It doesn’t take a sociological genius to come to the conclusion that humans tend to act alike.
When faced with death, we tend to react with the same questions, like, ‘will my family be o.k.?’ All humans, when faced with disaster, react the same by leaning on those most close to them. Humans have desires and needs and it transcends all cultures. The basic desires are there, yet they might look different. How people satisfy those desires with the limited resources is what economics is. How much someone desires a product affects its value. We will use the assistance of Dr. Ronald Nash’s book, Poverty and Wealth to guide our study.
The Bloody Debate over Subjective and Objective Value
The ‘loving’ leaders of Communist China and Russia, in the 20th century, slaughtered over 30 million of their, own people for the sake of power and control. Each. The economic system which trumps objective or subjective value will in the end have greater control and power. Basic human reasoning shows us that someone choosing whether or not to buy something is not based on the inherent quality of the product, but the subjective quality.
A Pregnant Woman Proves Subjective Value
An Example based on the Law of Diminishing Personal Value:
Imagine a pregnant woman has not eaten in a few hours and is craving Italian Food. She goes into the best Italian restaurant in town and orders her favorite dish: Steak Gorgonzola Pasta. She realized the prices have gone up but that doesn’t STOP this woman from caring. Give that woman some food! She wants her Steak Gorgonzola and she wants it NOW. She received her dish and it was better than she imagined and happily paid the price. The manager, seeing a repeat customer, offers her half off her next order of Steak Gorgonzola if she pays for that meal, today. The pregnant woman, though somewhat satisfied from her delicious meal, contemplates the offer for 3 seconds and accepts. She gets the second helping and she is stuffed. At that point in time, the manager attempts to rope in his pregnant customer again and offers another great deal. The pregnant woman responds with her arms in the air and a slouch in the chair and says, “Absolutely not! You couldn’t pay me to eat more.”
Here’s the Point: Notice her change of the personal value. The pregnant woman went from being willing to pay more for the first, to hesitating for the second, to flatly refusing for the third. The personal value changed–it diminished. Sound like objective value to you? I hope not!
Karl Marx’s Fantasy
Karl Marx believed that value objective. As Dr. Ronald Nash said, “Marx believed that the value of a good or service is determined to a great extent by its cost of production.” If a shirt cost $15.00 to make, that is how much the shirt is worth–and heaven forbid you make a profit by increasing the price! Welcome to Marxism.
“The only alternative to a market price is a
controlled or fixed price which always transmits
misleading information about relative scarcity.”
-Mark J. Perry
Within a free market economy comes voluntary exchange. A free market economy could be explained in the following: “You do something good for me and I’ll do something good for you.” Imagine going to your local crab shack and buying a crab pot. You are saying, “You do something good for me (give me a meal), and I’ll do something good for you (give me money in exchange).” Within a free market economy, there are sets of rules and procedures that must be followed in order to keep things from being chaotic. Some examples are common sense (or should be). Don’t cheat, Don’t steal, Don’t lie.
Difference between a FREE market and a Socialistic Economy:
The supplier is not out trying to make the consumer happy. The supplier wants to make themselves happy and therefore has incentive to work for it. Take the incentive away and the supplier will not be motivated.
Give a man incentive; he will strive to excel in his area of expertise:
- superb customer rating
- highest quality of product and workmanship
- for treating his employees well
- trustworthy business relationships
Forcefully take the incentives away (i.e. it doesn’t matter how hard one works, you will get the same amount as someone who puts in a quarter of the work) and it destroys the drive in man to succeed. This is what socialism produces in the end. Give people incentive, like China did in the 70’s and watch over 500 million people rise out of poverty—all because of the taste of economic freedom.
Next week, we will put capitalism and socialism side by side to see which economic system is the best for the welfare of people.
“Capitalism is based on the theory that Incentives matter! Under socialism, incentives either play a minimal role or are ignored totally.”
-Mark J. Perry
Dr. Ronald Nash discusses Christianity and Marxism