Monday, June 15, 2015

Free Enterprise Is The Model For Economic Perfection

"Take care of your body with steadfast fidelity.  The soul must see through these eyes alone, and if they are dim, the whole world is clouded."

Johann Wolfgang von Goethe (1749 - 1832)

Pick your analogy:  an economy is like a human body.  It is like an engine.  It is like an ecosystem.

An economy is an interactive, vibrant, bustling thing, with trillions of parts, with each part having its own place and function.  Or at least it should be.

Any economy could very much be compared to the human body.  And like most things, garbage in, garbage out.  The body must be fed.  Physically fed, mentally fed, spiritually fed, emotionally fed, socially fed - you name it.  The body is vibrant, and complex.  What goes into its creation and maintenance should very much be the best that can be provided.

Free enterprise is the kind of engine that is well suited to provide the best and most complex energy and sustenance for the body of any economy.  Economic activity requires vibrancy, and the best place for diverse vibrancy is a free-market influence.

Carnegie said that while it may be tough on the individual, the competition found in a free enterprise economy is best for the whole (which he called "the race") because "it insures the survival of the fittest in every department."

And so it is with any body, or engine, or ecosystem, or whatever is complex and interactive.

Leonardo da Vinci had some suggestions on how to best maintain the human body.  He was an accomplished chef, mostly vegetarian, and understood the importance of good food toward the maintenance of the human body.  Goethe said of him, "Handsome with a splendid physique, he seemed a model for human perfection."

Obviously da Vinci practiced what he preached.  He viewed illness as "the discord of elements infused into the living body."  In other words, garbage in, garbage out.

And so it should be with an economy - what goes in contributes greatly to what results.  Especially if it is allowed to operate freely.  Good in, good out.  Vibrant in, vibrant out.  Happiness in, happiness out.  Free enterprise in, free enterprise out.  And so forth.

Here are da Vinci's suggestions for healthy living.  Pay attention to how simple, and complete, this list is:

"To keep in health these rules apply:
  • Beware of anger and avoid grievous moods.
  • Rest your head and keep your mind cheerful.
  • Be covered well at night.
  • Exercise moderately.
  • Shun wantonness and pay attention to diet.
  • Eat only when you want, and sup light.
  • Keep upright when you rise from the dining table.
  • Do not be with the belly upward or the head lowered.
  • Let your wine be mixed with water, take a little at a time, not between meals and not on an empty stomach.
  • Eat simple (i.e. vegetarian) food.
  • Chew well.
  • Go to the toilet regularly!"
Applying this kind of wise simplicity to the health of an economy (and free enterprise provides that naturally), that economy will be, like da Vinci, a "model for [economic] perfection."

Free enterprise is the model for economic perfection.

Saturday, May 9, 2015

Free Enterprise Happens Because The Mental And Physical Happen

"Baseball is ninety nine percent mental.  The other half is physical."

Yogi Berra

The well-known baseball player and manager Yogi Berra was famous not only for his baseball prowess and history, but also his sayings.  He called them truths.  Others called them Yogiisms.

Sometimes paradoxical, and sometimes contradictory, they always seemed to get to the nub of what he was saying and as such became instantly understandable.

This one is no different.  It says it all.

And it can be applied to more than baseball.  It can be applied to business and free enterprise.  You have to give free enterprise effort - mental and physical.  Can they add up to more than one?

Maybe.  Sometimes the effort is more mental and sometimes it may be more physical.  But you have to give the effort.  And no matter what the effort is.

And in all phases - idea development, product or service development, implementation, market and market segment, delivery, product differentiation, whatever!  Certainly, it's ninety nine percent mental and the other half is physical.

This Yogiism might just as well be a free enterprise-ism as well.

Not paying attention to the mental or the physical will not usually lead to success in anything, be it baseball, or a free enterprise undertaking.  But that only states the obvious.

After all, how did people get to the stadiums and ball parks for baseball games.  Free enterprise brought them there!  From the subways, to buses and trains, to cars.  With hopes of souvenirs and food and drink.  And a venue with lights and loudspeakers.  And on an on.  Baseball happened along with the free enterprise that contributed to its happening.

Free enterprise is certainly ninety nine percent mental, with another half of physical and the rest thrown in.

Free enterprise happens because the mental and physical happen.

Thursday, April 30, 2015

Free Enterprise Finds A Better Way

"Our greatest weakness lies in giving up.  The most certain way to succeed is always to try just one more time.  There's a way to do it better - find it."

Thomas Alva Edison (1847-1931)

Therein lies the crux of free enterprise.  Trying just one more time, and doing it better.

And this thought came from an individual who thrived on doing it better.

Thomas Edison had far more "inventions" and patents that were improvements of other inventions and patents than he did original inventions and patents.  He simply found a way to do it better.

He thrived on learning how "it" was not to be done, so he could find a way to do "it" period.

He thrived on the idea that "it" involved very little inspiration and a lot of perspiration.

Edison's version of creative destruction was through creative improvement and reinvention.  At his Menlo Park, New Jersey laboratory, he assembled an international team of engineers, a glass blower, mathematician, a Swiss clockmaker, carpenters, machinists, business professionals and secretaries, and put together a small factory he referred to as his "invention factory."

And they worked, at creative destruction through creative redesign.

Not that they didn't invent new things!  They did!  His original design for the light bulb socket is still in use today.  And not many things have been more creatively destroyed and reinvented over the years than the light bulb.  He found a zillion ways NOT to do it, and then found the first real way to do it.  And things went from there.

This is the essence of what you get if free enterprise would be boiled down.  What would be left in the pot would be this idea of trying things one more time, and finally doing something better.

The freedom, and free market, to do so is the catalyst of what makes it happen.

Edison's good friend, Henry Ford, found the Menlo Park work to be so important that he had Edison's lab buildings reconstructed in Dearborn, Michigan, from drawings and with some of the original materials, so that people could see in museum form what it was in which so much new thought and rethought took place.

His thinking and rethinking of things began as a very young child.  His favorite word seems to have been, "Why?"  If people could not answer his questions, or if they did not know how something worked, he would ask why.  Most found this persistence to be arrogant and aggravating.

A teacher at his school lost patience with this persistent questioning pronounced him "addled."  Addled, or confused, was not something that pertained to Thomas Edison.  He was merely an investigator, and would today be diagnosed with some form of "special need,"  and prescribed some drug to "help" his condition.  Of course, he needed no such "help."

His mother, recognizing his frustration and the frustration of his teacher(s) withdrew Thomas from school.  Long before it was popular, and this is the 1850s, she began home schooling him.  Her technique?  Let Thomas investigate.  She taught him from the Bible, his father gave him a dime for every classic he completely read, and Thomas was allowed his passion during school - he loved to read and recite poetry, and study world history, English literature and Shakespeare. 

At 11 he was taught how to use the local library and he spent his days there.  His eventual interest in mathematics and science lead his parents to realize they would be unable to help him further and they hired a private tutor.  The tutor could really only encourage Thomas's voracious ability to analyze and investigate.

In addition to school he began working at age 12 selling newspapers and candy at a local commuter train station.  At 14, using news from the local teletype machine, he published his own weekly newspaper, selling it to a group of 300 devoted commuters who purchased it regularly.  It was the first known type-set publication sold to train commuters in the country.

Taught Morse Code, he soon became exceptionally competent at telegraphy.  In fact, at 16 years of age, his first invention was what he called the "automatic repeater," a device that could send transmissions from station to station and allowed others to more easily translate the Morse Code clicks at their own speed.   He never patented that first invention!

Edison's whole life was spent "finding a better way."  He epitomized the quote above.  He never failed to try things just one more time, and find a better way.  In that he epitomized free enterprise.

Free enterprise finds a better way.

Wednesday, April 22, 2015

Free Enterprise Is A Ferocious Jungle

“For myself, I always assume that a lion is ferocious, and so I am never caught off my guard.”

Edgar Rice Burroughs (1875-1950)
From the book Tarzan of the Apes

 Such is the life of an entrepreneur! 

Starting something, even from the ground floor, a new product, a new idea, a new service - is difficult at best.  And the entrepreneur must, indeed MUST, assume that there are lions out there.

And not just that there are lions, but that the lions that he will face are all ferocious.

And who or what are the lions?  An entrepreneur has to be a lion.  And a ferocious lion!  And the entrepreneur has to assume that the new thing being offered by his business will be accepted.  Why else go through all that it takes to bring something new to the fore?  And even if that new thing is indeed new, never before seen, there may be another entrepreneur (another lion) with the same thing.  Or, and this is a certainty, there are other lions out there ready to pounce on the first entrepreneur's good or service, and offer a similar thing. 

And the second new thing will be very similar, but different.  It will offer itself as bigger, better, more colorful, doing more things, more convenient, a second for free, free shipping, etc., than the first!

The free enterprise jungle is full of other lions!  And the first new good or service offered by the first lion, if received and in demand, will be pounced upon by other ferocious lions.  The first entrepreneur has to assume, as Tarzan knows, that they are ferocious! 

And free enterprise is beautiful and hideously ferocious at the same time - the second (or third or fourth) lion will find plenty of meat to eat!

This plots the course for the first entrepreneur.  There must not only be plans for the roll out of the first new thing, but plans in advance for another roll out of an improved version.  If not that, then at least the first entrepreneur must have the ability built in to up the ante with faster this, more colorful that, or free this or that.

One new product out in recent years offers home repairs in a can.  You merely spray the magical stuff on whatever the surface and magically it is repaired - no more leaking, no more exposure to damage - and the repair even magically disappears!  The repaired whatever looks like new!  At least on TV.

Since the roll out of the first magic in a can, not only are there more colors of the original product, but different kinds - a caulk and a putty in addition to the spray.  And all of the new products are just as magical as the first!  And also come with the free this or that, and if you call by a certain time you might, maybe, hopefully, wonderfully qualify for a second ABSOLUTELY FREE!  But call now!

The lions pounced on the first product with their similar offerings.  And they have been ferocious!  And to keep up, these second and third and fourth lions must also offer the add-on products that are just as magical and wonderful as the first lion's offerings.  It is a virtual tornado of ads and offerings.

There is ferocity all over the jungle!  And the lions all appear to be fed well.

Free Enterprise Is A Ferocious Jungle.

Tuesday, April 14, 2015

Free Enterprise Avoids The Tar-Baby.

“One day after Brer Rabbit had fooled him with a calamus root Brer Fox went to work and got some tar. He mixed it with turpentine, and fixed up a little doll that he called a Tar-Baby.   He put a straw hat on the Tar-Baby and sat her in the middle of the road, then hid in the bushes to see what would happen.
He didn’t have to wait long either, because Brer Rabbit soon came pacing down the road as saucy as a jay-bird. Brer Fox, he lay low.
Brer Rabbit come prancing along until he spotted the Tar-Baby. The Tar Baby, she sat there and Brer Fox lay low.
“Good morning,” said Brer Rabbit, “Nice weather we’re having.”
The Tar-Baby said nothing. Brer Fox laid low and grinned an evil grin.
Brer Rabbit tried again. “And how are you feeling this fine day?”
Brer Fox winked his eye slowly and laid low in the bushes, and the Tar Baby, well, she said nothing.
“How are you then? Are you deaf?” said Brer Rabbit. “If you are, I can shout louder.”
Tar-Baby stayed still, and Brer Fox, he lay low.
“You’re stuck up, that’s what you are,” said Brer Rabbit, “I’ll cure you, that’s what I’ll do.”  But Tar-Baby said nothing.
“I’m going to teach you how to talk respectable to people," said Brer Rabbit. ‘If you don’t take off that hat, I’m going to beat you up”.
Tar-Baby stayed still, and Brer Fox, he lay low.
Brer Rabbit keep on asking, and the Tar-Baby kept on saying nothing.
Presently, Brer Rabbit drew back his fist and hit the Tar-Baby on the side of the head. His fist stuck and he couldn’t get loose. The tar held him. But Tar-Baby, she stayed still, and Brer Fox, he lay low.
“If you don’t let me go, I’ll hit you again,” said Brer Rabbit, and with that he swiped again with the other hand, and that stuck. Tar-Baby said nothing and Brer Fox, he lay low.
“Let me go, or I’ll kick the stuffing out of you,” said Brer Rabbit, but Tar-Baby said nothing. She just hung on, and Brer Rabbit lost the use of his feet in the same way. Brer Fox, he lay low.
Then Brer Rabbit yelled out that if the Tar-Baby didn’t turn him loose he’d head butt her side-on. So he butted, and his head got stuck. Then Brer Fox sauntered out, looking as innocent as could be.
“Hiya, Brer Rabbit,” said Brer Fox. “You look sort of stuck up this morning,” and then he rolled on the ground, and laughed and laughed until he could laugh no more. “You’ll have to have dinner with me this time, Brer Rabbit. I’ve got some calamus root, and I won’t take any excuses.”

Joel Chandler Harris (1848-1908)
A rewrite of the Tar-Baby story, as told by Uncle Remus.

This is one of many metaphorical stories written by American folklorist Harris.  He wrote of his period, social circumstances, and many of his stories were very parable like.  As an teenaged apprentice on a Georgia plantation he learned many of the oral traditions of the African slaves he worked with.  And he recorded them and introduced them to American society with his books.

Are there things in this particular story for our era?  Do we have Tar-Babies in our midst?  What are some of the things our society has for us that might get us stuck?  How about:

1.  Entertainment?  Ask kids these days pop-culture questions or questions about things of import to us as citizens and which are they more informed after?  Try that with many adults!  What about video games and music?  How much time is spent honing one's ability through involvement there?  So many are stuck in that Tar-Baby!
2.  Cell phones?  Go anywhere, what are people doing as they are walking or standing or DRIVING!?  I go to the grocery store or a restaurant or stand in line anywhere and many are buried in their phones.  I drive down the road and other drivers are texting!  Wonderful...  So many are stuck in that Tar-baby!
3.  Lobsters?  Put a bunch of lobsters in a big bucket and if one tries to get out what do the others do?  They reach up to pull him down!  None can escape the others!  People can be like that.  "Geeks" are expected to try in school but pay for it socially.  But what of those others, not thought to be "geeky," who want to do well also?  How are they treated by the lobsters?  When some in certain groups want to do well in society and "succumb" to "the man," they are berated and name-calling results!  By whom?  The lobsters!  So many are stuck in that Tar-baby!
4.  The unmotivated and uninspired?  What generation hasn't had these?  But it seems so rife today among the young set.  Personal direction, if present at all, sometimes has tunnel vision with focus on fitting into some fringe aspect of society - gangs, clubbing, tattoos, weird jewelry, living forever in Mom's basement, and obtaining "free" entitlements.  And the trend toward legalizing "recreational" drugs isn't helping.  Using the word "recreation" to describe certain drugs is part of the lure!  There is benefit there?  So many are stuck in that Tar-baby!

Free enterprise participants can't get stuck in Tar-babies.  They have to be on the move!  They have to be a vibrant part of the system!  For society to advance via free enterprise, for the general standard of living to improve via free enterprise, and for the economy to expand from here forward as it did in past decades via free enterprise, the populace (especially the rising generation) has to be educated, focused, goal-driven, moral and motivated!  There is no time for any Tar-baby that might be in the road along the way.  The enticing Tar-baby has to be avoided!

Free enterprise avoids the Tar-baby.

Friday, April 10, 2015

Free Enterprise Has Its Own Spirit And Energy

" people in the world have made such rapid progress in trade and manufactures as the Americans.  In the United States the greatest undertakings and speculations are executed without difficulty, because the whole population are engaged in productive industry, and because the poorest as well as the most opulent members of the commonwealth are ready to combine their efforts for these purposes.  But 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. Almost all the farmers of the United States combine some trade with agriculture.  The Americans make immense progress in productive industry, because they all devote themselves to it at once; and for this same reason they are exposed to unexpected and formidable embarrassments. As they are all engaged in commerce, their commercial affairs are affected by such various and complex causes that it is impossible to foresee what difficulties may arise."

Alexis de Tocqueville (1805-1859)
from Democracy in America, Book II, Chapter 19

Tocqueville was a classical liberal, the equivalent of today's political conservative.  He was sent by the French government to the United States in 1831 to study the prison system.  He spent two years, spending very little time doing that, and most of his time traveling the country and examining what made Americans, and their unique form of democratic exceptionalism, tick.

His book, Democracy in America, was the result of those travels, and was published in 1835.  I got it downloaded to my Kindle for free!  It is a GOOD read!

He saw Americans as basically agricultural, but with a free enterprise spirit and energy unrivaled in his European travels and experience.  Everyone was busy doing something!  Everyone was finding a niche, and pursuing it.  America, in his view and experience, was composed of "an innumerable multitude of small" businesses.  Its people were indeed pursuing happiness.  He was seeing private property rights at their best.  Americans were increasing in value, and passing that value along to the next generation.

Isn't that true today? 

The United States Constitution set up the perfect venue for the natural development of free enterprise.  Such freedoms, expressed as God-given and natural rights, were never before pursued so universally by a people.  This is the essence of the "rugged individualism" and "American exceptionalism" that we hear of today.  Such exceptionalism is NOT  that Americans are somehow uniquely exceptional.  Quite the contrary.  We are as ordinary as anyone else.  But when given the freedom to pursue unique talents and become unique individuals, and expressing ourselves via legally PROTECTED natural rights to do so, the nation flourished and became rich as its individual components, i.e.(id est, or "that is") its people, flourished and became rich.  The ordinary can indeed do extra-ordinary things.  This so-called political and economic "experiment" was TRULY EXCEPTIONAL.


Free enterprise folds naturally into this arena.  It is the mother's milk of individual freedoms and the pursuit of happiness.  It is, along with our other protected rights and freedoms, what makes this country tick.


Wednesday, March 25, 2015

Free Enterprise Maximizes Happiness

 "...every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good."

Adam Smith (1723 - 1790)
from An Inquiry Into the Natures and Causes of the Wealth of Nations

Adam Smith introduced the concept of "the Invisible Hand" into his economic thinking because he was a religious man.  This application of the invisible hand to economics, indeed, in his thinking, into many aspects of human life, was consistent with his understanding of how God oversees the universe.  In his thinking God, a benevolent, loving God, directs the universe in such a way as to maximize happiness for His children.

This must also be how the Invisible Hand of economies interacts with society.  Each individual is striving to improve his condition, to gain in life, and to make more happiness for himself and his family.  And while each must be doing this individually, he finds himself needing to exchange with others.  In the myriads and millions of such exchanges, one to another and to another again, each is offering as much value as possible and hoping for similar value in return.

This is how the standard of living of societies improves and advances.

Smith's thinking has caught on, with his Invisible Hand used as explanations for many things.  People interact!  And so often with one not knowing what another might be doing.  But if each has the freedom, the free enterprise,  to act in his own, individual best interests, what would come of society in general?  Of course - things would get better.  Happiness would be better maximized.

Each individual in the economic society is thus able to operate independently and intertwined.   In Smith's words, each advances "by his own gain."  And THIS is the invisible hand at work.  While each is operating in his own self interest, each, at the same time, and perhaps not intentionally, is operating to benefit the whole.

Utter decentralization reigns!  Contracts are implied in trade and individual interaction.  Goods and services are offered, bought and sold, and each seeks his own.  The self interest of "the butcher, the brewer, or the baker" brings the best it can for sale and exchange.  And expectations arise not because of their "benevolence" ... and profit happens because the entrepreneur acts in regard "not to their humanity but to their self love."  Self interest reigns on both sides - in the seeking and in the offering.

The buyer is seeking, and expecting, the cheapest price and the entrepreneur is seeking, and expecting, the most profit possible.  This was treated in a post just a while ago entitled Free Enterprise Always Goes To Market.

Is Adam Smith's Invisible Hand simplistic?  No.  It is attractive because of its simplicity!

This is the thing that advocates so strongly FOR free enterprise economics!

What can disrupt it?  What Milton Friedman called the "invisible hand and foot."  He said, "when government attempts to substitute its own judgments for the judgments of free people, the results are usually disastrous. In contrast to the free market's invisible hand, which improves the lives of people, the government's invisible foot tramples on people's hopes and destroys their dreams." (emphases mine)

This is the thing that advocates so strongly AGAINST statism!

Free Enterprise Maximizes Happiness.

Wednesday, March 18, 2015

Free Enterprise Requires That Everyone Plays

"The Crafts which require the most Time in training or most Ingenuity and Industry must necessarily be the best paid."

Richard Cantillon (1680-1734)

This is a wonderful quote.  It answers many questions.

Sometimes called the "Father of Economics," though that might be disputed by followers of other such "fathers," this is a most useful and applicable quote.

What questions does it answer?  Many!

It answers the question of "what might I do with my future?"  How?

Because it answers the question of, when one's traits and interests and skills are discovered, how one might consider what they do with their life.  How?

Because it answers the question of what one might do with one's education!  How?

The goal of education is to learn to think for oneself.  In school we are taught different subjects; have to read things in those different subjects we might not otherwise read; have to do problem solving in different subjects that we may not enjoy or understand; find via this diverse experience what we would enjoy studying more about.  The purpose of all that is to encourage us to think in different ways, and use our brains in different ways.  And think for ourselves.

Hopefully, through the experience of early education, we become a MORE WELL-ROUNDED INDIVIDUAL.

And, hopefully, as we study a subject, whatever the subject, we learn to think as an expert in that subject might think!  When an astronomer sees something through the Hubble telescope that no one has seen before, he/she can't run to a former teacher to ask what it is.  That teacher wouldn't know!  So, what to do?  That astronomer must think like an astronomer would think!  The astronomer must apply learning in astronomy to the problem/interest at hand, create analyses in experimental ways, and develop hypotheses or theories as regards that new thing.  And, AND, any conclusions reached might change next year anyway with a new discovery!   Which requires more "Ingenuity and Industry" by those in the field to further more learning and provide more understanding.  And the beat goes on!

From that early education, if we follow the Cantillon quote, one might seek further education to acquire more "time in training or most Ingenuity and Industry" as regards what one likes to study the most.  We go to college, select a major, hopefully study and learn diligently so we can apply understanding to principles, and become one that thinks like an expert in that field, maybe even seeking further and further education.  To quote a phrase, piling it higher and deeper later on.  We might not even go to college, choosing instead to develop the skill or service we want to provide.

However, in the end, we would be gainfully employed, or employ ourselves, in our chosen field of endeavor, or service offered to others.

How well are we paid?  We are paid based upon how hard it is to replace us!  We might find a niche that no one has found before.  We might develop a good or service that no one has developed before.  We might become better at our craft than anyone has become before.  And as such we become more and more indispensable.  


Where does it begin?  In early education.  With stimulus and curiosity.  With support from parents and teachers and friends.  With personal leadership and self awareness that what we are trying to do is important to ourselves and society.  

And we are expected to do this when we are children!

Eventually we begin our individual quest.  Eventually we become a part of the mix.  Eventually we become players.  Or not.  We might choose not to do any of that and be dependent on others.

Free Enterprise Requires That Everyone Plays

Wednesday, March 11, 2015

Free Enterprise Sees The Forest And The Trees

"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.'  But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."

Murray Rothbard (1926-1995)

How often do we hear somebody in the news, be it a political leader or news person, who states something so absurd economically as if it is fact, and expects everyone to simply accept it?

These "straw men" are put before us all the time.  "Economists all agree..."  "Soccer moms want..."  "The will of the people is..."  "The ______ community is in agreement..."  "The middle class..."

Any time you hear such talk you can discount it right away as incorrect and irresponsible.  Why?

Because such talk is an economic fallacy and an error - the so-called "fallacy of composition."

That fallacy proposes that if one individual thinks so, all in that individual's group must think so.  It is not only incorrect as a philosophy, but as a way of posturing any argument it is absurd.

Adam Smith, in Part 6 of his book "The Theory of Moral Sentiments," states:  "[The statist] seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse [sic] to impress upon it."

Good economics requires an analysis of the system, the entire system.  Economics is indeed a study of systems!  And the components of that system as well.  And free enterprise helps the system to work more efficiently. 

The fallacy of composition is a fallacy because the truth is that individuals will act as individuals!  They will act in their own self interest.  They don't necessarily act because their "group" does so.  And their actions are ENTIRELY UNPREDICTABLE economically because economics has to look at the whole picture.  An economist has to see the forest and the trees, so to speak, and never one in favor of the other.

Free enterprise does NOT favor one or the other.  It can't.

And when the invisible hand is managing the many, many multiples of human behavior in a free market it does so indiscriminately.  The most efficient means and the most efficient end is the goal.

Free enterprise sees the forest and the trees.

Tuesday, March 3, 2015

Free Enterprise Creates Market Value From Market Supply

"A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value."

Jean-Baptiste Say (1767 - 1832)

Can it be possible that a market exists before something is created?

This basic principle has been called "Say's Law of Markets."  And it is essentially that.  Markets are created when a product - a good or a service - hits the scene that everyone wants.

Ten years ago there may have been a demand for the small, pad computers.  But none had been invented.  None had been produced.  The demand may have been hiding out there in some latent fashion, but until such a product was introduced there was no supply to service that latent demand.

People did not know they wanted a pad computer!  But they did.  And with nothing to satisfy that demand there was no market.  The supply of pad computers, first brought to market in 2010, created an immediate demand and an immediate market.  And it created all the substitutes, with more companies coming to market with their own versions of the pad computer.  And then the subsequent generations of pad computers came forth with more of this and better of that.

As with all products this one will be superseded.  Remember the big TV-like computers, called "mini-computers," which sat heavily on the desk?  And how they got smaller in time?  And were replaced by a "tower" which sat under the desk, connected to a smaller and thinner screen?  Are they still around?  Yes.  Are they as popular as they were say twenty years ago?  No. But they are cheaper and still available.  And as far as computers go they do it all.

Think of all the computer products that had no market 20 years ago that have happened since!  For instance, I can carry of library of tens of thousands of books in my pocket, and everywhere I go.  I can break it out any time and access any one of those books and begin reading.  It even remembers the last page read for me when I "open" the book.  Some books are "free!"  I can tell you, while I very much enjoy that today, I had no idea 20 years ago that I would like such a thing in my pocket.  Or at my reading chair.  Or in my glove compartment.  I even have a cool leather cover to keep it safe while I carry it around!  Like Say says above, the pocket library created a market for other complementary products - cases and such.

This is the very essence of free market economics.  Boiling off all the water in an economic pot, what is left is the fact that until a good or service that everyone wants is brought to everyone's attention and a demand for it is created, no market exists.  If a given good or service comes to market and becomes popular its supply, and continued supply, spurs market demand enough to encourage more and more popularity via more and more production.

Can there be a glut?  For a short while.  Over time nothing goes to waste as the price will lower and lower until eventually it is all gone.  My little pocket library may one day be given out as a "free gift" by a certain store when people shop on a certain day.  It will be a marketing gimmick, and then forgotten, and finally become the equivalent of a spinning wheel displayed in a museum.  Say's Law says there is no glut forever.  All production will eventually be acquired.

And the best way to acquire that good or service to market is with guidance by an invisible hand that directs the most efficient use of resources toward that end.  Free enterprise makes those resources more used and more valuable.

Free enterprise creates market value from market supply.

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.