July 19, 2017 - Freedomain Radio - Stefan Molyneux
09:52
3747 Everybody Has A Price | The Daily Argument
While many people accept the value of the Internet in disseminating important information, Stefan Molyneux looks at the overlooked value of the price system and the negative impact that distorting it has on the world overall.Your support is essential to Freedomain Radio, which is 100% funded by viewers like you. Please support the show by making a one time donation or signing up for a monthly recurring donation at: http://www.freedomainradio.com/donate
So you may have heard of this little thing called the intranet, a methodology for disseminating unbelievable volumes of information around the world at a moment's notice for all to consume who have access.
Do you know that there used to be something very analogous to this before there were computers, before there was TCPIP, before there were cell phones?
There used to be a methodology for disseminating information all the way around the world very, very quickly, and it was called PRICE. We're going to talk about price because you really need to understand it if you're going to talk about freedom and understand what is going on and what is going wrong with the modern world.
And in particular places, you know, Zimbabwe and Venezuela and other places where central planning, which is the idea that to hell with price, we're going to tell people, we're going to order people, usually at the point of a gun through state power, we're going to order people to produce this, to sell it at such and such a price and so on.
Now, price is what you're willing to give up to get what you want.
So, you know, the old example is I have a dollar and you have a pen and voluntarily we decide to trade.
I give you the dollar, you give me the pen.
Now, we are both better off as a result and only because we've done it voluntarily because clearly I want the pen more than I want my dollar and you want my dollar more than you want the pen.
You know, maybe I need the pen to sign a check to close something that's really, really important for me.
And you have 500 pens sitting around and you'd really like a coffee.
And I guess it's 1985 when you get a coffee for a buck.
But anyway, so we're both better off because we have voluntarily chosen To make this exchange.
That's sort of what price is.
I'm willing to give up the buck to get the pen.
You're willing to give up the pen to get a buck.
And we both prefer that.
Well, we may be wrong.
We may later have buyer's remorse.
I may later return the pen or whatever it is.
But in that moment, because it's voluntary, we're doing amazing things.
So price is an incredible signal for everyone not just about what the value of things are in the here and now in the present but it's an incredible signal for everyone about what the value of things is going to be in the future because not only do things have a price but time itself has a price I'm not just talking about in terms of watches but time or the magazine but time itself has a price and the price of time is called Interest rates.
So interest rates is how much you want to pay to have money now rather than later.
If you have an interest rate of 10%, then you'd rather have the money now and you're willing to pay 10 bucks on 100 to have the money now rather than later.
And that's really important.
And we have a time preference for things in the here and now, because, you know, the grim reaper marches inevitably forward.
We're going to die, and so we'd rather have things now.
If we lived forever, we probably wouldn't have as many time preferences, but we're mortal, so we'd rather have things now.
Like, how much would you pay to give someone money?
How much would you charge, sorry, to give someone money who will give it back to you in a hundred years?
Unless you're a government, right, and using it to bribe the voting population, you know, nothing, because you won't be alive probably in a hundred years, so not such a good deal.
Now, it's really fascinating how complex this gets in a free market and how much information is embedded in something like price.
So if we look just at the price of money at interest rates, If people are deciding to save rather than spend, right?
If there's a general trend, for whatever reason, people are deciding to save rather than spend.
So they put the money in the bank rather than spend it in the here and now.
Well, what happens is then the bank has much more money to loan.
So when you have an excess of supply, the price goes down.
So when the bank has an excess of money to loan out, it's going to end up charging less interest.
Now, what entrepreneurs do is they say, wow, in a free market, interest rates are going down, which means that people are deferring their purchases.
They're going to buy more later rather than now.
Now, that's fantastic information.
Imagine how much you would have to pay to get a poll to figure out whether people in the economy as a whole wanted stuff now rather than later.
Because whether they want stuff now rather than later is really, really important information for you to have.
As an entrepreneur.
So let's say you have a factory.
If people want your goods now rather than later, then you're not going to upgrade your factory, you're not going to buy new capital equipment, you're going to just pump out whatever widgets you're pumping out and hit the marketplace hard and people will snap them up.
But if interest rates are low, Two things happen that are very cool.
Number one is you say, okay, well, people don't want my widgets as much right now, but they will want them at some point in the future.
People save usually in order to spend at some point, even if they die, suddenly the kids get the money, the kids will probably spend it.
So when interest rates go down in a free market, you as an entrepreneur, you say, okay, people want a few of my widgets now, but they'll want more of them later.
So now is the time for me to upgrade my widget production.
Because people aren't buying much now but they're buying more later so I'm going to get ready to make twice the number of widgets.
I'm going to spend five million dollars upgrading my factory so I can produce five million widgets later.
What's cool about this is you usually will borrow the money to upgrade your factory.
So lower interest rates means that people don't want to buy your widgets now but will want more later, which lowers the interest rate because there's more money in the bank for them to lend out, which means that it's cheaper for you to borrow to upgrade whatever you're doing on your factory, like the five million bucks so you can produce double the widgets in a year or two.
This all works incredibly fluidly.
And one of the challenges of central planning, and a lot of this is of course out of the great economist Ludwig von Mises, and you can read his stuff for free.
You can check it out online.
It's great, great stuff.
But central planning can't possibly, can't possibly replicate all of this complexity.
People suddenly want more of a certain thing.
So the price is going to rise, which suppresses demand for that certain thing.
You know, things balance out really nicely.
People want less of a certain thing.
Well, that's a signal for people to either lower the price or produce less of it if they can't lower the price.
This is all happening dynamically.
It's happening internationally.
It's happening, well, these days, of course, in real time, but it was the fastest way of communicating things in the past was price.
When you go to the bank in a free market or you go to the market in a free market, price is absolutely amazing.
Let's say that there has been a shortage of peaches, right?
There's been some pestilence has come through and there's a shortage of peaches.
What does that mean?
It means that the price of peaches has gone up.
And what does that do?
Well, of course, it incentivizes people to grow more peaches.
So maybe you've got some piece of land that could grow peaches, but it hasn't really been worth it when peaches are a buck each or something like that.
But when peaches go to two bucks each, suddenly it's worth you taking that land which could grow peaches and having it grow peaches.
It's the same thing with oil production.
I mean, I remember when I worked as a gold painter and prospector after high school in order to get money for university, what happened was when the price of gold was very high, it became worth investing in trying to find new gold areas, right?
But when the price of gold was low, it's not really worth it.
Same thing with oil, right?
If the price of oil goes down, a lot of marginal producers stop producing.
People who can't really do it profitably.
And people bleed off their oil reserves.
Now, if the price of oil goes up, then it may be worth going to try and find new things.
Now, this finding of new things when the price goes up can't possibly be figured out by central planners.
Ever in a million years.
Central planners or people who want to set the price or the productivity of things, they can't know you have some field in your back 40 that could produce peaches, but only produce peaches when the price of them goes over a certain amount.
They can't possibly know that.
They can't know that you have a bunch of, I don't know, scrap iron in your backyard.
And when the price of iron goes high enough, it's worth you gathering that up and dropping it off to be re-smelted.
They can't know any of this stuff.
They can't know all the hidden stuff that arises out of individual motivations that are stimulated by price.
So when people start to talk about central planning and have the government do this and have the government force people to do that and tax from here and subsidize this, all of these things mess with incentives.
They mess with this incredibly delicate, powerful spider web of information that passes for free pretty much around the world.
In the form of price.
And when you start messing with price, you start messing with supply and demand.
And when you start messing with supply and demand, you start messing with the capacity of human beings to actually live.
Because when you demand food and there's no supply of food because the government have messed up the price system so much, you're going to die.
And we see this happening with tragic repetition throughout history.
