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