Free Market Forever

What is marginal economy?

Think it this way, which do you need more, gold or water?

Of course you need water more.

Which one will you pay more money for? One kilogram of gold or one kilogram of water? Of course, gold.

Why?

That’s because in economy, only the marginal matters. What does that mean?

Water is precious.

However, the value of water is the value of that least useful water that you still use anyway.

You use water to drink, you use water to take a shower, you use water to water your plants, then you use water to wash your car.

Obviously, the water that you drink is much more useful than the water that you use to wash your car. However, the value of water is the value of that least useful water.

Why is it so?

That’s because you’re trying to maximize your profit. Of course, you use your water for what’s the most useful first.

Yes, but why is the value of water so low?

Say the value of water is higher than that. Say it is $5 per gallon. The satisfaction you’ll get from washing your car is $1 per gallon. Then you simply don’t wash your car.

Say the value is lower than that. The satisfaction of washing your car is $1 per gallon. However, water is so abundant that its cost is only $0.50. Then you’ll use water for stuffs that give even less satisfaction, such as washing your house.

In fact, water can be so abundant that the price is negative. A negative price means that you’re willing to spend money to get rid that water. Such is the case during a flood.

In which case, you’ll actually spend money to get rid of water, such as buying water pumps. That’s what happened to one of my grandmas because her house is often flooded.

What’s the moral of the story? Be rare. When you’re rare, you’re valuable. When you’re not rare, you’re worthless.

How do we distribute wealth among us?

Some people would say that we distribute our wealth proportional to productivity within capitalistic society.

I do not mean how we distribute our wealth within capitalistic society. I also do not mean how we “should” distribute our wealth.

I mean how we actually distribute our wealth.

Wealth and natural resources gets divided roughly proportional to political power.

For example, in North Korea, the wealth goes to Kim Jong Il. In Arab, the oil money goes to the King.

Capitalism is simply a special case of those norms. In capitalistic society people have strong commitment to reward power to those who productively earn it.

Again, in capitalistic countries, those who earn money productively have a certain political power, namely power over their wealth.

It’s your money means you decide how you should spend your money. If it’s your time and life, then you decide how you should spend your time and run your life.

You control what you own.

That’s why the consumers get the most benefit within capitalistic countries.

In Indonesia, for example, governments’ officials are often able to override customers’ preference.

That happens in various governments projects, like public schools, clothing laws, doctors’ mandatory social practices, anti gambling laws, anti drug laws etc.

When that happens, entrepreneurs do not try to please customers. They try to please governments’ officials through bribe.

In US, people that get rich are those who invent better light bulbs, and make more efficient system.

In Indonesia, people that get rich are those who are close to governments’ officials. Indonesians’ police leaders are very rich.

But why wealth is distributed proportional to each party’s political power?

Not all transactions are consensual.

For example, say you earn your money productively. Say a robber puts gun in your head. There will be a reasonable probability that the robbers will get your money even though he does nothing productive to you.

Things sort of work that way in a society. Sometimes, a group of people gets bigger share, not because that group is more productive. They get bigger share because they have military and political power to press their demand.

It’s comforting to believe in a morality value. We believe that US do not nuke China because it’s the right thing. We believe that China do not nuke US also because it’s the right thing.

It doesn’t work that way. Life is a gun fight. The way we don’t get killed is by either killing the others or making credible threat not to kill us.

The ways we make credible threats are by actually do some killing. That’s why I support death penalty for those who really ask for it.

Robbers are not really better of compared to under capitalism. Robbing sets precedents that go back to them.

It’s natural that the one more capable gets bigger share.

For example, less capable individuals, out of envy bigotry, demands total redistribution of wealth under communism.

When that happens, those who are smarter will turn into dictators rather than productive entrepreneurs.

So it does take brain to get rich whether you’re in a communist country or in capitalistic country.

It takes capital too. It costs tens of thousands of dollars to buy a governments’ position in Indonesia.

So when an official in places, his first agenda is trying to recoup his money and make as much profit as possible. Just like business.

Commitment to freedom and meritocracy put power in ways that benefit those who are productive.

This motivates people to be productive and encourage productivity. This in turn benefits the society as a whole.

Free market does not create disparity of wealth. Free market simply changes the way such disparity is made.