Our last chapter regarding Subjective Valuations within the Marketplace helped us to understand how people “value” goods, services, and money. We also learned how the aggregate effect of this among sellers and buyers makes a market function as a “living organism” because there are many people therein making choices.
We also briefly learned beforehand within the chapter The Biblical Genesis of Money that the ability to “price” products/services within a commonly accepted money greatly simplified exchanges between willing parties. Again, we pointed out that this development also had another immediate—and probably simultaneous—secondary affect upon the market. Now “prices” could be compared. Let us now take a look at this very real concept by first explaining how market prices are determined..
Determining Market Prices
With the advent of money being used as both a common medium of exchange and pricing metric, market participants could also now determine—through experience and timely information—what the “going market prices” might be for certain goods and services. This was a good development for both buyers and sellers. (And remember, everybody is both a buyer and seller, though those functions are generally performed at different times.)
During the time frame recorded within the Book of Genesis—and for several millennia thereafter, even in a similar manner up into the Twentieth Century A.D.—pricing was being conducted through the “common denominator” of weight-based units of the monetary commodities. Again, those were primarily gold, silver, and for smaller prices, copper alloys. This fact allowed participants to determine through their own experiences, observations, and conversations with others, what seemed to be the “going” price for certain exchanges within the marketplace.
Because of “prices,” as a buyer stood in front of a vendor inquiring about some of their wares, he or she could then estimate for themselves if the quoted price was “too high” or “too low”—not only with regard to their own subjective valuations, but also in terms of other market transactions for similar quality goods and services. In other words, they could compare prices with other similar or substitutable goods/services, and then also among the various vendors.
He or she would then weigh such consideration against their own goals and time-frame limitations (i.e. how quickly he or she needed to obtain the product), to see if they were willing to make an exchange at that price or not. If not, they could walk away and inspect the wares of another merchant within a given marketplace.
However, there was a dual advantage to this pricing system: BOTH buyers and sellers could then utilize market information to help them make better decisions regarding their exchanges. Remember, a “seller” today was themselves a “buyer” yesterday—either of raw materials, tools, labor, or some other expense related to bringing their goods to the market. Now even the merchants’ ability to accurately “price” his or her goods for sale within the market was significantly improved through the added simplicity and efficiency that market prices conveyed to them.
This brings us to another Organic Economic™ truth:
Market Prices: The use of money to determine “prices” had two immediate affects upon the market: (1) It permitted buyers to compare prices in order to better determine the going “market price.” (2) It permitted producers, merchants, and service providers, to determine with some precision how much direct “cost” they had associated with the products and services that they sold; and this helped them to better determine at what prices they needed to offer their wares to the consumers.
Profits Could Be Measured
As the above principle states, the use of money as a “common denominator” within the market allowed merchants to determine with some precision how much “cost” they had invested within their goods and services. There was now a common unit of measure; and with some simple arithmetic, they could use that measure to determine how much they had “invested” in a particular good by simply adding up all their known direct costs. Whenever their selling price exceeded their total known costs, the seller could easily calculate how much profit he had made from the transaction. However, if the seller had to accept a lower amount in exchange for his or her goods, the seller could then calculate his or her losses. So this brings us to another organic principle:
Profit and Loss Determination: The use of gold, silver, and copper alloys, as mediums of exchange (money) enabled sellers to more easily calculate their total cost of goods sold. This then enabled them to compare this cost with the final sale price, in order to determine the total profit or loss that resulted from the transaction.
What Is a “Fair Price”?
Of course, some Christians throughout history have been VERY concerned whether it is right or wrong to make a profit. In fact, one of the chief economic failures during much of the Canonical Law era within Europe centered around the fact that many Roman Catholic theologians had a constant infatuation with trying to determine a “fair price” for goods/services within the marketplace. This idea was absurd, of course. The Lord Himself does not interfere with market prices (as we will discuss within Levitical Economics™ later) because He respects the property rights of both the seller and buyer.
In fact, if someone tries to force a “fair price” upon any market or transaction, one of two results will necessarily occur:
- It will either force a seller to accept something less than he is willing to take in exchange for his or her goods, or
- Force the buyer to pay something more than he or she is willing to pay for those goods/services.
Such forced market pricing is a clear violation of Organic™ Property Rights, as well as Levitical law. Thus, it must also be contrary to God’s Own intent and purposes as both Creator and Lawgiver. So if the omniscient Creator refuses to interfere with regular market transactions by forcing a “fair price”, it is quite ridiculous for any group of non-omniscient theologians to try to establish a “fair price” and impose it upon market participants.
So what was their concern? Most of these theologians seemed to be concerned about the idea that someone might make a “profit” on an exchange transaction—as if that was something bad. Therefore, they obviously failed to understand the simple Organic™ truth that we discussed already within The Biblical Genesis of Trade:
Beneficial Exchange: The freewill mutual exchange of goods and services benefit all parties involved. Society as a whole benefits also as these mutual exchanges proliferate.
Thus, the only “fair price” is the one where BOTH the buyer and seller have come to an agreement, and BOTH are willing to make the exchange. If either party is not satisfied with the “price,” then there will simply be no purchase. They can then each pursue other avenues through which to obtain their personal objectives.
There are no real “losers” within any freewill exchange transaction, as all parties will have their goals achieved, or they will simply not make the exchange. This is NOT a zero-sum encounter where one party has to “lose” in order for the other party to “win.” Thus, it is generally the rule that ALL parties “profit” in some way when Organic™ market functions are allowed to flow freely and people can do what they want with their own goods, services, and money.
We have already covered this truth to a great extent already, of course. Nevertheless, the idea of “profit” will be a centerpiece within this chapter. So let me address this issue in a little more detail theologically before we move further into our study, so as to remove any potential “road blocks” to any of my readers’ understanding.
“Profit” Is God’s Idea
Our Lord God, according to the Bible, does not have a problem with “profit” and other such things—as long as these things are obtained honestly. In fact, the prolific use of the word “profit” within Scripture—in reference to spiritual, mental, AND material increase—tends to cause one to wonder why professing Christians do not simply read their Bibles to resolve any concerns.
Here are just a few examples:
All hard work brings a profit, but mere talk leads only to poverty.
(Proverbs 14:23, NIV, emphasis added)
The plans of the diligent lead to profit as surely as haste leads to poverty.
(Proverbs 21:5, NIV, emphasis added)
Please note that within these citations from Proverbs above, the Lord speaks through His Word about “profit” in a good sense. Moreover, these passages obviously apply to material “profit” and not to spiritual, as “hard work” and “diligence” are given as the key reasons for the increase. One could certainly apply these same passages to profiting spiritually (e.g. through prayer and Bible reading) or even mentally (e.g. through study). However, the obvious intent of these passages is to reference material increase.
Thus says the LORD, your Redeemer, The Holy One of Israel: “ I am the LORD your God, Who teaches you to profit, Who leads you by the way you should go.
(Isaiah 47:8, NKJV, emphasis added)
This third passage above from Isaiah forty-eight could once again apply to all forms of “profitability,” but would similarly seem to favor material increase.
Nevertheless, let us turn our attention to another passage from Isaiah that would obviously emphasize spiritual “profit.” (Though I should also point out that Deuteronomy chapter twenty-eight indicates that such spiritual increase would result eventually in material profit as well.) Consider how the Lord speaks to the people of Israel regarding the idolatry that was within their midst. Though He is speaking about their spiritual condition (i.e. their apostasy) God uses the term “profit” to point out that there could be no increase or benefit derived from their useless idols:
Do not fear, nor be afraid; Have I not told you from that time, and declared it? You are My witnesses. Is there a God besides Me? Indeed there is no other Rock; I know not one.’”
Those who make an image, all of them are useless, and their precious things shall not profit; they are their own witnesses; they neither see nor know, that they may be ashamed. Who would form a god or mold an image that profits him nothing?
(Isaiah 44:8-10, NKJV, emphasis added)
So within the Isaiah forty-four passage above, God uses the expression “profit” to highlight the uselessness of idolatry in contrast with the most-excellent profit that they can gain through a right-relationship with Him. Now to balance this brief teaching out with a quick word about ungodly material “profit,” please notice within the following citation how God points out that there are some methods for obtaining material profit which He certainly considers sinful:
In you they take bribes to shed blood; you take usury and increase; you have made profit from your neighbors by extortion, and have forgotten Me,” says the Lord GOD. “Behold, therefore, I beat My fists at the dishonest profit which you have made, and at the bloodshed which has been in your midst. Can your heart endure, or can your hands remain strong, in the days when I shall deal with you? I, the LORD, have spoken, and will do it.
(Ezekiel 22:12-14, NKJV, emphasis added)
So it is not “profit” categorically that is a bad thing, but it is dishonest profit that is condemned—the search for which tends to result from moral debasement, i.e. a corrupt spiritual life. This latter “unjust profit” is rebuked; but the former “honest profit” is certainly given a place of honor within the Bible.
Humanity was created with a “built-in” (i.e. innate) desire to survive and increase. As we learned within The Biblical Genesis of Trade, mankind was designed by God with these inner motivations. It is only when such behavior is founded upon sinful methods and with corrupt objectives, that God then brings forth a stern rebuke.
In short, we can certainly summarize this point with another Organic Economic™ principle:
Organic Profit: The desire to profit—to increase, to excel, to prosper—is a God-given characteristic which He has instilled into the nature of every human being.
This is a self-evident truth. When you consider it in relation to your own life, you will recognize that EVERYTHING you do has either a conscious or unconscious motivation to increase or excel. Even Communists—who want to eliminate all private property ownership and free trade, and upend the entire “organic” social order with their insane philosophies—desire to do so because they mistakenly think that they will themselves have a better life as a result (i.e. that they will “profit” materially thereby); or that they will “feel” as if they have helped humanity (i.e. profited within their emotions and self-esteem).
So everybody wants to profit. It is an organic component of human nature.
And as we progress within the rest of Organic Economics™, this truth will become even more clear. We will even discover that the desire to make a profit actually helps society to function efficiently—and with the maximum benefit to all people (whereas both Communism and Socialism in all their forms, have a several-hundred-year history of promoting human suffering and death).
So returning once again to our Organic Economic™ discussion more directly: The use of money as a “common denominator” within the market allowed merchants to determine with some precision how much “cost” they had invested within their goods and services. A seller could now easily calculate how much profit he or she had made from a particular transaction; or if the seller had to accept too low an amount to cover their expenses during the transaction, the seller could then calculate his or her losses.
Obviously, such clearer information created a motivation for sellers to avoid losses and pursue profits. Now that they could see in writing (i.e. cuneiform tablets, which we discussed already in Civilization Emerges) what they had either gained or lost monetarily through a transaction, sellers had new insight into whether their business enterprise was increasing or decreasing through certain transactions. This leads us to another organic point:
Profit Motive and Aversion to Loss : The ability for sellers to more clearly identify the profits and losses that occurred through their exchange transactions amplified their motivation to avoid losses while seeking gain. However, again, this motive is merely a knowledge-enhanced behavior that was already rooted within humanity’s God-given desire to survive and prosper.
And immediately, the following organic principle also came into effect quite powerfully:
Market Decisions: This Profit Motive and Aversion to Loss principle, created a powerful force that empowered the buyer of goods, while improving the market’s overall efficiency to meet the demands of consumers. Merchants could better determine which goods/services the consumers were willing to buy because their profits or losses “dictated” to them which were desired by buyers and which were not. They could then place the appropriate orders with the producers. This now provided producers with their own feedback mechanism which told them (through merchant orders) which products should be produced and brought to market. And even service providers and workers could better identify which labors the marketplace participants desired most to employ, because profits/losses “indicated” to them which labors it was best to pursue.
So contrary to what many of those influenced by Socialist and Communist propaganda—or even religious “Utopian” philosophies—might believe, the emergence of the Profit Motive and Aversion to Loss surely became an extreme advancement to the marketplace for ALL participants.
In other words, everybody won. Every seller, producer, and laborer, was aided in their decision-making abilities to meet the demands of consumers—so both the consumers, and those who supplied them, received benefit.
Furthermore, the consumer was empowered to determine the composition of goods and services within the marketplace, by simply making their own purchasing decisions. Profits and losses are the “indicators” which dictate to sellers within the marketplace what goods, services, and labors, to offer to the buying public. So this brings us to another powerful Organic Economics™ truth:
Consumer Demand: Within a free and “organic” market, it is the aggregate demand of the consumers which determines what products and services are sold, and in what quantities, and at what price.
And it is this very topic that we will soon explore in greater detail within our next chapter…
- Money facilitated transactions by making things much simpler. It also helped both buyers and sellers to calculate costs, profits, and savings.
- “Prices” could be calculated uniformly, and exchange negotiations became more streamlined.
- The advent of “prices” also permitted market participants to more easily calculate loss and profit.
- The idea of “profit” is not only permissible biblically, but it is actually God’s idea.
- The resulting Profit-Motive, Aversion-to-Loss Organic™ market “feedback mechanism” permitted suppliers to know which products/services the consumers demanded.
- This feedback mechanism “dictated” what goods and services needed to be brought to market, for it was these which the consumers demanded.
- Everybody within the marketplace—buyers, merchants, producers, laborers—benefited by these advancements in commerce, and the resulting increase within those ancient economies.
Now let’s look at how the markets of Organic Economies™ determine which products/services to offer consumers. The “automatic” feedback system we just discussed is really a powerful self-regulating supply system that benefits all of society. So let us explore How Demand Determines Supply within our next chapter. Then we will be ready for the next chapter where we will learn how labor can travel through space…and time.
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