The couple posts that I’ve written about economics, although making their own point without outside intrusion, do build on each other. Reading them in order would be beneficial, I think. The first time around, I emphasized the point that all financial wealth is derived from work that creates value. As the great Adam Smith made clear, “Labor was the first price.” Money is a unit of measure to quantify productive labor – productive labor being work that creates value.
In the second installment, I argued that we cannot identify value in a materialistic worldview. To say that something is valuable is to make a judgment, which requires a transcendent perspective. If you pull away from our transcendent reality and live within a materialistic deception, what you’ll be left with is greed and envy – hence, Mr. Marx. All that hair on the man makes him look more intimidating and complicated than he needs to be. Like a whiny boy upset with his dad because his brother got a better Lego set, Karl’s issue is not with the owner of the means of production. No. He takes issue with his Maker.
“The first requisite for the happiness of the people is the abolition of religion.” – Karl Marx
Marxism and her children (Socialism, Communism, and Critical Theory) is just atheistic philosophy wrapped in a wrinkled dollar bill. Maybe Karl had a baby face, and when he would whine and complain it looked even more immature, so he decided to cover up with long hair and a big beard. That way he can be taken more seriously. “Of course, I know what I’m talking about. Look at all the time I’ve sacrificed not shaving.” Marx’s charges against his Creator are now stopped. He has received his answer. Those following in his footsteps will soon receive theirs as well.
So, Point 1) Money measures value. Point 2) Value requires transcendence. Now, I’m going to assume that we agree that our reality is transcendent. If you’re not sure and would like an apologetic, in the words of Biden’s Press Secretary, “I’ll have to circle back.” For now, I’m going to move forward with making a point and discuss the idea of delivering value.
When value is delivered there are at least 2 parties in play – the one delivering the value and the one receiving it. Basic stuff. The Value-Deliverer can be called the seller, the business-owner, the producer – whatever helps you sleep at night. In the government schools, this person would be propagated as the Bourgeoisie (that’s boo͝r″zhwä-zē′. You know, like French). The Soviets would refer to him as a Kulak. In good ole’ ‘Merica, he’s known (for now at least) as a self-starter, an entrepreneur, a get’er done hustler – words carrying a positive connotation, at least for the person writing this. The value-deliverer’s assignment in life is to deliver value to a value-recipient (i.e. the customer).
So, how does the entrepreneur know what the customer wants? Well, like with anything else, the customer has to tell him. Or he can ask my wife. But if that’s not an option, how can the customer communicate with the entrepreneur? In order to answer that question, and to do so clearly, I’m going to have to lay a backdrop.
If you could, please try to imagine a free marketplace, free from government regulation. It would have to be a place where the government only gets involved as a referee to uphold justice, making sure equal weights and measures are being used and contracts are enforced. That means that government subsidies are nonexistent (government won’t hand out low-interest loans, grants, or tax credits for producing a certain product), citizens are not coerced to purchase things they don’t want (no mandated insurance or vaccines), and the government only regulates itself (not prices). I understand, that paradise is as foreign to us as mayonnaise salad dressing is to non-Russians, but it’s also a necessary backdrop in order to see clearly how a value-recipient gets his request to the value-deliverer. We must lay this backdrop before answering the question because whenever the government starts to regulate prices (through subsidies, mandated purchases, or just explicit price-controls), the buyer-seller communication line is twisted and skewed, like a kink in a water hose. So, to illustrate the point, we have to enter a hypothetical world where government is not controlling prices. Don’t worry, we’ll be back.
In a free spending society, why would anybody spend any money? This is not a trick question. If you live in a society where you’re not forced to buy anything, you would only buy what you want. You believe the product or service for sale will add value to your life, and so you voluntarily trade your hard-earned money for that product or service. If you value the product more than the amount of money it’ll take to obtain it, you buy. If the price of the product is greater than what it’s worth to you, you don’t buy.
Now, if you value this item so much that you voluntarily, without coercion, give up your money for it, why would the seller voluntarily, without coercion, give you this valuable item for some of your money? They would only do such a crazy thing if they receive more money in return than what it took for them to make it. Put another way, the seller would only sell you the product if the price of the product were more than the cost of making it, giving the seller an opportunity for a profit. If you want that product, you will only get it if the seller makes a profit. The greater the profit, the more willing the seller will be to make more of those valuables for you. The seller’s active and free pursuit of profit enables the buyer to obtain value.
So, what’s stopping the seller to overcharge for the product? Can’t the seller charge so much that the buyer can’t afford what he wants and therefore does not get it? Yes he can. Does that mean that the seller’s pursuit of profit prevents the buyer from getting something of value? Not in an economy without government price-controls. If the price is too high, the buyer won’t get what he wants. But neither will the seller. The seller will only make a profit if the buyer buys. If the price is too high, the buyer leaves without buying, and neither participant get what they want.
The way the customer tells the producer what he would like is by offering a price that comes with profit. Prices are a feedback mechanism for the seller, and a way for the buyer to speak up. Prices are the communication line between the seller and buyer. Customers won’t trade their money for the product if they perceive the price is too high for the quality offered. That information is vital for the seller. By not buying at the set price the customer is telling the seller, “If you want to make a profit, then either make the price lower, the quality better, or the product more relevant to my needs. The product does not offer enough value to my life for the current price. Make it more valuable or decrease the price.”
This feedback mechanism, this radio signal, is essential for the seller and the buyer to get what they both want. If the seller makes a profit only when the buyer actually buys the product, then it’s the seller’s pursuit of profit that keeps the price affordable for the buyer. If the buyer can’t afford it, the seller can’t sell it, which means the seller’s profit will be, as they say in the academy, zero, zip, zilch, nada, nothing. Yes, the seller wants as much profit as he can get. But low profit is better than no profit. Unlike what Leftist’s abstractions claim, the pursuit of profit is what keeps the price affordable, allowing the buyer to obtain value.
Now let’s flood in the government price controls. Wind energy is subsidized, as it continues providing no value to customers. Insurance is mandated whether or not customers want it. Rent price controls and eviction moratoriums are in place, creating a false negotiation between the landlord and the tenant. What does that do to the communication line? The seller will not hear the customer, and the customer will not get what they want. If something gets in the way of the customer’s signal (like subsidized products, mandated purchases, or price controls), the seller won’t hear the buyer and will be pushing an unwanted agenda. Prices will continue going up, while quality and relevance will continue dropping. Instead of hurting those Kulaks, it’s the customers who get their voice taken away.
Before Henry Ford entered the stage, automobiles were an expensive and impractical luxury item that the average consumer would not even consider buying (think Private Jet). Through value-adding and cost-reducing innovations, Henry Ford made the automobile affordable and useful, making it as common today as vanishing sock pairs. But what drew Ford’s attention to equip every person with an automobile? The potential for profit. The automobile was currently being sold for two arms, a leg, and also your bed. If Ford could figure out how to bring the price down and make the product more relevant, there was a huge potential for a win-win. The door for potential profit enabled him to make something that people would and could buy, and brought practical, life-enhancing value to millions.
If Socialists had their war on profit in the automobile industry and mandated that the price of those original luxury automobiles be affordable because “every person has a right to a car”, the spark for practical, everyday cars would never have come. Automobile manufacturing would have closed, because the potential for profit was not there. The emerging automobile industry would have been unattractive for producers, and innovative thinking would have been stopped. If it weren’t for a pursuit of profit, we’d be pushing the carriage cart out of the mud right now trying to get to work on time before our third infraction. There’s a direct line between Lenin’s economic agenda and the kind of cars the Soviet Union made. And that’s after they had Ford’s example to follow.
We hear an escalating amount of talk about caring for people, and some politicians even act out of those intentions. But if the only thing that’s good about our actions are the intentions, then we haven’t actually provided anything of value. The road to Venezuela, err…I mean hell, is paved with good intentions. What matters is the result. What economic actions result in true human flourishing? Those that are driven by a free-market economy and a free pursuit of profit. It’s the pursuit of profit that enables valuable innovations that improve our civilization. Profit for producers is not just incentive. It’s a receipt of communication. Profit is the bell given to customers to signal for service.
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