Prices, Property, Profit and Loss
Willingness to pay is understood in terms of what other goods or services a person might buy instead, the economic term is opportunity cost. But this is also never observed, though it is very real.
Wage labor can also be understood in terms of opportunity cost. Why does a person take a job at a particular wage? Because it is her best option. She must compete with everyone else for her job. She is a seller of her labor.
If she does not like the available options, she is free to create a job, to produce a good or provide a service that other people can demonstrate their willingness to pay for by paying her for it.
Where is the power dynamic in that?
And land ownership of course has historical injustices tied to it. But those injustices are mitigated by the market. A person who has inherited land faces the opportunity cost of using it themselves or renting it out to someone else.
The decision is the same as that for the laborer. If the owner can make the best use of the land himself, then he will not rent it out. But the cost then is what he could have earned by renting it out. If he chooses to rent it out, it is because the tenant is willing to pay more than the owner's opportunity cost. A tenant will only be willing to do that if they think they can use the land productively, and more productively, or at lower profit margins, than the owner.
If the land is rented, both parties benefit.
If the land is not rented the owner benefits, but only inasmuch as he uses the land to produce goods that others value more than the owner does. Again, both parties benefit.
The owners of capital will give up that capital if it does not earn them profits. Profits are gained by creating benefits for others. If the owner of capital cannot create benefits for others, he will suffer losses, his land will decrease in value, he will become less wealthy.
The justification for private ownership of capital is predicated upon the opportunity and risk of profits and losses.
If private owners of capital have more prescient knowledge of what people want and the best way to satisfy those wants at lowest cost then we should encourage private ownership of capital.
If collective ownership of capital can do a better job at discovering what people want and producing at lower costs, than collective ownership should be encouraged.
But collective ownership suffers from the problem of free riders whereas private ownership places the entire risk upon the owner of capital. Private ownership is necessary for the formation of prices. Prices are necessary for efficient communication of knowledge about people's wants and costs of production.
Prices, property, and profits and losses are necessary for a smoothly operating economy.
Wage labor can also be understood in terms of opportunity cost. Why does a person take a job at a particular wage? Because it is her best option. She must compete with everyone else for her job. She is a seller of her labor.
If she does not like the available options, she is free to create a job, to produce a good or provide a service that other people can demonstrate their willingness to pay for by paying her for it.
Where is the power dynamic in that?
And land ownership of course has historical injustices tied to it. But those injustices are mitigated by the market. A person who has inherited land faces the opportunity cost of using it themselves or renting it out to someone else.
The decision is the same as that for the laborer. If the owner can make the best use of the land himself, then he will not rent it out. But the cost then is what he could have earned by renting it out. If he chooses to rent it out, it is because the tenant is willing to pay more than the owner's opportunity cost. A tenant will only be willing to do that if they think they can use the land productively, and more productively, or at lower profit margins, than the owner.
If the land is rented, both parties benefit.
If the land is not rented the owner benefits, but only inasmuch as he uses the land to produce goods that others value more than the owner does. Again, both parties benefit.
The owners of capital will give up that capital if it does not earn them profits. Profits are gained by creating benefits for others. If the owner of capital cannot create benefits for others, he will suffer losses, his land will decrease in value, he will become less wealthy.
The justification for private ownership of capital is predicated upon the opportunity and risk of profits and losses.
If private owners of capital have more prescient knowledge of what people want and the best way to satisfy those wants at lowest cost then we should encourage private ownership of capital.
If collective ownership of capital can do a better job at discovering what people want and producing at lower costs, than collective ownership should be encouraged.
But collective ownership suffers from the problem of free riders whereas private ownership places the entire risk upon the owner of capital. Private ownership is necessary for the formation of prices. Prices are necessary for efficient communication of knowledge about people's wants and costs of production.
Prices, property, and profits and losses are necessary for a smoothly operating economy.
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