The Multiplier Theory of Marbles

"I learned long ago that if you take money out of the marbles game and put them into a pile on the side they aren't being used in the game."

Judith, the Hairdresser

That was very impressive to hear!  It was The Multiplier Theory of Marbles!

This weekend I had occasion to go to the hairdresser.  No, not for me.  I went to spend some of the business profits that I am paid and call discretionary money.

As the benevolent capitalist in my family, I go into the market place every day to apply and multiply my talents in favor of pecuniary return, which I call profit.  I was asked if we could spend some of that profit on the family hair.  Being a capitalist, but a benevolent one, I agreed.  And was dragged along to the hairdresser as we had more than one thing to do.

The salon had eight chairs, and only one was being used.

As the members of my family were waiting to be helped, the first in line to receive us was a hairdresser named Judith.  Judith was older than any of the other employees in the salon, 50s I guessed, and not festooned with the same flamboyancy of hair or dress.  Interestingly, the youngest member of our group liked Judith immediately and sat down.

In such circumstances I like to poke my beak into the nest to see how things are going.  Since there were other chairs available, I waited a while and then pulled one up and sat down.

Judith was very pleasant and I began talking with her.  I asked my favorite question - "How's business for you Judith?"  (I like to use the person's name - it was on her name tag.)

She frowned.  "People don't have as much money as they used to.  So much is being taken from us we are all having a hard time just living.  Fewer people show up like you have.  I learned long ago that if you take money out of the marbles game and put them into a pile on the side they aren't being used in the game."

Wow!  I had never heard the economy referred to as that before!  Here she is struggling in a micro-economic circumstance, with her many empty chairs, and simplifying the macro economy down to a game of marbles!

She went on.  "When so many marbles are taken out of the game, the game slows down, fewer people are interested in playing.  And it's harder to win the marbles that are left.  And that pile on the side no longer used in the game isn't helping it at all.  I don't care what they say, things aren't getting much better."  

That is pretty astute economic analysis!  I said, "Do you know what that is called in economic terms?"  She did not.  I said that when money is left in the economy it has its own velocity as it travels around the economy, used for this and that.  It is used for basic economic activity.  People have more to be able to spend more, people invest more, and people use it to start businesses.  More money for investment leaves banks with more to lend.  As they lend, and that money gets used in business start ups, it is called the "multiplier theory of money."  The money creates activity which creates more money which creates wealth.  The economy grows.  The money is essentially multiplied!  

Removing so much from the economy, or the game of marbles as you put it, there is less floating around and less for economic wealth creation.  There is less money for people to get their hair done.  And the money is negatively multiplied.  Less is created.  The economy slows down.  There are, as you say, fewer marbles left.  And yet they want to make the pile on the side even larger!

"Isn't that the truth!  You really explained it to me!"

No, Judith, you explained it about as well as I have ever heard!  She understands and explained 

THE MULTIPLIER THEORY OF MARBLES!

Here we have a nondescript hairdresser in a nondescript hair salon understanding macroeconomics in a way few do.  She has woken up.  Small business truly is the engine of the economy.  Judith wants the engine to make things go.

I think more and more people are beginning to wake up to free enterprise.  Is it in time?

Clunky But Savvy Free Enterprise

"Because I do more stuff."

Jay, the Lawn Care Specialist  

As a kid I did a lot of different things to make money. 

I started delivering the morning paper at 12.  At that age I was so small the bag nearly dragged on the ground.  Later in the morning I mowed lawns in the neighborhood.  Then during the afternoons we went to local golf courses and got golf balls out of the lakes to sell back to the golfers.  At night, on the weekends, I flipped hamburgers at a Burger Chef, and was a cashier before the cash register told you how much change to return.  At the end of the day my tray was always perfect.  Which was important as I had to pay back any deficit!  And I only made $.95/hour.

Of course, I rode my bike everywhere.

When I asked my mother if I could start mowing neighborhood lawns she said yes, but that I had to buy the lawn mower.  She would pay half because I would use it to mow our lawn too.

It disturbed me she wouldn't pay me to mow our lawn.  "It's OUR house..." is what I heard.

She also said I had to buy my own gasoline and lawn-care tools.

There was a lot of competition in the neighborhood.  Even a girl up the street.  Her father bought her a lawn mower and she was mowing a couple of lawns.  The nerve that a girl thought she could mow lawns!  Of course, she was bigger than I was and could probably beat me up, but still, what nerve!

I HAD TO FIGURE OUT HOW TO GRIND OUT THE COMPETITION.  ESPECIALLY YOU KNOW WHO.

In print shop at school I designed and printed my own business cards.

I selected, set and blocked the type, spacing and centering it in each line and the card, pounded it level, chose the very professional color and printed 250 one by one on the hand printer with the lever.  (This is 1966)

Sure, it's a clunky card!  But I was the only kid in the class to print business cards!

That one thing says a lot about me.

Then I needed a lawn mower.  I picked out and bought a Toro, with a side bag.  It was a beast!  And I was so small I could hardly push it!

The business needed more capital.  A gas can was essential.  And tools!  I needed tools!  Having none of that I needed to borrow money from the bank (Mom), which I had to pay back with the other money I was making.

Going to the hardware store, I picked out the sturdiest, high-tech tools I could find.  Everything was done by hand, of course.  The grass edgers had pads on the handles to make them more comfortable!  And we already had a rake for clean up. 

In those days there were no huge, plastic bags, so the homeowner's metal trash cans had to be used for clean up.  But when full it was too heavy to move, so I would position it at the street so the "trash man" could empty it.  Then I raked debris into small piles, carrying each one by one to the trash can.

My business was ready to market!  My tactic was simple.  I went door to door where I knew there were no kids to mow the lawn.  I knew my business had to be different than the other kids who mowed lawns.

This was my door approach.  Ringing the bell (which was mostly a ringing buzz) I put on my best puppy-dog eyes.  My spiel was simple - and always polite.  Handing them my business card I would say something like, "Good morning.  My name is Jay and I have a lawn-care business.  I would like to mow your lawn and take care of your garden and bushes."

The next question was always something like why they should hire me instead of somebody else.  Not realizing my answer was not very savvy, but nonetheless it demonstrated the essence of free enterprise.   I would hold up my hand edgers, smile and say,

"Because I do more stuff."  

Not exactly the smooth operator a more adult individual would be, the little entrepreneur at the door had handed over a business card and set himself apart in the marketplace.  I did more stuff than the other kids would do!

To seal the deal the follow-up would be, "I will bag your grass, clean the yard, clip your bushes, pull the weeds and edge your whole sidewalk.  I have my own tools and I will come whenever you want."  I guess I was savvy after all!

Like the butcher, baker and beer maker providing someone a better-than-average dinner, I WAS ACTING OUT OF SELF INTEREST.

And I mowed half my neighborhood, as much as I could handle.  And along the way I learned a lot about diligence, customer care, promptness, dependability and yard care!

Oh, I charged $5.  The other kids were getting $2 and $3, maybe $4 for a corner yard. 

I GOT MY PRICE.

How Does Your State Stack Up As Regards Free Enterprise?

"Nothing better expresses the aspirational ideal than the notion of small enterprise as the primary creator of jobs and innovation.  Historically, small business has accounted for almost two-thirds of all net new job creation, but recent research shows that the rates of new business start ups are at record lows.  Policy makers ignore small business at their own peril and that of the economy.  State governments can do little to directly promote enterprise and small business development, but they can increase the chances that entrepreneurs will thrive.  The vitality of the U.S. economy and hopes of hardworking entrepreneurs seeking the American Dream depend on our ability to engage and compete around the world for customers, capital and resources."

U.S. Chamber of Commerce Foundation Annual Enterprising States Study - April 2013

The very thing that impressed Alexis de Toqueville about the United States was the calm and considerate industry expressed by its multitudes of small businesses.

Small business, currently defined as an enterprise which employs 500 people or less, certainly leads the economy in job creation and overall employment numbers.

But the study quoted here states, "recent research shows that the rates of new business start ups are at record lows."  And that is a problem!  It further says that "small business may be down, but it is far from out."

As I have said many times, gubment cannot create jobs that add to the wealth of the whole economy.  But it can create an environment conducive to job creation, particularly small job creation.

When asked, entrepreneurs suggest that there are five critical things "that state government can influence to foster small business start ups and expansion."  The Annual Enterprising States Study looks at each state, and ranks the states one to another based on these criteria:

• Diversity in sources of capital
• An enabling culture
• Strong local networks
• Supportive infrastructure
• Entrepreneur-friendly government

The report measures each state overall as regards five policy areas conducive to growth and economic prosperity:  exports and international trade, entrepreneurship and innovation, business climate, talent pipeline and infrastructure.

The five states coming out on top this year are, in order:  North Dakota, Texas, Utah, Wyoming and Virginia.

You can click on your own state HERE to see how your state stacks up.  There are subcategories of each of the five above, and each state is ranked based on 30 criteria overall.

The entire PDF of this huge study can be viewed by clicking HERE.

What do we conclude?  When people are free to establish themselves in their various specialties and interact voluntarily with each other in a free market, the overall economy thrives.  It is this interaction of small business that has historically been essential to job growth and innovation, PARTICULARLY AFTER RECESSIONS.

If our leaders really wanted to goose the economy they would do everything possible to encourage an environment friendly toward small business (and business in general).  Period.

IF OUR LEADERS REALLY WANTED TO KEEP THE ECONOMY SLOW, CAREER JOB GROWTH WEAK, AND CREATE MORE DEPENDENCY ON THE GUBMENT THEY WOULD NOT ENCOURAGE SUCH AN ENVIRONMENT.

SO, THE BIG QUESTION IS:  AFTER YEAR AFTER YEAR OF WHAT WE ARE TOLD IS A "RECOVERY," WHY IS THE ECONOMY STILL SLOW, CAREER JOB GROWTH STILL PITIFULLY WEAK AND MONTH BY MONTH HUNDREDS OF THOUSANDS OF PEOPLE ARE STILL FILING FOR UNEMPLOYMENT BENEFITS AND BECOMING MORE DEPENDENT ON THE GUBMENT?

Think carefully...

And The Country Grew Rich

"You know that great prejudice exists against all successful business enterprise - the more successful, the greater the prejudice."

John D. Rockefeller (1839-1937)

As a young man, working as an office assistant for 50 cents a day, it is said that Rockefeller's great ambition was to have $100,000 and live to be 100.

He missed the first goal by a long shot, but nearly succeeded in the second!

Lining up third in the history of wealthy men (behind Andrew Carnegie and Sam Walton), John D. Rockefeller did it through business.  Adjusted for inflation some say he is the richest.

Although quite responsible for a lot of the economic development of the country during the Industrial Revolution, he was quite reviled in his time.

Living today, the word "revile" would not approach what the current gubment, and a lap-dog press, would do to him and his company.

According to my Oxford dictionary, "prejudice" is defined as a preconceived opinion that is not based on reason or experience.  It comes from the Latin word praejudicium, which means judgment in advance.

As regards successful business, Rockefeller says that there is "great prejudice."

That was in part fomented by the press in his era.  The New York World newspaper said, "Standard Oil is the most cruel, impudent, pitiless, and grasping monopoly that ever fastened upon a country."  Another muckraker, Ida Tarbell, wrote a book entitled The History of the Standard Oil Company.  Her book, in her words, "documented the company’s espionage, price wars, heavy-handed marketing tactics, and courtroom evasions."  Her father's oil company had been buried by Standard Oil and she was going to get it back!

But Rockefeller never said a word about her.  He did, in his own defense, say, "In a business so large as ours ... some things are likely to be done which we cannot approve. We correct them as soon as they come to our knowledge."

What did he do?  Organized horizontally and vertically, controlling about 80% of the country's oil at one point, his business developed drilling, refining, pipeline, transportation and distribution systems.  It is said he would arrive to the refinery at 6am to personally roll full barrels of oil into position for shipment.  Oil became cheap and affordable.  He developed over 300 oil-based products, including consumer items ranging from Vaseline to chewing gum.

His company was called a monopoly.  At its height Standard Oil employed over 100,000 people.

In 1911 Standard Oil was found in violation of the Sherman Anti-trust Act.  The "trust" controlled about 70% of the country's refined oil market, but only 14% of the U.S. crude oil supply at that time.  Standard Oil was broken up into 34 smaller companies.

What happened?  They all grew explosively (many still exist today - like ExxonMobil) and Rockefeller's personal fortune increased to over $900 billion.  Today's richest men are pikers compared to Rockefeller.

John D. lived in retirement for the last 40 years of his life.  However, he devoted his life to what he called "targeted philanthropy."  The extent of his philanthropy was huge, but not calculable.  He gave privately, and did not give for public notice.  And his whole life he tithed 10% of his pay check to his church.  His generosity is never touted.

So, was all this good or bad for the country?

His organization and business skills, and the practices he pioneered, helped feed the industrial revolution.  Immigration came from all over the world to find its fortune working for him, and the other "monopolies."

The business magnates of this era basically made the U.S., and made the west, RICH.  

They were heavy handed, to be sure.  They were ruthless, to be sure.  Would they get away with all that today?  Likely!

Some might call Standard Oil and the other business magnates of the Industrial Revolution monopolies.  But those magnates would call it free enterprise.

PROFIT IS MERELY THE MARKET RESPONDING TO WHAT A BUSINESS IS PROVIDING IT.  CONSUMERS, AND PERSONAL CONSUMPTION, RESPOND IN A BIG WAY TO A NEEDED AND WANTED PRODUCT. TODAY PERSONAL CONSUMPTION COMPRISES ABOUT 70% OF THE ECONOMY!  THOSE COMPANIES PROVIDING THE MOST-WANTED PRODUCTS ALL PROFIT! 

DID THESE MAGNATES, AND ROCKEFELLER IN PARTICULAR, LIFT OR SINK THE ECONOMY?  WERE THEY A RISING TIDE, RAISING ALL BOATS AS IT WERE, OR A FALLING ONE, BRINGING EVERYONE DOWN?   

 

AND HOW COME BREAKING STANDARD OIL UP INTO 34 SMALLER ENTITIES DIDN'T STOP IT FROM DOING WHAT IT DID BEST - OIL PRODUCTION AND DISTRIBUTION, AND GROWTH?

Think carefully...

Let The Market Decide

自由企業

   "The Customer is God, and the market decides everything."
Ancient Chinese Saying

The symbols above mean "free enterprise" in traditional Chinese script.  Interestingly, the symbols also can say "economic risk."  Free enterprise is a system of economic risk!  From start to finish.

And that is well put.

There are no guarantees in a free enterprise system.  There are too many things that can and do interact to guarantee anything.  If, that is, the market is operating freely.  Billions of interactions happen to bring the simplest product to market.  They cannot be managed of course, except when the huge fabric of the market place brings all the stages of innovation, design, production, marketing and distribution together harmoniously.

The MARKET is the only way this can happen.  And this has been recognized for millenia. 

The MARKET decides everything.

But what's this that the customer is GOD?

The business should worship the customer?

Well, yes!  If I am a large or small business and I do not take care of my customer, somebody else will.

But I thought Adam Smith's saying that the butcher, the baker and the beer maker don't bring their products to the market for any other reason but self interest.

IT IS SELF INTEREST!  But that doesn't discount the importance of the customer!

The wise business presents its products in the most attractive way possible!

When a chef sells a recipe book, the photos are incredible!  It's all about presentation!  It's all about the customer!

What is the chef's objective in selling the book?  The chef's self interest!  The chef wants to become better known, establish a niche, gain market share, be different, show off specialties, become a household word, and attract future customers!

This is what Adam Smith's words about the butcher, baker and beer maker mean!  Businesses act out of self interest, and the bottom line is return.

The butcher winks at a patron and cuts the meat slightly thicker, knowing this makes the patron feel special.  The patron returns.  And tells others.

The baker might sell a vase of flour that has been pushed down and compacted, knowing that the patron feels there is extra for the money.   The patron returns.  And tells others.

And the beer maker might have larger mugs in his tavern or include free food in addition to the drink. The patron returns.  And tells others.

And it's all about the bottom line!  

AS WE SAY THE BOTTOM LINE IS RETURN, WE SHOULD SAY THE BOTTOM LINE IS PROFIT!  BECAUSE IT IS!

Self interest is not selfishness.  All businesses small and large want to survive.  And they want to get better in whatever ways it takes to survive. 

Competition DEMANDS that a business gets better.  And change.  And distinguish itself in terms of product (which microeconomics calls product differentiation) and public perception.  Free enterprise is the only system that encourages, yes encourages, competition.  It encourages that businesses stand out.  And the stand outs attract a market and survive.

It is survival of the fittest.

But, as this Invisible Hand of the marketplace directs that everything moves toward being more and more efficient, and stabilizes a system of risk and reward, it is not a pounding fist.

The Invisible Hand is present day and night, and is always a beacon, for those who have eyes to see and ears to hear.  Those who see and hear respond more quickly to market changes.  

The Invisible Hand is a protective hen brooding her flock, gathering into safety and allowing to grow. 

The Invisible Hand brings the customer out of the wood work and into the market place to see and enjoy and participate.

THE INVISIBLE HAND IS THE REASON THE MARKET DECIDES.

THE INVISIBLE HAND ESTABLISHES FREE ENTERPRISE.

Calm And Considerate Industry

"What most astonishes me in the United States, is not so much the marvelous grandeur of some undertakings, as the innumerable multitude of small ones."

Alexis de Tocqueville (1809-1859)

In 1831 de Tocqueville was commissioned by the French Parliament to come to America to examine the penitentiaries and penal system.  

He stayed two years.

He had an ulterior motive however.  He wished more than anything to examine what made America, and Americans, tick.

"I have a passionate love for liberty, law and a respect for rights.  Liberty is my foremost passion," he wrote.  And he traveled where ever he could to examine that liberty in America.

His book outlining and analyzing his experience was finally published in 1835.  It was culled from handwritten notes he had made, even of conversations he had with citizens.

He was particularly taken with how freedom and liberty to express oneself was displayed in how Americans would set up a small shop, or business of any kind.  They expressed themselves "through industry."

Using words such as "marvelous grandeur" and "innumerable multitude" express how widespread this practice was in America, and certainly defines the boiled-down essence of free enterprise.

He witnessed America as a "whirling sphere of private entrepreneurship and civilian affairs regulated by civil code."  Americans would make laws to make sure free enterprise could thrive!  And de Tocqueville was astonished by how well oiled it worked.  He said, "Everyone is industrious."  And everywhere he traveled he saw it.

He was fascinated by what he called "American individualism."  For him individualism was a positive societal force, and his book changed its meaning as regards free market economics and free enterprise. 

Without using the words, he described free enterprise, which he described as the "American machine of industry," as "a calm and considered feeling which deposes each citizen to isolate himself from the mass of his fellows and to withdraw into the circle of family and friends ... with this little society formed to his taste, he gladly leaves the greater society to look for itself."

So how has he defined free enterprise?  As a pervasive system composed of rugged individualism, framed by the rule of laws.

That, brothers and sisters of the congregation, describes Adam Smith's Invisible Hand of free market economics!  Many millions are working individually, in concert with other millions who are unseen and unknown, to integrate a small portion of the greater whole into a supremely and finely woven fabric of production, distribution and growth.  And de Tocqueville describes that Invisible Hand as "calm and considered."  Each individual contributes his part.

THAT IS THE VERY SPIRIT OF AMERICA THAT ATTRACTED SO MANY PEOPLE, FROM SO MANY COUNTRIES, WITH SO MANY DIVERSE SKILLS AND BACKGROUNDS, FOR SO MANY DECADES, TO COME TO THIS COUNTRY TO AID IN ITS GROWTH AND TO GROW THEMSELVES.

This feeling, this SPIRIT, is why even today boatloads of people risk lives and fortunes to come here to America, and boatloads are not leaving to escape.

It was George Washington who appealed for "diversity" of immigration.  Not the meaningless diversity of heritage that confined and short-sighted people today think the word defines.  He was referring to diversity of skills and abilities to contribute to the building up of his great country and vision for the world.

It was George Washington who said we should have no "hyphenated Americans."  He was referring to heritage!  He said we should have no Irish Americans, Hungarian Americans, Chinese Americans, Latin Americans or African Americans.  Heritage was irrelevant to him.  AS IT SHOULD HAVE BEEN.  He wanted people to come here to BE Americans!  Just AMERICANS! 

GEORGE WASHINGTON WANTED PEOPLE OF DIVERSE INDUSTRY, GREAT ABILITY AND UPSTANDING CHARACTER TO COME TO THE UNITED STATES TO HELP FOUND IT AND BUILD IT UP.  AND HE WANTED THEM LEFT FREE TO DO SO.

AS PRESIDENT TODAY, GEORGE WASHINGTON WOULD WANT THE SAME THING ALEXIS DE TOCQUEVILLE DISCOVERED - CALM, CONSIDERATE, AND UNFETTERED INDUSTRY, CONTRIBUTING A "WHIRLING SPHERE OF PRIVATE ENTREPRENEURSHIP AND CIVILIAN AFFAIRS."

AS PRESIDENT TODAY, GEORGE WASHINGTON WOULD ENCOURAGE FREE ENTERPRISE.

Before It's Too Late

"The national budget must be balanced.  The public debt must be reduced:  the arrogance of the authorities must be moderated and controlled.  Payments to foreign governments must be reduced, if Rome doesn't want to become bankrupt.  People must again learn to work, instead of living on public assistance."

Marcus Tullius Cicero (106BC - 45BC)

Cicero was a well-known lawyer and orator, but he himself considered his most important achievements to have come in politics.  He thought of himself as a "Constitutionalist," and we might refer to him today as a "strict constructionist." 

The last half of the first century in Rome was disfavored with various wars and suffered under the dictatorship of Julius Ceasar.  Cicero fought against that politically with philosophy, education and advocated the participation of the people in the gubment process. 

CICERO FAVORED REPUBLICAN GUBMENT! 

His letters were found by Plutarch, who preserved them, and in the 14th century, because of these letters, Cicero's influence is said to have spurred the Renaissance.  His popularity peaked during the 18th century period of Enlightenment, and he had great influence on such political thinkers as John Locke, David Hume and Montesquieu.

Therefore, by transference, Cicero's philosophies had great influence on our Founding Fathers, and, in particular, one Thomas Jefferson.  The well-read Mr. Jefferson was very familiar with one Marcus Tullius Cicero.

Cicero warned often of the fall of the Roman Empire, unable to sustain itself as it got increasingly pre-occupied with the growth of gubment and its bureaucracy.  He saw that growth in gubment as, his word, "unsustainable."  Does this sound familiar?

Cicero warned often against budget deficits, advocating a balanced budget, by law if necessary.  He saw such deficits as, his word, "unsustainable."  Does this sound familiar?

Cicero warned often against gubment spending, which he called "arrogance," and a gubment which would eventually become financially, and morally, bankrupt.  He saw such spending as "unsustainable."  Does this sound familiar?

Cicero warned against the "entitlement" society of his era, and coddling those who would receive public assistance instead of working.  He saw the increasing growth of this segment of society as "unsustainable."  Does this sound familiar?

Cicero warned against piling up a debt that would get foisted upon the next and then following generations!  He saw this at a time when the Roman population growth was diminishing.  Fewer citizens would be required to "support" more and more debt and those from previous generations receiving gubment assistance.  He saw this eventuality as "unsustainable."  Does this sound familiar?

Cicero warned against not protecting Rome's borders and against a citizen population becoming more interested in entertainment and less interested in education and economics.  He saw that these empty interests would create the unraveling of a culture and the collapse of the society he knew.  He saw the preservation of Roman society up until his time as "unsustainable."  Does this sound familiar?

And our "leaders" seem uncaring and unfamiliar with this, learning nothing from history, and still stained and filled with the same arrogance as has brought down societies before.  They please themselves by growing the size and power of gubment and its bureaucracies, and spend money as if it is there, knowing that a future generation or generations will be responsible.  But like so many societies that have gone down before, this pattern will also fail.  And these policies will be unsustainable, and fail. 

And like the frog in a pan of slowly heating water, that does not know to jump out, the society will end up cooked.

What would Cicero be doing today?  He would be a firebrand, and a warning voice in the wilderness.  He would be trying to get others to understand what the future of today's political and economic arrogance holds and take back the society with the same teachings that buoyed up and stimulated the Founding Fathers.

CICERO WOULD SUGGEST THAT WE TAKE OUR COUNTRY BACK ... BEFORE IT'S TOO LATE.  

CICERO WAS RIGHT THEN, AND HE WOULD BE RIGHT NOW.