Volitional Pricing

It doesn’t matter what we charge, unless others to agree to pay it. Virtually everyone would prefer to get a higher price for what he sells and pay a lower price for what he buys. The history of most great American fortunes—Ford, Rockefeller, Carnegie, etc.—suggests that the way to amass vast amounts of wealth is to figure out some way to provide goods and services at lower prices, not higher prices. When Richard Sears tried to overtake Montgomery Ward, he did it, not because he did not have enough money to live on, but because he wanted more. If that is our definition of “greed,” then he was greedy. Realistically speaking, do keep in mind that when prices go up, it is far more likely to be due to supply and demand than to greed.

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Inventories Definition

Inventory is a substitute for knowledge. Since you don’t always know just how much inventory you are actually going to need and since inventory costs money, a business enterprise must try to limit how much inventory it has on hand. Those businesses, which have the greatest amount of knowledge and come closest to the optimal size of inventory, will have their profit prospects enhanced. Just as prices in general affect the allocation of resources from one place to another at a given time, so returns on investment affect the allocation of resources from one time period to another. A high rate of return provides incentives for people to save and invest more than they would at a lower rate of return. – A higher rate of return encourages people to consume less in the present so that they may consume more in the future. It allocates resources over time. The present value of an asset is in fact nothing more than its anticipated future returns, added up and discounted for the fac...

Winners & Losers

Whatever the merits or demerits of various political proposal, what must be kept in mind when evaluating them is that the good fortunes and misfortunes of different sectors of the economy may be closely related as cause and effect - and that preventing bad effects may prevent good effects. It was not accidental that Smith Corona was losing millions of dollars on its typewriters while Dell was making millions on its computers. It was not accidental that Safeway surged to the top of the grocery business while A&P fell from its peak to virtual oblivion. The efficient allocation of scarce resources, which have alternative uses, means that some must lose their ability to use those resources in order that others can gain the ability to use them Typewriters were no longer what the public wanted after they had the option to achieve the same end result and more with computers. Scarcity implies that resources must be taken from some places, in order to go to other places.

Eliminating the Middleman

Everyone always wants to eliminate the middleman but they can’t because of economic reality. Beyond some point, there are “middlemen” in the channel of getting your goods to the end customer who can perform the next step in the sequence more efficiently and more effectively than you can. At that point, it pays a firm to sell what it has produced to some other channel that can carry on the next part of the operation more efficiently. Oil companies discovered they can make more money by selling gasoline to local filling station operators. When they did, they no longer had the burden of getting their product to the public. It was out of their hands and not their problem. When a product becomes more valuable in the hands of somebody else, that somebody else will bid more for the product than it is worth to its current owner. Go back to the oil companies. The filling station operators see the product to be more valuable to them than it does to the oil companies because the oil companies...

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