(L135) Profit & Loss: The Free Market According to Mises

Mises was confronted with many questions concerning the free market economy. However, amongst his many detailed and sensible answers, one of the most telling responses that he ever provided was to the question of how profit could possibly arise in a free market (considering the fact that every factor of production is paid what it is worth to customers).

“Thus, profit and loss are generated by success or failure in adjusting the course of production activities to the most urgent demand of the consumers…Profit and loss are ever-present features only on account of the fact that ceaseless change in the economic data makes again and again new discrepancies, and consequently the need for new adjustments originates (Mises).”

Simply put, I could not agree more; ignorance is the name of the game. Humans are bound to make errors, but not 100% of the time. These mistakes, (or the lack thereof) are what create profit and loss in the economy. Outside of a free market economy, profit and loss are generated through exploitation (of workers, companies, natural resources, etc.), coercion, and monopolies (subsidies).

Bibliography

             Mises, Ludwig Von. “Profit & Loss.” Mises Institute. Mises Institute, n.d. Web. 5 Feb. 2016. <https://mises.org/library/profit-and-loss-0&gt;.           

(L120 & 125) The Broken Window Fallacy: Minimum Wage Requirements

Why wouldn’t someone voluntarily offer you a job at twice today’s minimum wage?

Story time! Let’s say that a small business opens up selling handmade jewelry and other goods in the middle of a New Hampshire town. Let’s also say that the current minimum wage in New Hampshire is $10.00 an hour. At this rate, the business owner can really only afford to hire 5 employees (in total). So the owner hires his employees, and business is alright; they are new in town, so large profit margins and excessive foot traffic are not to be expected.

After about 6 months of being open, business is rapidly growing. The owner is finally getting out of the red, and into the black! There is so much business in fact, that the owner needs to hire more workers just to keep up. He decides to add 2 more people to the team; it won’t quite cover all of his needs, but because of the high minimum wage, it is all that he can afford right now.

The night that he interviews for his two new employees, a woman comes in asking for nearly $20.00 an hour. Her skills are extensive, and she would be able to bring brand new products into the shop without any training whatsoever. Not only would she save him time, but she would make him money! He thinks back on his other employees; no prior knowledge or skills, no new ideas, nothing even nearly as valuable as this employee would be worth to him. If it were up to him, he would be paying his employees exactly what he deemed their skills to be worth; maybe that would mean $8.00 an hour for a cashier, $8.75 an hour for an opener and a closer, etc. However, since he was forced to overpay for their basic services due to government intervention, he cannot afford to hire this valuable and worthwhile prospective employee.

In short, he is in need of two more workers. He would be able to afford both the above average woman and another cashier/clerk if it was not for minimum wage requirements. With these requirements however, he must choose between superior product and a shortage of man power, or basic work and enough workers to scrape by. In the end, a shortage of workers is just not something that a business (owner) can afford, and so he must kiss this great opportunity goodbye. This issue could have been completely avoided had he and the employees been able to come to an agreement on a fair hourly wage without government intervention or mandate.

When an owner is forced to pay someone more than they’re worth, they lose out on opportunities to hire higher quality employees for a greater cost. This is the broken window fallacy; the seen and the unseen. While we do see that an average worker is being paid very well, we do not see that a better worker is being paid less than they deserve or not being hired at all (because of the average worker’s forced wage).

(L100) Income Redistribution

“Would it be moral to grade exams, so that all students get C’s? If not, is it moral for the state to redistribute incomes?”

It would be nothing less than immoral for a teacher to assign grades in accordance with equality, rather than true individual scores. The reason that giving every student a C (for example) would be wrong, is that every student did not earn a C. Some students earned a much higher grade, and are being punished (receiving negative sanctions) because of those who did not score as high as they did. Others however scored lower than a C, and are being rewarded (receiving positive sanctions) for doing worse than the other students. While obviously far from fair, this system cannot even be chalked up to being remotely positive as it rewards the underachievers and punishes the successors.

The only way to fairly award grades to students would be to grant them the exact grade that they earned. Each student, regardless of each others score’s, would have to reap the rewards or consequences of the grade that the results of their test’s warranted. (Now, yes, I do recognize the flaws in standardized testing, and I understand that many students fail not due to effort exerted, but because of the fact that they are being forced to learn in a way that they do not understand. In this example however, I am referring to an imaginary class of students, all of equal learning ability who have either scored higher or lower based upon the effort they put into studying and learning the test material. In short, this would mean that it would take every student the same amount of time to learn the same amount of information; thus, every student gets the grade that they worked for and can all be graded using the same scale.)

In both the academic and career worlds, people (should) get what they work for. I personally work my little butt off to earn an income that can support my needs, and to be stolen from is heartbreaking. Now, when I speak of being robbed, I am not talking about a masked purse-snatcher assaulting me on the street. No. I am speaking directly about your friendly neighborhood politician; I am talking about his superior, and the man in charge of him too. Every single hard working American is robbed at gunpoint on a daily basis, but does it hurt you the way the plain-sight bandit does? Would you cry the same, or file a report with the police the very same? Do you even notice?

More often than not, these questions are answered with a simple no. Sometimes however, these practices are even encouraged with phrases resembling, “I am just doing my part” or “it’s for the greater good”. So what exactly is the greater good and who is the authority on such? In my opinion, the greater good is to “love thy neighbor” and the overall authority is God. What I do know however is that funding the lives of lazy, alcoholic, drug using, and/or jobless adults and their offspring with stolen money is not the greater good. Welfare programs not only theoretically encourage mooching and joblessness, but have been proven to increase poverty levels throughout the United States. It also has been shown to destroy marriages, reduce the likelihood of a welfare child having a successful future, and increase mental health and home abuse issues.

Why should somebody be granted what another person earned at the threat of force and violence? Would God believe that this is the greater good? Did God say that “thou shalt not steal, except by majority vote”? Absolutely not. God said to help those around you, he said to be generous and love every man. I believe that there are people out there that do truly need help, but I do not believe that coercion and theft are the ways to help them! Allow people to keep that which is theirs; their income in full. Encourage one another to share, trade and lend a helping hand. Charity has changed hundreds of thousands of lives already, and I don’t believe that the power in giving is lost. We can make a difference, even as one person. We can reduce poverty, mental illness and spousal/child abuse. We can build communities that revolve around charitable action and helping rehabilitate people; but first, we must stand up against being forced to enable these things with our own weekly paychecks.

Theft is immoral whether you wear a business suit or a hoodie. It hurts the lives of people on both the receiving and the losing ends.

(L55) High Bid Wins or First Come, First Served?

In what area of your life would you prefer ‘first come, first served’ to ‘high bid wins’? Why?

Well, in my current situation first come first served is more convenient for me than high bid wins because, quite honestly, I am nearly broke and I have more time than money. Convenience however does not always equate to morality, and so I would have to say that I would always prefer high bid wins. My reason for this is that by deciding first come first serve should be the standard of the market, I am penalizing people who’s time is more valuable than their money.

A high bid wins standard throughout the market would be comparable to (something along the lines of) a six-flags line for a ride. There would be two lines alongside one another; one where time is less valuable so the wait is longer and the price is cheaper, and one line in which you can pay more for a shorter wait. This is a more fair, and  free market based system of serving customers because it favors both people who have more money, and people who have more time. Nobody is penalized or excluded.

Another example of this would be online shopping. Nobody waits in line to shop on the internet, they just pay and wait for their product to be shipped. At checkout however, there is an option to pay more in order to have the product shipped faster. The idea of high bid wins, otherwise known as priority shipping, is not condemned in society because it is private. However should this system be applied in public, people who have been trained their whole lives to wait in line become outraged, as they feel their have been cheated or treated unfairly by this high bid wins system of market freedom.

(L75) Domestic Politics, Economics, & African Government

1.) What kind of success did Africa have with governments that wielded great power over the different African economies?

In Zaire for example, ruler Mobutu Sese Seko (1965-1997) took a great negative toll on the society he ruled over. During his time in charge, there was a copper fueled economic boom; Mobutu took this opportunity to spend great sums of money constantly. He had eleven palaces erected, made his friends instant millionaires, and put up numerous monuments. Following this growth-spurt of power Mobutu launched the African “authenticity” program in which all Christian names were to be replaced with African ones. Christmas was also outlawed, as was dissent, and Mobutu had his own image displayed within the church. Westernized clothing was banned, and to top it all off, he cut national ties with Asians, Belgians and others.
After copper prices once again fell, there was severe economic downturn; Mobutu had to invite the Belgians back after having driven them out. High price inflation and great debt plagued Zaire. Public transportation systems failed and broke down without repair, and even hospitals were barren of the most basic medical supplies such as bandages and oxygen.
The result of anti-capitalistic government practices were devastating to say the least throughout various African economies.

2.) What are some of the major arguments advanced by the Public Choice school of economics?

One major argument advanced by the Public Choice school of economics is that individuals are self interested and motivated, regardless of whether or not they are government officials.
Another argument that Public Choice raises concludes that when one acts in the market, they receive the benefits or suffer the consequences. This is not the case for (voting or) government officials because they receive no feedback as they would in the free market system. Considering the fact that bureaucrats face no feedback, they face no consequences either.

3.) What are front-loading and political engineering?

Front-loading is a practice of political scheduling that shifts momentum towards a particular candidate before the general (final) election. In military terms however, it is simply an over-promising and underpricing (weasel) system to get what they want. To counteract front-loading, rather than rejecting an item that costs astounding amounts of money (which had originally been low-balled in the price pitch), political engineering is then utilized. Political engineering is when the cost of an item (or items) is spread out between as many districts as possible; this creates a domino effect and no one congressmen will (or can) pull the plug on it due to the fact that so many other districts back it.

(L65) Swedish Prosperity & Fascism

1.) The standard claim about Sweden is that it shows that society can prosper without such a free market and with extensive government intervention. Based on the lesson and on your reading, what would be a good response to this claim?

Sweden’s prosperity was originally birthed from a free market capitalistic economy, as well as avoiding war (as best they could). There is no historical evidence, even as late at the 1950s, of great welfare funding, and Sweden’s Austrian economics standpoint lasted between the 19th and even the early 20th century. The economic strength and prosperity that resulted from these practices was eventually funneled into a welfare state. Between 1970 and 1989 taxes were raised and hand-outs were increased; Sweden’s place as the 4th richest industrialized country dropped to the 14th by 1993. Just as capitalism had built their country strong, the turn away from it had began to make their country weak economically; since then however, economic freedom has increased (and surpasses that of the United States greatly).

2.) What were the primary values of fascism?

The primary values of fascism basically hold that the rights of the individual are far surpassed by the “good of the Nation”. In the words of Mussolini, “everything for the state, nothing outside the state, nothing above the state.” Beside putting the state on a pedestal and pushing for political centralization, fascism also highly encourages nationalism and the glorification of the military.

(L40) Government Intervention in The United States

1.) Explain the basics of the Austrian theory of the business cycle. What is the difference, in terms of consequences, between lower interest rates that result from the saving choices of individuals, and lower interest rates that are achieved artificially, by a government-established central bank?

The Austrian theory of the business cycle basically dictates that in a free market, there is communication between the consumer and the producer which is translated through interest rates. As long as interest rates are not interfered with, they will read correctly to producers and allow them to meet the needs of their consumers reliably. However, when interest rates are interfered with and pushed down artificially by the central bank, there is no longer clear communication between producers and consumers. This lack of economic coordination creates conflict, and makes society poorer because labor and physical resources have been misallocated. The results of government intervention and false interest rates are recession and depression plagued upon the people.

2.) What are some of the pitfalls of industrial policy?

Industrial policy is what it is called when the government favors certain industries through subsidies, cheap loans, and other specific assistances. One of the biggest downfalls of industrial policy is the fact that it diminishes incentive within the favored business firms to be entrepreneurial. Another large issue with industrial policy is that it eliminates competition to a certain degree, and makes it more difficult for newer firms to compete against pre-established, government supported firms.