Capitalist Philosophers And Fundamentalist Protestants

[Borodog]

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Define "correct." If everyone in the system exchanges voluntarily, how can you possibly claim that the negotiated price of any transaction is "incorrect"?

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I meant correct as a concept that relates to something being optimal. I agree to have my house painted for 1K, next day I find out I could get it done just as well for half that. There would seem no connection between the price I pay and the job being done. IT's not an issue that the 1K is 'unfair' or 'he doesn't deserve it', I agree with the 'freely entered into' part.
I just don't see how anyone can tell me that 1K is what it takes to get a house painted well.

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On average, better shoppers get better deals, yes? Those who invest more time in researching various suppliers will likely receive better quality goods and services at lower prices. Another way to think about it is that you will pay a premium for the "convenience" of not investing your time in the research.

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That is what the CEO claim seems to be. 'We Have to pay X in order to get good results'.

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? I don't see how this follows at all. Do you think large comnies choose CEOs like you found your house painter? I.e. half-assed, with you paying twice as much as you need to? Companies typically make extensive searches to identify the best candidates for the job. They offer what they are willing to pay, the candidate either accepts, rejects, or they negotiate.

If it turns out they could have gotten just as good a candidate for half the money, that is an indication that their job-filling capabilities are lacking, and their profits will suffer in comparison to competitors with better job-filling ability.

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You seem to be saying it's an averaging out thing and it's the overall system that we need to judge..all the CEO's, all the painters. OK, I doubt anybody can be sure about that, but I have no problem with the concept.

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Close, but we actually don't need to "judge" anything, except in our capacity as consumers, where we judge various competing suppliers and their products and services against each other, and adjust our patterns of buying and abstension from buying accordingly. Poof, like magic, the market tends toward "optimality." Although it will never get there, of course. The free market is a continuous process of tearing down and rebuilding the capital structure to suit the tastes of consumers, which are themselves constantly evolving.

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How does that mean that we can't say "Hortense was not worth his 10M" Hortense can't take credit for the great workings of the entire system, any more than a butcher surgeon can take credit from the good work of the great ones, or the medical profession in general.

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Profits and losses are signals to investors and entrepreneurs. Losses are a signal that someone (an individual, a company) is taking more highly valued inputs and created lower valued outputs, i.e. he is wasting resources. Profits are a signal that you are taking lower valued intputs and raising their value to consumers. Not only are the losses a signal to the entrepreneur to get his act together (either by raising the value to consumers or by reducing his costs of production), they positively terminate waste of resources. Eventually the poor entrepreneur runs through his capital stock, goes bankrupt, and can no longer produce. He can no longer continue to waste resources. Meanwhile profits act to concentrate capital into those that have shown that they provide value to consumers.

So the butcher surgeon doesn't get to take credit for the good ones in the free market. In the free market, business flows to the superior providers and away from the inferior ones. The case of the CEO is slightly harder to visualize, because customers are not choosing the CEO, they are choosing the companies products. But the effect is there. All else being equal, if there are two identical competing firms that hire new CEOs, but one is "better" and makes better decisions, his company will profit relative to the competition. If they hire identically qualified CEOs, but one manages to get theirs cheaper, they will profit compared to the other.

The effect may be small. The effects of luck may be large in the short term. But in the long run, like in poker, rewards (profits and accumulated capital) tend to acrue to the better competitors (i.e. those that better please consumers). As in evolution, fantastic order and efficiency develop from the smallest of edges over time. The beautiful order of the free market is an emergent property that arises from the logic of mutual accomodation, competition, and freedom of exchange.

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WHy should Hortenses pay be considered 'correct'? I certainly feel I made a mistake hiring that first painter.
that version of 'correct' ..

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Another beauty of the market. Not all decisions are correct. All transactions are voluntary because both parties believe they will benefit ex ante, i.e. before the fact. Sometimes your decision will be revealed to be in error, i.e. you will suffer losses (monetary, material, psychic, it doesn't matter; all tht matters is that you regret your decision). But that knowledge reduces the likelyhood of future mistakes!

Think about this. You stop at the gas station and buy a tank of gas. The gas costs you $2.29 per gallon. After you finish paying and pumping, you look across the street and realize, damn! You could have gotten it for $2.19 per gallon. In the future, you will be careful to patronize the second station in lieu of the first.

In a free market, if you feel in hindsight that you have been swindled in a transaction, you are extremely unlikely to repeat that transaction. In fact, this effect would tend to increase the efficiency of the market even in the complete absence of consequences for the swindler!

Contrast this to a government monopoly provider of a good or service. If you feel you need a good or service that the government monopolizes the provision of, you will have no choice but to accept whatever quality and price the monopolist provides. Worse, if the government forces upon you "goods" or "services" that you would not otherwise buy, you find yourself in the unenviable position of being repeated forceably swindled for the remainder of your natural life.