they are laid.  As eggs are removed from the system and used for things that do not produce more eggs, freedom is restricted, standards of living are reduced, and less and less is available for personal wants and desires.  The spiral is down.

Two recent events combined to lead me to fear we are killing the goose more quickly than we might think, and leaving devastation in our wake for those who follow us.

The first event:  our mail often goes to other households and the mail for other households often comes to us.  This is nothing new, and probably the same for everyone.  In our neighbor's mail coming to our house one day was a DVD entitled something like, "How To Get Free Money."  Of course, the basic economic fallacy there is that something is free.  There is no free lunch.  Money has, that is HAS, to come from someone else if we are to get it.  If someone thinks there are ways to get "free" money, they must realize that first it was taken from someone else.  This sort of behavior, and agency after agency after agency that exist to "teach" people how to acquire other people's money, are killing the goose.

The second event:  the other day I was driving to a home inspection.  All during the days before we were warned about the substantial snowfall that would bury our area.  We were doomed.  As a result of this forecast (key word:  forecast) all of the local gubment agencies and schools closed.  State and federal agencies sent out similar warnings, giving people the option of whether they could go to work or not.  All of this was in advance.  We ended up getting 1" of snow.  The county I live in has dozens of gubment agencies, and dozens of schools.  How many thousands of people are employed by these entities?  Driving by the empty parking lots of two county gubment offices and many schools I realized that these people all were enjoying a paid day off.  My neighbors who work for state and federal agencies also stayed home, enjoying a paid day off.  Those paid days off are laid and harvested golden eggs, all gone to waste.


Where did those eggs come from?  On the highway I noticed plumbing trucks, electrician trucks, HVAC technician trucks, etc., you name it, private trucks.  All from private enterprises.  They were all engaging in free enterprise.  They don't have paid days off!  But they provide paid days off for others.

Each day that this happens we are doing more and more to kill the goose.  A larger and larger percentage of our society is not contributing to activity that creates the golden eggs.  A larger and larger percentage of our society thinks it can get "free" money and is taking and consuming those golden eggs.

Are we killing the goose?  None of that is free enterprise activity.  It is the opposite.  The opposite will kill the goose, albeit little by little, but it will eventually kill the goose.  Statism will kill the goose.  And the statist takers, and their taker constituencies, will run out of other people's money.  And then the takers will blame the givers.

Free Enterprise Doesn't Kill The Goose

Tuesday, January 27, 2015

People Partnered With Free Enterprise Make Things Happen

"Long John Silver unearthed a very competent man for a mate, a man named Arrow."

Robert Louis Stevenson (1850 - 1894)
from his novel Treasure Island

Not that the concept of this post is to extol pirates or piracy, because it is not.  Simply stated, the point of this post is the idea of partnership.

Who would Long John Silver want to accompany him on his journeys, no matter what the journey is about?  

He would want those who share is visions.
He would want those who he can work with.
He would want those who have what skills he doesn't.
He would want those who can bring symbiosis to the table, where one plus one is more than two.
He would want those who add their candle light to the other candles and make the fire brighter for all.

So, as to partnerships, this was suggested:  "To get along in business, the partners should have different skill sets that are complementary," said Issamar Ginzberg, a Brooklyn-based strategy adviser to entrepreneurs. "Two people who are good with numbers but bad at deadlines would be horrible. When they mismatch, they make a much better pair. … (As) in marriage, opposites attract."   

What are some famous free enterprise partnerships?  The ones where opposites attracted, or symbiosis brought more to the whole?
  • Ben Cohen and Jerry Greenfield - long-time friends who brought different angles to the same love for ice cream.  Almost everyone has taken a bite of their ideas.
  • Bill Hewlett and David Packard - electronics techs who combined curiosity and management, beginning in a garage.  Things added up very nicely.
  • Orville and Wilbur Wright - brothers whose mechanical abilities could be applied to another idea and industry.  We all know what happened then.  Even though death broke up the partnership, their business took off and continues today.
  • Warren Buffet and Charlie Munger - one, the value hunter, combined with the other, the inter-disciplinary thinker, learned to pay fair prices for good products.  The candle light from each has made the combined light much brighter.
  • Bill Gates and Paul Allen - combined computer genius aided by the negotiating genius of one with the innovation genius of the other.  Again, long-time friends.  Whose life haven't they influenced?
  • Steve Jobs and Steve Wozniak - two friends early in life bringing computer/electronic abilities together to take a bite from the same huge Apple.
  • Jerry Yang and David Filo - they found the internet rodeo could be corralled and organized and made keywords a part of the Yahoo of life.
  • Sergey Brin and Larry Page - two students who were Google eyed, joined for conversational clashes, which spurred a friendship, and then a partnership, with one having the ability to mine for data and the other the ability to place a value on how some things are perceived by many as important.
Long John Silver knew what he wanted, and where to go to get it.  He needed some help along the way.  And he brought together his crew.  So often the end is not seen in the beginning, but for him, at the end of the journey, X marked the spot.

Often one alone in a business endeavor is not enough to make it happen.  But in the right environment, a free-enterprise environment, one conducive to innovation and expansion, capitalism can make the combined effort more expansive and more influential than anyone had previously experienced.

And sometimes, just sometimes, we get to take a bite of a free sample - here I sampled the Triple Caramel Chunk.  Alas, there is no such thing as a free lunch, or even a free sample.  In this case the factory tour did have a fee attached!

People partnered with free enterprise make things happen.

Wednesday, January 21, 2015

Bureaucracy Is Almost Feudal, Where Free Enterprise Is Not.

"Washington has become this place that people don't leave. It has become this permanent feudal class."

Mark Leibovich
New York Times Magazine

The feudal economic system carried the load for much of the Middle Ages.  It was the ruling economic system on many continents.  It took hold, and spanned the 5th to 12th centuries, more or less!

What replaced it?  Free market economics - capitalism - free enterprise!

It is said that William the Conqueror (to whom I am said to be distantly related) brought feudalism to England to create loyalty.  Taking over as he did made him king over the land.  As the king, he was therefore responsible for his new subjects, those who lived in his new territory.  The system is such that as a king died, one of his sons or other relations would take over, and this kingship was passed along to subsequent generations.

William's territory would today be called Great Britain, but was then a disparate group of disparate areas and disparate people.  So, how does a king bring all that together?
He buys them off!  What does the new king William have to buy off loyalty?  Land.  So he appoints, or selects, barons to manage his business, awarding them land for such loyalty.  Barons were often selected from the family tree.

The barons, in turn, are responsible for that area so granted. Loyalty is created by them in much the same way, further down the line through the selection or appointment of knights.  The knights are the local managers, with the peasant rabble as their responsibility.  They are also the soldiers in the kingdom, even with power to recruit the army.  The knights were given land for their responsibility, with a small portion of it for personal use, and this entire grant would incorporate that local area of responsibility, along with the peasants that came with it.

The peasants were the local "blue collar" working class.  The peasantry had almost no ability to move up in the system.  They were without any rights, except what privileges that were allowed them by the local knight in charge.  Their work was forced.  They worked the land.  They worked for the king.  They had no ownership of anything. 

This began to change in 1215 when a group of nobles forced, that's forced, King John to sign the Magna Carta, or "Great Charter."  It began to change rights, incorporating new rights for the "citizenry," and even forced the king to obey some laws.  With time more and more ways were found to limit the powers of the king.  Councils developed, eventually into a representative Parliament, and the lawmaking began.  Kings had less and less ability to just do things - they needed Parliament's support.

This was not only a step toward democracy, but toward free market economics.  Individual rights were extended in private property rights.  And the free-enterprise games began.  

The "technical" definition of free enterprise is where goods and services are priced in an economy based on the laws of supply and demand (yes, LAWS), and the market-perceived benefits or quality of those goods and services.  Prices eventually reach a maximum point of equilibrium and are sustained by competitive market forces.  Competition can lower prices by making goods and services more prevalent and therefore less expensive.  Free enterprise demands competition and private ownership of one's idea, good or service.

Feudalism has not died, however.  It is alive and well in the gubment bureaucracy!  People come to Washington, set up their territories based on political "grants," and go about protecting it.  They want to live on in perpetuity!   And Washington becomes a career.  And the bureaucrats become permanent fixtures.  The Ben Franklin statement that visitors and fish begin to stink after three days could not be more applicable!


Tuesday, January 13, 2015

Free Enterprise Allows Go-Getter People To Happen To Things

“It had long since come to my attention that people of accomplishment rarely sat back and let things happen to them. They went out and happened to things.”

Leonardo da Vinci (1452 - 1519)

Happening to things.  That is very much a part of the philosophy of the free enterprise thinker.

And a free-market environment which allows the free enterprise thinker to think and become is essential to the process!  And the advancement of product development, and innovation, and production, and marketing, and - well, you name it.  Think about all of the "ands"  that follow.

One big  "and"  is the risk involved in all of that.  Risk may be the biggest reason that people of accomplishment, those free enterprise entrepreneurs of accomplishment, do not sit back and let things happen to them.  If an entrepreneur wants his product/idea to come to the market there must be a lot of making things happen! 

Look around!  This only happens in free enterprise spheres.  Where is the new thinking, new science, new tools, new ideas, new music, new art, new CONTRIBUTION, the new whatever (!), that advances everyone, that lifts everyone, that improves the lives of everyone, coming from?  All of the controlled people?  The people under the "gentle care" of dictators?  The economies where the wondrously-smart bureaucrats make all the decisions for the rest of their societies? 

Where do so many in the world go to get educated?  Go for training in things like medicine, aerospace, global business, technology, or you name it?  Where do people go to advance themselves as individuals, as world participants who make a difference, as members of a worldwide, corporate team?

They go to environments that are conducive to all that happening.

According to Leonardo da Vinci, they would want to go to where they can make things happen for them.

Free enterprise allows go-getter people 
to happen to things.

Wednesday, January 7, 2015

Free Enterprise Does Great Good To The People

"There have been abuses connected with the accumulation of wealth; yet it remains true that a fortune accumulated in legitimate business can be accumulated by the person specially benefited only on condition of conferring immense incidental benefits upon others. Successful enterprise, of the type which benefits all mankind, can only exist if the conditions are such as to offer great prizes as the rewards of success.

The captains of industry who have driven the railway systems across this continent, who have built up our commerce, who have developed our manufactures, have on the whole done great good to our people. Without them the material development of which we are so justly proud could never have taken place."

Theodore Roosevelt (1858 - 1919)

The term "Robber Baron" is an interesting one.  Of course it's a term intended as a slant, intended as a swipe at reality, and intended as a means to sway readers of history away from capitalism as a viable form of economic development.

But how did the west, how did the United States, grow so rich, and so fast?

Because monopolistic capitalists preyed on the poor and built huge business entities by suppressing all advantages to the ignorant and the slow?

No, not really.  Were there abuses, a word used above by Mr. Roosevelt?  Certainly.  There always are.  And the gubment provided a backlash toward what they perceived as monopolistic growth by trying to crush it with antitrust legislation.  What that succeeded in doing was breaking up a whole into smaller parts which each grew larger than the previous whole.  But that is another story.

The brilliant organizers of the American industrial revolution did so because they took advantage of new business organization techniques, and took huge risks.  They developed technologies and utilized natural resources to such an extent that out of nothing that previously was they created a vibrant something!  Not only did their businesses (and industries) grow, but all of the ancillary businesses (and industries) grew as well.   Think, for example, of all the towns, and businesses in those towns, that sprung up because of thousands of miles of railroad tracks that connected left to right, and up to down?  Goods and services could move from place to place, and thrive.

These Business Barons took advantage of free-market economics, which they called "enterprise," and combined it with the politics of freedom and rugged individualism, attracted a work force made up of natural-born citizens and immigrants who came to share in this growth, and utilized the diversity of skills (not heritage) and knowledge and energy of this work force, so well that these Fortresses of Free Enterprise made lives better for everybody.  They were EXCEPTIONAL at it.

If these immigrants were so badly mistreated why did so many keep coming for decades to take advantage here of what they could not take advantage of from where they came?  These immigrants kept coming because the word got out!  It was better here!  Was the work hard?  Yes.  Did they deal with personal and religious prejudices?  Yes.  Was there severe mistreatment at times?  Yes.  Was the life easy?  No.  But opportunity was in abundance, and futures were staked.

No group of men, these Business Barons, put a bigger stamp on the cultural and charitable and educational institutions in our society.  They established museums, art galleries, cultural halls, theaters, schools and universities, libraries, church buildings, orchestras, and other social and educational entities in virtually every city in which they prospered.  Indeed, no group of men in history has contributed more to these kinds of social things, and in particular to charities, than this group of men.

These so-called "Captains of Industry" created extraordinary economic privilege for all.  And how?  By employing an uncommonly forceful defense of laissez faire gubment policies and the protection of private property rights to form these new economic systems.  The means of finding, developing, producing, combining, transforming, manufacturing, transporting, communicating and financing a nation's natural resources came to be.  This is what T.R. meant by "material development" in the quote above, about which "we are so justly proud."

And the west, and the country, and the people, grew rich.  Let's keep it that way.

Free enterprise does great good to the people.