Tuesday, August 01, 2006

HOW PROFITS AND COMPETITION SERVE AND PROTECT

I bought something relatively cheap the other day, and then I thought about how bringing that product to American Samoa to sell at a higher price than what I paid for it could make me rich. Call me greedy if you want to, but think about what just happened. Every day, entrepreneurs bring things to American Samoa in the hope of making a profit. Profit, therefore, entices people to bring us some good or service that we would otherwise not receive if it were not for the idea of making money.

When Manulele Aviation opened up shop in our territory, some had the nerve to complain that since they were the only ones in the helicopter business, they would be taking advantage of the people because they would be a de facto monopoly. So according to these complainers, it would be better for the people of American Samoa had Manulele not open up at all. What nonsense! We now have a helicopter industry because the incentive of profit maximization made it possible.

At the same time, Manulele Aviation is not protected from competition. That’s to say that if our complainers in society can get their own helicopter and charge a lower price, then they are more than free to do so in our free market. Open competition thus protects from us from “gouging” because if lower prices were possible, somebody somewhere would be out there providing them in order to beat the competition and gain market share.

Still, I am grateful for those of us who go out of their way to sacrifice for the good of others through charity. There is nothing wrong with that. By the same token, there is also nothing wrong with someone choosing to provide something with the aim of making the most profit possible. Profits have brought us the computer, the air conditioner, the refrigerator, the washer/dryer, the microwave, the television and countless other inventions that have spared us the backbreaking labor and harsh living conditions of the past.

So when it comes to serving the “greater good of society”, it doesn’t have to be either only selfless service or only profit; it can be both. The question is, who gets to decide whether a good or service should be for charity or profit making? The answer is whoever owns the property. It’s up to the property owner to dispose of his goods or services as he wishes; It’s a self-evident and natural right.

1 Comments:

At 5:27 PM , Blogger Stuart K. Hayashi said...

Hey, I'm using Morse code over the Taligraph!


Suppose that you go to a shop and find a commodity that is plentiful in Hawaii but rare in American Samoa. That commodity is Item X.

Suppose you bought many copies of Item X at $5.00 each in Hawaii and then sold many copies of Item X in American Samoa at $20.00 each. For each copy of Item X, you make a $15 profit.

Is that bad? If you bought Item X at $5 each in Hawaii, does that mean that you are doing wrong if you sell Item X in America Samoa at a price higher than $5 each?

If every sale of Item X gives you a profit of $15, does that mean you have ripped off your customer by $15?

No!

The fact of the matter is that, if it weren't for you, these copies of Item X wouldn't have been transported from Hawaii to your customer base in American Samoa.

If you buy Item X at $5, then sell it for $20, making a $15 profit, what does that mean?

When your customer buys Item X at $20, he is reimbursing you $5 for the cost of your buying Item X for him. And the $15 profit you make is the customer's payment to you for the service of transporting the good from Hawaii all the way into the Ameican Samoan customer's hands.

The total revenue an entrepreneur makes is the customers' reimbursement to the entrepreneur for his costs plus a payment to the entrepreneur himself for getting the good or service into the customers' hands.

Economist Walter Block explains that very well in his book Defending the Undefendable.

What do you think about that, Tali?

 

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