From: sa114984@longs.LANCE.ColoState.Edu (Steven Arnold)
Subject: Re: A minor problem
Date: Sat, 02 Jan 1993 08:46:42 GMT
Distribution: usa
Organization: Colorado State U. Engineering College

In article <lewchuk.725860988@therien>, lewchuk@cs.UAlberta.CA (Michael Lewchuk) writes:
|> sa114984@longs.LANCE.ColoState.Edu (Steven Arnold) writes:
|> >	In general, technology vastly expands the resources available.  Two
|> >centuries ago, who would have ever believed that the earth could produce 
|> >food as it does?  Nobody!  We have ample food today
|> >because of free market profit-seeking
|> >principles.  The free market, in effect, CREATES, INVENTS new resources.
|> 
|> I think you're confusing sheer survival motive with entrepreneurism.  Survival
|> has been far more an issue in the past than simple entrepreneurism and will
|> probably be the one key motivation for a long, long time, even surpassing
|> "bettering yourself", at least until survival is guaranteed.  Personally I
|> do not equate "free market", "bettering yourself" and "survival motivation".
|> The freer spread of ideas has been the foundation of, and the basis for,
|> the free market, and benefited us in many ways such as the spread of science,
|> far before sheer profit motive was considered in many places.

	I really think that most of the modern advances in farming have more to
do with entrepreneurism than survival motive.  The guys who sat down and
developed the fancy farm equipment weren't hurting for food, or they wouldn't
have had the time to invent new gadgets.

|> >|> 2) Environmental issues - I don't see environmental concern arising
|> >|> naturally from capitalistic goals (or at least until the environment is
|> >|> way too polluted to recover)
|> 
|> My comment: this I see as a personal failing of our species rather than a
|> problem with Objectivism or many other capitalist systems.  In general we
|> are a rather shortsighted bunch of people.

	True.  Except for you and me, of course..... :-)

|> >|> ones, ... Unfortunately, we've seen that companies tend to collaborate
|> >|> to fix prices, squeeze out new competitors,
|> 
|> >Suppose companies A and B collaborate to fix prices at an abnormally high
|> >level.  Wouldn't people buy company C's product?  Ah, you say, but suppose A, B
|> 
|> This argument is often made and has one simple counterargument:
|> If company C and D and E etc. are not seen as being establishable (in other
|> words, if they cannot sustain economic attack by A and B) they will not be
|> created.

	If they are not establishable, then it must be that the market mechanisms
dictate that the current price is within a "fair" range.  If the price is simply
too high to pay, people won't pay it because they can't.  This will create
pressure to find other means of doing the same thing, and if history is any proof,
they will undoubtedly find such a way.
	At any rate, if I knew that company A was draining me dry, and if company
B came along and sold the same product for less, I'd buy from B.  Then if A
dropped their prices even lower, I'd stick with B because I don't TRUST A.  And I
think a lot of other people would have the same attitude.
	Have you ever gone to a restaurant where the service was terrible, the
food worse, and the prices ridiculous?  Have you ever gone back?  Even when they
had a sale?  Price is not the only motivating factor in a free market.

|>  Also, A and B may try to sell products at below cost, thus outselling
|> C and D and E, and distribute the cost on other products and blame it on
|> inflation.

	So what if they did?  The higher prices on other products would tend to
reduce sales, no matter what they blame it on.

|>  The problem is that businesses C and D and E may be very feasible
|> in the long-term but cannot establish themselves unless they have a lot of
|> support capital to withstand and counter the economic damage that A and B's
|> pricing policy will have.  And this kind of attack would be a large deterrent
|> against people wanting to establish a business: even to get the point of
|> having a somewhat profitable firm they have to undergo a vast initial loss.
|> Unless there would be a group who would be willing to take that large loss
|> available, and sustain it as long as necessary (thus having more economic
|> power than A or B), the investment would not be feasible since the company
|> would go bankrupt before it had a chance to be feasible.

	The basic principles remain constant.  When prices rise, sales decline,
and pressure mounts to find alternatives, including alternative companies.  I can
imagine the development of a "ghost" company that sells product x only when
company A(x) has high prices.  Let's call this company G(x).  G(x) does not have
to have a building or any full-time employees.  It uses its fleet of, say,
trucks, owned, perhaps, by private citizens, to import product y when prices for
x are low.  But when prices for x rise again, G(x) starts importing a lot of x
and undercutting A.  In THAT scenario, what would A(x) do?  Start producing y?
	Innovation can overcome every, or very nearly every, obstacle.  Including
companies that overcharge.

|> >	Suppose A, B and C formed ABC incorporated, a railroad company.  Suppose
|> >they raised their prices sky-high.  You'd agree, wouldn't you, that some
|> >consumers will realize that they really don't need to travel so much or ship so
|> >much cargo after all?  And some consumers would start using trucks or airplanes
|> >or boats.  So the railroad would STILL lose money.
|> 
|> You assume of course that the increase in profit does not offest the amount of
|> customers lost.  This may not be the case.  The extra profit possible in a
|> monopoly (or oligopoly) where there is no competition, and the price can thus
|> be chosen without regard to cost, only consumer demand, may grossly outweigh
|> the losses taken through loss of customers.  If I am forced to sell widgets
|> at $2 each with a 20c profit on each because my competitor will sell them at
|> $2 and keep me out of the market if I don't, is far different than if we both
|> team up and charge $4 a widget and have only 2/3rds of our customers.  We
|> are making a much larger profit because we can meet the supply/demand curves
|> at optimum instead of as close to cost as possible.

	True.  If the market supported such a thing, why not?  Incidentally, this
observation applies far, far more to necessities like food than to luxuries.  If
you produced showerheads and doubled your retail price, I think virtually
everyone would quit buying showerheads.  Food, though, you can't do without.  On
the other hand, private gardens and personal ownership of hens and pigs and such
would be hard to compete with....  There are almost always alternatives.
	But here innovation can strike again.  If a device is invented that can
increase the production of x by an order of magnitude, prices will almost
certainly decrease.  For example, suppose you produce food for a community, and
you charge ten times what it costs you to produce the food.  Then somebody else
comes along with an invention to produce five times as much food on the same
land.  This guy can still make a profit selling his food at a little over A FIFTH
OF YOUR PRODUCTION COST!  You can't sell food at a fifth of your production cost
for very long unless you have deep, deep pockets and unless you're willing to
blow a LOT of money on it.  Driving this guy out of business will be REAL tough.

|> >	It all comes down to this: in a free market with no government
|> >intervention, prices will tend to remain at a level suitable for a producer to
|> >make a product and sell it at a reasonable profit.  While this will vary
|> >slightly, in general overpricing and underpricing are not long-term
|> >propositions.
|> 
|> Unless of course the initial investment required and the initial start-up
|> time required to get "loyal consumers" and the probability you will go
|> bankrupt because competing firms will try to push you out is so significant
|> that the risk is not worth taking, even considering the large profit possible.

	If a company has been real bad about gouging, getting "loyal consumers"
will be a damned sight easier.  If a company has been pretty good about it,
though, what is the complaint about?

|> >|> In general, the underlying problem I see is that just following the
|> >|> principle of maximizing profits (making money, whatever you want to
|> >|> call it) isn't enough to create a continually thriving society. There
|> >|> will always be some way of making a quick buck at the expense of
|> >|> someone else (the environment, future generations, ...)
|> 
|> >	That is precisely what government is for.  If the "expense" you're
|> >talking about involves taking somebody's life, liberty or property without their
|> >consent, government can and must prevent that.
|> 
|> Also, it's fraud, and in general defitcit spending.  I believe he was
|> referring more to the latter.  Consider: say I get zillions of dollars of
|> loans on one company that isn't even worth a tenth of what I got in loans
|> and proceed to live well on it.  Who will pay for the loan default?  This
|> problem is one of, well, taking care of what you own.  It's also a problem
|> of taking care of the species.  If we are to survive as a species, and
|> actually live better, I question whether we should exist as essentially
|> environmental predators.  Sooner or later there isn't gonna be any more
|> environment to take.  By balancing ourselves now with regards to the
|> environment and learning not to deficit-spend our environment (as the
|> governments deficit spent themselves into a BIG hole), we can maintain
|> a sustainable economy.  
|> 
|> Now the big question: do we "owe it to future generations" to build a
|> sustainable economy, or do we leave it to them to clean up the messes as
|> we "live high on the hog" and leave the debt to them to clean up?  The
|> lesson of the deficit spending governments is not one to be taken lightly:
|> the governments deficit spent us into debt so that we and our children
|> will have to pay it off.  Do we owe it to future generations not to burden
|> them with the price of our luxuries?  Do we owe it to them to pay entirely
|> for our products ourselves, which includes not degrading the environment?
|> 
|> Which reminds me, how is fraud to be prevented in an Objectivist society?
|> I'm still not clear on this.  Especially this one: without governmental
|> regulatory agencies, how do you know that what's on the label is what's
|> in the can?

	Whether or not fraud has been practiced is to be determined in a court of
law, not by regulatory agencies.  To this end, I think the "loser pays lawyer's
fees" rule is a good idea.
	Fraud is when you promise something you don't deliver.  If something is
written down as a promise, or if the reality of a verbal agreement can be
satisfactorally established in court, then the question is whether or not the
agreement was kept.  If a company repeatedly violates agreements in an
intentional and aggravated manner, I think HEAVY punitive fines imposed by the
court in accordance with law are entirely appropriate.
	Also, I think it is reasonable for the government to establish certain
"default values" for products, and say that if a product doesn't measure up to
those values, the company must specifically and thoroughly inform the consumer of
those shortcomings before accepting any payment whatsoever.  If the company does
not, that's fraud.
	For example, it is reasonable when buying a new car to expect the brakes
to work within certain safety parameters.  If they don't work within those
parameters, a company should be bound to inform the customer of that fact.  If a
customer, fully aware of that fact, drives an unsafe car on the streets, it is
his fault and his responsibility if he sails into an intersection.
	Government can require that all cars which are actually driven on the
roads meet certain safety requirements, simply because in that case we are
talking about the safety of many people, not just the driver.

Steve
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