Libertarian Land Philosophy:
Man's Eternal Dilemma
Oscar B. Johannsen, Ph.D.
BOOK IV: THE MARKETPLACE
Chapter 2 - Market Calculations
In evolving money, man was interested only in creating a more
efficient means of exchanging goods. However, he obtained advantages
he never anticipated. Money enabled him not only to effect the
exchange of goods easier, but it helped him to arrive at decisions of
which goods he really wanted, as well as how to divide up the factors
of production in the most efficient manner.
What money did was to help man to make some objective determination
of subjective desires. Man's desires are unlimited, but he has only a
limited time in which to satisfy them. Which desires should take
precedence? Some desires are obvious. A man dying of thirst in a
desert has no need for money to tell him he wants water. All of us
require food, so there is no question that it is a desire we not only
want satisfied but must satisfy. But what kind of food? Do we want
steak, chicken, or fish? Even in such a simple problem people may not
be certain which they prefer. What may help them to decide is the
price. That is something objective. It steak costs more than fish, and
it your desire for steak or fish is more or less equal, the chances
are you will decide on the fish. What you have done is to compare
dissimilar things objectively in terms of money. This helped solve
your subjective problem.
This is truly remarkable, though most people never give it a thought.
As goods have prices, you are helped in deciding which desires will
give you the most satisfaction, taking into account many factors.
These may be the amount of money have and innumerable other desires
you would like to satisfy but cannot, due to limitation of time, if
for no other reasons. It does not mean that you have an automatic
device which will guarantee that you will make the proper allocation
of your subjective desires. Money is just an aid, but a most powerful
one. You might say it sums up a large number of factors of which you
may or may not be conscious. The reasons why you want a fur coat may
be many -- warmth, prestige, and a host of other considerations The
reasons why you want a pearl necklace may also be many. Which shall
you buy? The price may help you to decide. Maybe you will take both.
maybe one, maybe neither.
Thus, price enables men to compare articles which in themselves,
cannot be compared. You cannot compare such physical items as an
hour's work with a bushel of oranges; a ton of steel with a camera.
You can, of course, compare things which have a similar purpose,
character, or use. You can compare one orange with another, You can
compare an orange with an apple with reference to nutritional value.
However, in the case of most items even these simple comparisons are
impossible or meaningless for the goods are so different.
Actually, the comparisons which prices permit men to make are
comparisons of their subjective desires and not the things themselves.
Desires can be compared. The prices involved may help you to determine
whether to satisfy the desire for a coat rather than the desire for a
car.
Experience has taught men that under ordinary circumstances, prices
change slowly. If prices changed too widely in short time periods,
calculations based on them would probably be useless. But as usually
the changes are relatively minor from day to day, men can assume that
they are stable and make calculations with them. Thus, they can
determine how to allocate their money among consumer items. Possibly
even more important, it enables them to determine how to allocate
land, labor and capital. To assemble the factors of production may
take a long time. In building a gigantic public utility or an
automobile factory, years may be required. If prices are very erratic,
it would be very difficult to calculate what the cost of building such
facilities would be. In countries in which inflation is raging,
businessmen are up against a well nigh impossible task to determine
what it would cost to build a new plant or expand an old one, so the
production of capital tends to stagnate.
The problem facing men is how to combine the two fundamentals in the
production of wealth -- land and labor --- together with the secondary
factor -- capital. What land should be used for agriculture, for
manufacturing, for homes, for recreation? How much labor should be
devoted to fishing, to agriculture, to mining, to manufacturing? How
much capital should be used? Should a 50-ton ship or a 5-ton ship be
employed for fishing in the ocean? Should a large or small factory be
built? Should a supermarket be constructed or a country store? Mere
observation is not sufficient to determine these questions.
Superficially, it appears to be a simple matter to have a coterie of
men sit down and decide how many automobiles should be built in a
nation. Past experience and possibly some marketing surveys would help
them to decide. But if they do come up with a figure which might be
accurate, how can they determine how much land, labor and capital
should be set aside to make the hundreds of parts that go into an
automobile? No one and no group of men, no matter how wise or
knowledgeable, could ever determine this correctly.
Those societies which have tried consciously to plan such matters
always fail. If nothing else, the planners forget to make a particular
part. If they do not forget, they have the task of ordering the tools
to make that part On top of that, they have to decide what other tools
are necessary to make the tools that make the part. It almost becomes
a retrogression back to the simplest tool. Men simply cannot
consciously decide these things efficiently. The history of the world
is studded with societies which forsook the marketplace and turned,
most unwisely, to deliberate planning. All such societies fail, Man is
wise, but not that wise.
In a market oriented society, prices tell the producers which parts
of an automobile require attention. If any part is in short supply,
its . price rises. This causes suppliers to rush into making it as it
becomes more profitable to do that than to make a part which is
plentiful. If parts are not arriving on time, it becomes worthwhile
for the automobile manufacturers to offer higher prices for them. This
induces suppliers to exert greater efforts to meet the time schedules.
For the most part, if the marketplace is left alone, prices enable
men to make whatever changes are necessary gradually. For example,
when the prices for buggy whips dropped it was a signal for the
marginal producers, that is, those with the highest production costs,
to cease making whips. The more efficient still made buggy whips for
those people who clung to the horse and carriage, as such was still
profitable.
What occurred was a gradual demise of firms making buggy whips at the
same time as there was a gradual establishment of enterprises to take
care of the new mode of transportation. This gradual transition is
advantageous to man as sudden changes of whatever nature often tax
mans physical as well as psychological faculties.
So the difficult problem of how much labor, land and capital should
be devoted to the manufacture of a particular product is determined
primarily by the prices involved. What are the prices which must be
paid for labor, land and capital? What is the selling price of. the
product? !f the product's price is greater than the combined prices
for hiring land, labor and capital, it will be produced. If it is
less, the product will not be made.
And who decides all this? It is not decided by some bureaucrat, but
by the people who make known their decision by the prices they are
willing to pay. If they refuse to buy buggy whips, they vote against
whips. If they buy tires, they are voting for tires.
It is an interesting tact that men have spent hundreds, if not
thousands of years arguing and pondering on the best means to
establish a democratic society. They have evolved every imaginable
type of written and unwritten constitution, none of which has ever
worked well. And yet, without his realizing it, man has unconsciously
created a democratic society which works perfectly. In it everyone
votes without regard to race, creed or color. Even a baby votes. The
baby votes against a brand of food by crying when its mother feeds it
that product. Thus, its mother stops buying it. It votes for another
kind of food when it is happy with it. causing its mother to buy more
of such food.
Since man began to reason about such organizations, he has been
attempting to create political bodies which would establish a
democratic society. But this has been impossible. With huge masses of
people congregated in areas as New York City, it is impossible to get
people to vote on what are termed the issues. Pure democracy in a
political sense is impractical. Pure democracy can exist only in the
marketplace. The ballot is money. The ballot box is the marketplace.
The results are there to be read by everyone and to be acted upon by
anyone who wishes to do so.
The politicians are the businessmen. The successful politicians are
the businessmen who interpret the balloting correctly. They hire the
land, labor and capital necessary to produce the things the people
want. They are the ones who produce the cars. The unsuccessful
politicians are the ones who misinterpret the results. They make buggy
whips long after the people have definitely voted against buggy the
horse and buggy in favor of the automobile.
As long as the ballot money; and the ballot box - the marketplace;
are left alone, the democracy of the marketplace works perfectly.
When, however, it is hampered by intruders, as the government, either.
by altering the ballot -- the money; by tampering with the ballot box;
through hindering free and open competition in the marketplace;
businessmen have difficulty correctly interpreting the election
results. They build things people do not want. They build factories
and then discover they cannot sell the products of those factories.
Their decisions ware in error because they assumed they were dealing
with an honest ballot and an honest ballot box. Inasmuch as people are
so unpredictable, it is difficult enough to read the ballots correctly
when there is no interference. It becomes extremely difficult when
interference seems to imply that it is profitable to make buggy whips
when the people really do not want them.
It might be in order here to point out that everything has a price
except money. Since money is the particular article to which all other
articles are compared, it cannot have a price. You cannot compare it
with itself. Therefore, if gold is money it has no price. It is
''priceless".
Although this is true, it may sound peculiar to the reader who has
heard that gold is priced at $35 an ounce.[1]
As has been pointed out, the dollar is defined as a certain weight of
gold. Thus $35 is really an ounce of gold. To say that the price of an
ounce of gold is $35 is really to say that the price of an ounce of
gold is an ounce of gold. This may be perfectly good English for
Gertrude Stein who wrote ''a rose is a rose is a rose '' ,but in
ordinary parlance, it is merely a tautology.
Recapitulation
In establishing money, man unconsciously evolved a device which aids
him in determining objectively many of the subjective desires he most
urgently wishes to satisfy. It also has given him a device by which to
determine how best to allocate land, labor and capital in making the
things he wants. Money acts as a common denominator by which all goods
can be compared. Actually, it is not the goods which are being
compared but the different desires of men.
The only true democracy is the democracy of the marketplace where
everyone votes by buying or by not buying.
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