Thursday, December 18, 2014

Why Do Prices Lie?

Column for week of December 8, 2014

     We have considered ways to achieve satisfaction.  We
saw how free people trading with each other endlessly seek to
better serve others to get more satisfaction from those others. 
Last time we considered the importance of rules to human
interaction.  Today we will consider more about how free
people coordinate their actions for mutual benefit.

     To achieve prosperity we must specialize and trade with
each other.  The productivity of self sufficient individuals is so
low that they are inevitably poor.  How can billions of people
coordinate their production and consumption so as to provide
everyone with an abundance of what they want?

     No one person comes close to knowing what everyone
wants.  Likewise, no one knows how to produce all of those
things, or how much to produce.  Thus, putting a great
commander in charge of production can't possibly yield good
results.  We will end up with inefficient, wasteful production of
much of the wrong stuff.  Remember the Soviet Union?

     How can people in China know how to best serve
people in the USA?  We have already seen that people in
China will want to better serve people in the USA to motivate
people in the USA to better serve people in China.

     When we think of prices, How many people think
beyond what something will cost, or how much they can sell it
for?  Prices are far more important than that.  Prices are
communications.

     The price we offer for something tells the world how
much we want that thing.  The prices we ask for something tell
the world how willing we are to supply the thing.  When we
offer higher prices we are saying "Produce more."   Lower
offers say "Produce less."

     When we offer more for flowers and less for nails, we
say "Produce more flowers and fewer nails."  To get the best
price for their efforts producers must shift from nails to
flowers.

     Free market prices tell everyone what to do to maximize
the price he will receive for his efforts.  Prices guide producers,
from workers to land owners, to use their resources to produce
the things others value the most.

     Prices guide workers to better use the skills they have
and to develop new skills.  Also, prices direct owners to devote
natural resources to their most valuable uses.

     Anything that interferes with free market pricing
disrupts production by sending false signals about supply,
demand and best uses.  Prices other than free market prices lie. 
Lying prices deceive producers into producing the wrong
things.  Shortages and surpluses result.

     One of the most destructive price lies of our time was
natural gas prices from the 1950s into the 1970s.  Government
capped natural gas prices at a very low level.  The message
sent was "Don't produce more natural gas."  The result was the
natural gas shortages of the 1960s and 1970s.  Only after the
end of price controls and lying prices did free market producers
provide an abundant supply of natural gas.  They found ways
to do this even though many "experts" said it was impossible.

     Government creates subsidy payments, special tax
breaks, quotas, minimum wage laws, and a morass of other
laws and regulations.  By doing this government has turned
most prices into liars.  These lying prices have deceived
businesses and consumers into making disastrous choices.

     Lying prices were the force that inflated the housing
bubble.  Lying interest rates set by the Federal Reserve
deceived almost everyone about the supply of wealth leading to
many ill-advised investments, including investment in housing. 
The crash of the bad investments gave us the recession.

     The human race figured out ages ago that lying is
destructive and dangerous.  How long will it take to figure out
that prices are the most destructive of liars?

     Prices are not willing liars.  They lie because
government tortures them.  We will never have real economic
recovery until government allows prices to freely speak the
truth.

     Next time: The destructiveness of parasites.

aldmccallum@gmail.com
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Copyright 2014
Albert D. McCallum

Thursday, December 11, 2014

How Do Free People Coordinate Their Actions?

Column for week of December 1, 2014

     We have considered the vital importance of the
contributions others make to our satisfaction.  We can't benefit
from the actions of others without interacting with them.  To
smoothly interact with others their actions must to some extent
be predictable, and coordinated with ours.  Of course, our
actions must also be predictable by them.  Imagine driving if
you had no way of predicting what other drivers would do.

     Commonly observed rules are vital to our interactions
with others.  Sometimes it isn't vital which choice others will
make.  It is vital that we can predict that choice.  It isn't
important whether the approaching drivers hold to the left or
the right.  What is important is that we know which choice
they will make.

     Some choices are so destructive to peace and prosperity
that we need to eliminate, or at least minimize, those choices. 
Murder, robbery, fraud and other aggressive actions are
destructive to peace and prosperity.  The lists of destructive
choices and choices we need to be able to predict are indeed
long ones.

     From the time people began interacting experience has
defined the choices we must be able to predict and the ones we
must try to eliminate.  It would have been impossible for the
first humans to have fashioned a list of all those choices.

     Fortunately we have the benefit of experiences down
through history.  Essentially every society has arrived at lists of
dos and don'ts that are quite similar.  These rules were not
enacted by kings or legislatures.  These vital rules were
discovered independently by many societies.   Legislation
followed the rules rather than creating them.  They became
rules to live by, not because they were enacted, rather because
people lived by them and found them beneficial.

     Whether a rule is a good one or not depends on whether
it aids the general pursuit of satisfaction, not on how many
politicians vote for it.  The natural, beneficial rules gain
widespread acceptance simply because people recognize the
benefits that flow from observing the rules.  The most that
government and enacted laws can do is try to enforce the
generally accepted rules against the few violators.

     Making up rules and trying to enforce them against a
population that contains a substantial number of dissenters
doesn't work.  It only creates strife and controversy, even if the
rule might be a beneficial one if generally accepted.  The world
might be a better, more satisfying place if people used far less
alcohol and drugs.  Trying to enforce no alcohol, no drug rules
against substantial dissent only creates strife and disaster.  The
rules of society must be discovered and accepted if they are to
work.

     Rules against destructive practices, such as "honor
killings" and racially motivated attacks won't work unless a
substantial majority of people accept the rules.   Education and
persuasion, not legislation, are the effective ways to change
behavior.  The peer pressure that goes with generally accepted
rules is far more powerful than cops and courts.

     The most cops and courts can do is round up a few
stragglers that refuse to abide by the rules already generally
accepted and enforced by peer pressure.  If most people treat
drunk drivers as unclean misfits and shun them, drunk driving
will cease to be a major problem.  So long as society shows
tolerance for drunk drivers, drunks will continue to drive.

      Within the framework of accepted rules, free individuals
agree to interact as they may choose.  So long as the rules
forbid aggression, no one is free to forcibly interfere with any
peaceful conduct.

     The more we look to government for new rules and the
imposition of old ones, the less effective all rules will become. 
Such an avalanche of laws will destroy respect for all laws,
including the natural ones that have evolved and passed the test
of time.

     Next time: Why do prices lie?

aldmccallum@gmail.com
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Copyright 2014
Albert D. McCallum

Thursday, December 4, 2014

What Happens When People Are Free to Trade?

Column for week of November 17, 2014

     We have considered satisfaction, the ultimate goal that
we all seek.  Part of the consideration was of how we influence
others to do the things that satisfy us.  We will now give
further consideration to the trading of satisfactions. 
Exchanging lesser satisfactions for greater ones is the sole
objective of free trade.

     There are two kinds of exchanges, forced ones and
voluntary ones.  A trade isn't voluntary unless all parties to the
trade voluntary participate without coercion.  A forced trade
isn't really a trade.  It is at least in part a forced taking, also
known as theft.

     When a bully forces another child to "trade" sandwiches
the bully is forcibly taking something.  Perhaps the other child
would have freely traded half of his sandwich for the bully's
sandwich.  In such case the bully traded his sandwich for half
of the other sandwich and forcibly took the other half.  Half a
theft is still theft.  The victim is forced to give up satisfaction
rather than being compensated by getting a greater satisfaction
than he lost.

     Instead of the bully taking the sandwich, he may
prevent its owner from trading for something, perhaps a cookie,
he believes will increase his satisfaction.  The victim has still
been forcibly deprived of satisfaction.

     In fully free trade everyone is free to trade for anything
with anyone.  Of course, that someone else always has veto
power over the trade.  He doesn't have to settle for decreased
satisfaction.

     How important is trade?  What do you have or consume
that you produced for yourself?  Without trade or gifts, or theft
you wouldn't have anything you didn't produce.  What would
your life be like?  Could you even survive?

     Trade is one of the cornerstones of our prosperity. 
Without trade and the specialization it makes possible, most
people would have very little.  Most of us would live on the
edge of survival, or not survive.

     All free trade is motivated by the desire to obtain
something that will yield greater satisfaction.  How can both
parties to a trade gain satisfaction?  It is because both don't
expect the same satisfaction from the things traded.

     Alice has apples.  Betty has potatoes.  Betty offers a
potato for an apple.  Alice says no.  She values the satisfaction
from the apple more than that from the potato.  Betty raises her
offer until it reaches 10 potatoes.  Alice accepts.  She values 10
potatoes more than one apple.  Betty places the greater value
on the apple.  Both gain satisfaction.

     This example also illustrates the point that the more
value we offer someone, the more value they will offer back. 
In other words, the better we serve others, the better they will
serve us.  If we want more from others, we must produce more
for them.  No one is ripping anyone off.

     This reality motivates free people to endlessly seek to
serve others better.  We don't serve others because we aren't
selfish.  We serve them because we are selfish.  We want more
and serve others better to get it.

     If we become satisfied with what we are getting, we no
longer have any reason to increase our service to others.  Why
train for a different job that better serves others unless we are
trying to get more satisfaction for ourselves?

     I'm sure that when people train for and seek higher
paying jobs they don't spend a lot of time thinking about
serving others better.  They most likely think about what they
will get.  If the higher paying job didn't serve others better, it
wouldn't be higher paying, unless it is a government job.

     The gains possible through free trade push everyone to
increased productivity and increased service to others.  It is the
only way to organize society without creating winners and
losers.

     Next time:  The alternative to free trade.

aldmccallum@gmail.com
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Copyright 2014
Albert D. McCallum

The Alternative to Free Trade

Column for week of November 24, 2014

     We have considered what people want and some ways
of satisfying those wants.  We saw that everyone's ultimate
goal is to maximize their satisfaction.  When it comes to
satisfaction, we are all totally greedy.  We always make the
choice we believe will bring the most satisfaction. 

     Last time we considered how free people can pursue
satisfaction.  Now we will consider the alternative.

     The only alternative to freedom to choose is coercion
with force and threats.  Free people don't have to march to
anyone else's drum.  They are free to march to the beat of their
own drum, or any other drum they choose.

     The individual isn't free if he faces the threat of  "Do it
my way, or I will hurt you."  The threat may come from
bandits or government.   Being free means no more, and no
less, than being free from the threat of aggression by all others. 
To be truly free everyone must be free from the threats of
others.

     It may seem paradoxical that true freedom requires that
no one be free to commit aggression.  Aggression is initiating
or threatening the use of force, deceit or stealth against
peaceful people.  Free people are free to do anything they
choose, so long as they don't initiate force, deceit or stealth
against peaceful people.  The only justifications for the use of
force are prevention of aggression and the forcing of restitution
for harm caused by aggression.

     Free people aren't answerable to any commander.  Each
is his own commander.  His only obligation is to respect the
equal freedom of all others.  All interactions among individuals
are voluntary.  Considering that we all need the aid of others in
pursuit of our satisfaction, freedom leads to voluntary
interaction and cooperation.  Each party to an interaction
expects to increase his satisfaction through the interaction. 
There are no masters or slaves, and no losers.

     The only alternatives to freedom are coercion and
deceit.  Some individuals use force and threats of force to
coerce others to do the will of the dominator.  This creates a
world of "Do it my way, or I will hurt you."

     In our world we live with a mixture of free choice and
"Do it my way, or I will hurt you."  In some societies the
threats are dominant.  In others people enjoy substantial
amounts of freedom to choose.

     We saw that in free markets individuals gain the
cooperation of others by rewarding them.  The rewards may be
substantial sums of money, or as simple as a smile or a
greeting.  In freedom we gain the aid of others by aiding them. 
There are no losers.  No one is forced to sacrifice his
satisfaction to satisfy others.

     In the world of coercion some dominate others.  The
dominators can gain satisfaction without providing any
satisfaction in return.  Those who are exploited don't appreciate
this.  They are likely to seek ways to resist.  The dominators
are parasites.  They live off others while having no incentive to
produce anything for anyone.

     The world of domination is a world of strife and a low
level of productivity.  Think North Korea or Cuba.  The world
of domination by "Do it my way, or I will hurt you" is
inevitably a world of strife, poverty, and misery for most.

     In a world of freedom and free markets we won't
achieve utopia.  We will endlessly move toward more
satisfaction.  In the world of "Do it my way, or I will hurt you"
we will endlessly spiral down into strife, poverty and misery.

     I am not interested in the possibility that we might share
the strife, poverty and misery equally.  I prefer peace,
prosperity and satisfaction, even if some earn bigger scoops
than do others.

     Next time:  How can free individuals coordinate their
actions with each other?

aldmccallum@gmail.com
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Copyright 2014
Albert D. McCallum

Thursday, November 20, 2014

Trading for Satisfaction

Column for week of November 10, 2014

     We have considered how everyone's goal is to
maximize their satisfaction.  Also we have observed that
individuals won't change the choices they make unless we
block their chosen road to satisfaction, or they find what they
believe is a better road.  Our consideration also included some
of the ways individuals can try to influence others in their
pursuit of satisfaction.  We will now consider trading
satisfactions.

     Last time Fred was trying to influence Erwin to refrain
from eating a candy bar.  We saw that merely arguing or
debating with Erwin could easily fail to influence him to
refrain from eating the candy.  Does Fred have another string
on his bow?

     Fred might try to make an offer Erwin couldn't resist. 
Suppose Fred offered Erwin a new car in exchange for the
candy bar.  What are the chances that Erwin would pass up the
satisfaction from a new car for the satisfaction of eating the
candy?

     You might ask, Why would Fred offer a car for a candy
bar?   Whether he would or not isn't important.  As in the old
joke, we have established that Erwin has a price.  At most we
now quibble over how low that price will go.

     Some reward of alternate satisfaction will be enough to
get Erwin to give up the candy bar.  As the saying goes,
everyone has a  price.  That price may not be measured in
dollars.  Yet, there are few satisfactions that individuals will
not give up for the right exchange.  The robber's victim gives
up his money for his life.

     Most of our exchanges aren't that extreme.  Yet, we
endlessly give up one satisfaction for another.  We trade free
time and effort for wages.  Those money wages aren't what we
want.  We want the satisfaction we hope to gain from the
things we trade the wages for.  The money wages are only
coupons we hope to exchange for satisfying things.

     By offering trades we constantly influence others to
give up a lesser satisfaction for a greater one.  The merchant
gives up the satisfaction offered by a loaf of bread because he
expects to gain more satisfaction from the two dollars he
receives.  At the same time, the buyer expects more satisfaction
from the bread.  In fact, he expects more satisfaction from the
bread than from any other thing he could buy with the two
dollars.   If something else promised more satisfaction, he
would buy it instead of the bread.

     We also trade satisfactions over time.  He who saves
the candy bar to eat tomorrow instead of now believes he will
gain more satisfaction by doing it.  The person who saves to
spend later is trying to trade present satisfaction for future
satisfaction.  The ways we trade lesser satisfactions for greater
ones are almost endless.

     Rewards have so much potential for increasing
satisfaction that they should be our first resort when trying to
influence the choices of others.  Unfortunately many turn first
to the force of government.  Exchange and rewards create
winners.  Government's use of force and threats creates victims
and losers.  The victims are coerced into reduced satisfaction. 
Someone has to pay for the coercion.  The effort spent on
coercion produces no value except for the person who gains
satisfaction from dominating others.

     The person coerced to give up a satisfaction to satisfy
someone else sacrifices his satisfaction to satisfy the other
person.  The one coerced is partially enslaved by the one he is
coerced to serve.  If total slavery is wrong and bad, How can
partial slavery be right and good?

     Next time:  What happens when free people trade
satisfactions?

aldmccallum@gmail.com
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Copyright 2014
Albert D. McCallum

Monday, November 10, 2014

Persuading Others

Column for week of November 3, 2014                            

     In prior columns we have considered that everyone
always makes the choices they believe will be the most
satisfying.  We also considered forcible obstruction and
punishment as ways to prevent or discourage others from
making the choices they believe will bring the most
satisfaction.  Now we will consider using persuasion to
influence others to alter their choices.

     Back to the candy bar example.  Suppose Erwin is
about to eat his candy bar.  Fred wants to persuade Erwin to
refrain from eating the candy.  There is only one way Fred can
succeed.  He must convince Erwin that he will gain more
satisfaction from refraining from eating the candy bar than
from eating it now.

     Fred might convince Erwin that he will gain the most
satisfaction from giving away or destroying the candy bar. 
Perhaps Fred only convinces Erwin that he can increase his
satisfaction by postponing eating the candy.  If Fred's goal is to
stop Erwin from eating the candy bar, the latter result buys
Fred more time to pursue his goal.  If Erwin still believes the
most satisfying thing he can do is eat the candy now, he will
start chewing.

     We might give a thought or two to why Fred wants to
keep Erwin from eating the candy.  The bottom line is that
Fred expects to gain satisfaction from persuading Erwin to
refrain from eating the candy bar.

     Not only that, Fred also believes that in his present
circumstances the most satisfying thing Fred can do is try to
persuade Erwin to not eat the candy.  If Fred believed he had
an option that would bring him more satisfaction, he would
forget about Erwin and the candy to pursue the more satisfying
option.

     How might Fred gain satisfaction from keeping Erwin
from eating the candy?  Perhaps Fred believes candy will be
bad for Erwin.  Fred might gain satisfaction from doing a good
deed.  Possibly Fred hopes to get the candy from Erwin.  Fred
might gain satisfaction merely from convincing Erwin not to
eat the candy.  The possibilities are nearly endless.  Only Fred
could know the real reason.  He might not be honest enough
with himself to even recognize his real motivation.

     Fred could make a serious and honest argument to
Erwin.  Also, Fred could make an emotional appeal.  Outright
lying and fraud are other possibilities.  The bottom line is that
Fred must somehow influence Erwin to expect more
satisfaction from passing up the candy than from eating it.

     What really happens to Erwin's satisfaction in the long
run is irrelevant to the choice Erwin will make.  He has only
his expectations to guide him when he chooses.  The
consequence of the choice may influence future choices and
Erwin's confidence in Fred.

     Trying to influence the choices of anyone for any
reason is subject to all of the same limitations and pit falls.  It
generally isn't easy to convince most people to change their
expectations about satisfaction.

     Often people don't even try using persuasion to
influence others' choices about what is satisfying.  Instead, they
cry out "there ought to be a law."  Saying there ought to be a
law is usually an appeal to force, violence and threats thereof. 
A law is merely an order from government that is meaningless
if not backed by the threat of forcibly decreasing the
satisfaction of the violator.

     The law could offer a reward for certain changes, such
as a bounty for killing foxes.  An individual could offer the
reward without any law.  When someone appeals to
government to offer a reward they are asking government to
use force to collect the money to pay the reward.

     So far in our search for ways to influence others in the
choices they make while pursuing satisfaction, we haven't
found anything that promises great success.

     Next time: Trading for satisfaction.

aldmccallum@gmail.com
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Copyright 2014
Albert D. McCallum

Thursday, November 6, 2014

Influencing the Choices of Others With Force

Column for week of October 27, 2014              

     Last time we saw that the ultimate goal of every person
is to maximize satisfaction.  Things and activities aren't the
ultimate goals of anyone.  We only seek the satisfaction we
hope to gain through things and activities.  If we want to
influence the choices of others we must physically limit their
choices, or get the individual to alter his views at to what is
satisfying.

     Today we will consider only the use of force to alter
choices.  When I was a child my mother tried various ways to
physically limit my choices.  When she went shopping in
Muskegon she first confined me in a buggy.

     When I grew she turned to a harness and a tether that
she held.  Both were reasonably effective in limiting my
choices.  At home if she frowned on what I was doing she
sometimes tied me in a chair.  This limit was imperfect.  I
could still choose to tip the chair over.

     Imprisoning individuals is a way of limiting their
choices.  Killing is the ultimate limit on choices.  It eliminates
the individual's option of making choices we don't like.  It also
eliminates all other choices.

     Imprisonment isn't totally effective in limiting the
choices we consider undesirable.  Inmates still do things that
their captors don't like.  The problem is that mere
imprisonment usually doesn't change the prisoner's views of
what he believes will be satisfying.

     Another way of changing the individual's view of what
will be satisfying is to eliminate the anticipated satisfaction. 
Altering an individual so that drinking alcohol will make him
sick immediately is likely to discourage him from seeking
satisfaction from drinking.

     Beating or imprisoning a thief may take the satisfaction
out of theft.  Of course, if the thief rightly, or wrongly,
believes he can avoid the beating or imprisonment next time,
the past punishment will not influence him to quit stealing. 
Punishment doesn't do much to alter the future choices of the
dumb or short sighted who choose to steal without considering
the possible consequence.  Neither does it limit the choices of
those who believe they are clever enough to get away with it
next time.

     Force can also be used to alter the choices of
individuals who have done nothing wrong.  The threats of an
armed robber may alter the victim's views of the net
satisfaction he is likely to get from trying to keep his money. 
The victim many conclude that he will gain more satisfaction
from staying alive and healthy than from fighting to keep his
money.

     None of the uses of force are likely to alter the
individual's basic beliefs about what he will find satisfying. 
Remove the threat of force and the individual will most likely
revert to making the same choices as before.

     Consider immigration.  If we could totally seal the
borders so no one could cross, immigration would end.   We
can't do that or even come close, no matter how many fences
we build.  The next line of defense is to inflict dissatisfaction
on illegal immigrants.  How much dissatisfaction must we
inflict to discourage a would be immigrant who faces mainly
misery and starvation at home?  What are the chances he won't
still see illegal entry as a way to increase his satisfaction?

     Force, either for blocking choices or punishing them,
isn't very effective at stopping individuals from making choices
we don't like.  One of the reasons people so quickly resort to
the force option is that many among us gain satisfaction from
using force to control others.

     These people are control freaks.  They control others
not so much for altering the choices of others as for the
satisfaction gained from controlling others.  Not surprisingly
these individuals are likely to migrate to government. 
Government, and those specially privileged by it, are the only
ones who may legally use aggressive force.   More about this
later.

     Next time: Persuasion as a way to alter the choices of
others.

aldmccallum@gmail.com
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Copyright 2014
Albert D. McCallum