An extra banana in the bowl isn't a bad thing
Perhaps not these days.
The first part of today’s dilemma is about Adam Smith who discovered that money makes the world go round. If he’d been a wit, he would then have said that food makes David Hume go round. Basically, it can all be summed up in the sentence, “Greed is good.” Self-interest is the basis for social co-operation, which is very true in China since you soon come to realise that when Chinese people claim they want to be your friend, they really mean that there’s something they want from you – probably free English lessons.
The first dilemma is whether people should sell their good for just enough to make an honest living or screw the punters for as much as they can get out of them.
Business seems to work on the second principle. My Dad has been after a Sony Blu-ray player. The Sony shop had it for one price; a second shop had it for another, higher price; a third had it for a lower price than either of the other two. The question I asked was how they could possibly sell it for less than the price in the manufacturer’s own shop.
In reality, things are a little more complicated. If the merchants of the town are the honest scoundrels you expect, but not in competition with each other, they can pretty much set the price they want, although at the same time, in terms of self-interest, greed might backfire because demand might be insufficient if no one can afford to buy their overpriced crap. In reality, there’s likely to be competition, in which case you might expect prices to be more competitive. On the other hand, the competitors might agree to share the market so that they can operate without damaging each other’s profit margins. They still want to be seen to be competing, but in truth they’re working together in their own self-interest.
I don’t find the concept of profit unreasonable. I’m not the only person to think that someone’s income should allow them to do more than just subsist. Thus, if someone supplies a product at cost, then that’s very altruistic, but is of no benefit to them because it means that they pass on the costs and profit margins from their suppliers, which means, in turn, that they’re acquiring money that benefits someone else. But the acceptability of profit depends on how large a profit margin is in comparison with the cost of the product. BT has come in for criticism in the past because of its huge profits. Whether such criticism is actually fair, I don’t know, but because it’s hard to comprehend large numbers, it’s easy to see how people might think that the incomprehensible is unacceptable. There’s probably no answer to the question, “How much profit is enough?”
So what’s the answer to the question? Set the price as high as you can. Greed is good, although the term is emotive.
The next question is what to do with our profits. Smith was in favour of saving rather than spending the money on instant gratification. But lots of people aren’t like that. I’ve run into plenty who seem inherently incapable of saving money. I don’t know whether this is an age thing or not. That is, callow youth suddenly having disposable income cannot comprehend the finiteness of it. But then again, I’ve had to loan colleagues here in China money because somehow they’ve spent it all. I may spend more myself, but I can’t imagine how I could spend my entire monthly salary. There’s just not enough to spend it on.
The book reverses the question so that instead of studying morality to decide what to do with the money, we should study money and decide what to do with morality.
I suppose at the moment, people need to spend money. I’m not much good at spending because the things I’d like to buy are (generally) unavailable to me in China. My money is mostly spent on food and little else apart from an occasional DVD or two. When I go overseas, I tend to spend a lot of money because finally I’m somewhere which can supply my demands with things which aren’t being bought for their novelty value. Ironically, when people ought to spend money, they don’t have it to spend or realise too late that they ought to have saved some in the first place. I suppose I’m looking to my distant future, which makes saving now a good idea in spite of current economic conditions. That might not make sense to a modern economist.
The first dilemma is whether people should sell their good for just enough to make an honest living or screw the punters for as much as they can get out of them.
Business seems to work on the second principle. My Dad has been after a Sony Blu-ray player. The Sony shop had it for one price; a second shop had it for another, higher price; a third had it for a lower price than either of the other two. The question I asked was how they could possibly sell it for less than the price in the manufacturer’s own shop.
In reality, things are a little more complicated. If the merchants of the town are the honest scoundrels you expect, but not in competition with each other, they can pretty much set the price they want, although at the same time, in terms of self-interest, greed might backfire because demand might be insufficient if no one can afford to buy their overpriced crap. In reality, there’s likely to be competition, in which case you might expect prices to be more competitive. On the other hand, the competitors might agree to share the market so that they can operate without damaging each other’s profit margins. They still want to be seen to be competing, but in truth they’re working together in their own self-interest.
I don’t find the concept of profit unreasonable. I’m not the only person to think that someone’s income should allow them to do more than just subsist. Thus, if someone supplies a product at cost, then that’s very altruistic, but is of no benefit to them because it means that they pass on the costs and profit margins from their suppliers, which means, in turn, that they’re acquiring money that benefits someone else. But the acceptability of profit depends on how large a profit margin is in comparison with the cost of the product. BT has come in for criticism in the past because of its huge profits. Whether such criticism is actually fair, I don’t know, but because it’s hard to comprehend large numbers, it’s easy to see how people might think that the incomprehensible is unacceptable. There’s probably no answer to the question, “How much profit is enough?”
So what’s the answer to the question? Set the price as high as you can. Greed is good, although the term is emotive.
The next question is what to do with our profits. Smith was in favour of saving rather than spending the money on instant gratification. But lots of people aren’t like that. I’ve run into plenty who seem inherently incapable of saving money. I don’t know whether this is an age thing or not. That is, callow youth suddenly having disposable income cannot comprehend the finiteness of it. But then again, I’ve had to loan colleagues here in China money because somehow they’ve spent it all. I may spend more myself, but I can’t imagine how I could spend my entire monthly salary. There’s just not enough to spend it on.
The book reverses the question so that instead of studying morality to decide what to do with the money, we should study money and decide what to do with morality.
I suppose at the moment, people need to spend money. I’m not much good at spending because the things I’d like to buy are (generally) unavailable to me in China. My money is mostly spent on food and little else apart from an occasional DVD or two. When I go overseas, I tend to spend a lot of money because finally I’m somewhere which can supply my demands with things which aren’t being bought for their novelty value. Ironically, when people ought to spend money, they don’t have it to spend or realise too late that they ought to have saved some in the first place. I suppose I’m looking to my distant future, which makes saving now a good idea in spite of current economic conditions. That might not make sense to a modern economist.
The salt tax. I hate it! I hate it!
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