Have you ever set a price?

People often say things like, “If that person had ever had to meet a payroll, they’d understand private enterprise.”

I don’t think that says much… Lots of people pay other people for stuff and don’t understand the private enterprise system.

A better comment would be to say, “If that person had ever had to set a price, they’d better understand private enterprise.”

The #1 thing I find misunderstood or not understood, is the intricate (and ongoing) balancing act that goes into setting money prices.

You quickly begin to believe in free will when you discover how incredibly easily customers will say no. You quickly comprehend marginal value when you see your sales drop off dramatically after increasing a price by a few cents. You very quickly experience employee power when negotiating salaries and benefits. You very quickly see substitution, supply & demand, incentives, knowledge creation, and all the rest of those boring things your Econ 101 teacher droned on about, come to life before your eyes as soon as you try to say X costs $Y.

Shockingly, people ARE setting prices all the time all around us… as consumers. None of us want our sovereignty as buyers taken away. To research, define our values, examine our budgets, determine what we can afford and for what or how much.

Yet we constantly want to take that sovereignty away from people as sellers and commercial actors. We tell companies how to put products together, we tell people how and for how much they are allowed to work, we tell young people they aren’t allowed to volunteer their time, we make it illegal to work without ridiculous licenses, we block trade and travel.

I worry we have become a society which has stopped believing that individual sovereignty is the assumption, only to be excepted in extreme cases. I worry we have become this way (in part) because we stopped understanding the purpose and power of prices. How they make the complex manageable, how they mostly closely approximate voluntary exchange, how they transfer knowledge at incredible speeds, how they allow those of enormously different means to negotiate on roughly even ground, how they simultaneously incentivize moderation of consumption and increase of supply, how they allow the coordination of priorities and values across the ENTIRETY of increasingly complex economies (Impossible without market prices!).

Money prices are one of the most beneficially powerful social technologies humans have ever created. I wish more people understood them better.

Tired Old Culture

How much better would our conversations be if we weren’t all drawing from the same overused cultural and intellectual catalog? How much more interesting a world would we live in if governments and school boards and public intellectuals stopped trying to define what “everybody ought to know”?

Whether “high” culture (opera & Oprah’s summer reading list) or “low” culture (Top 40 radio and 24 hr news), we all so often seem to be drawing, deeply or shallowly, from the same pool of art, literature, news, history, etc.

What would happen if we broke out of the educational mold that says there should be a mold? What if we relied instead on our individual interests and passions to define objectives, and letting information (and those that convey it) be judged by how well it helps us achieve real outcomes?

What if we tapped the enormous knowledge resources at our fingertips in the modern age to access an unheard wealth of information and skills? What if we blazed trails to fully specialized, wildly idiosyncratic, personalized knowledge sets? What if you couldn’t make assumptions about what people should have learned, or should know? What if instead your base assumption was that they had leveraged the modern digital ecosystem to become bleeding edge experts in topics you weren’t even aware existed? What if that made us more interdependent, more social, more engaged, as we sought out those whose expertise complemented our own, filling needs where our own focus left gaps?

Jeez… How cool would EVERY conversation be in that world?

The Profit Requirement

“Profit is not an objective but it is a requirement” ~ Peter Drucker (Management, 1973)

Nine little words I read in my mid-20’s convey one of the most powerful insights I have ever encountered… Profit is not a goal, or a purpose, or an aim (in itself)… it is a simple necessity.

This short phrase undermined every teacher who had spoken to me of a universal “profit motive”. It undermined every claim I heard around me deriding “profit” as “evil” or “dirty”. Before I had read great works of philosophy or economics, this short conclusion in a book about management reframed my understanding of entrepreneurship and has been one of my foundational principles ever since.

Why? Because it meant that PROFIT is actually bedrock to SUSTAINABILITY and IMPACT.

Profit is amazing and (I found) amazingly difficult. It drives us to produce higher value at lower cost, it forces exploration and discovery, it disciplines us to frugality and rationality, it refines our hopes and dreams into deliverable outputs… A “profit requirement” (vs a “profit motive”) says do whatever you aim to do, but your outputs must exceed your inputs if you want to do it for more than a very short time.

This insight is why business models (whether for-profit or not-for-profit) have become my hobby and passion. Business models don’t describe the purpose or objectives of an organization. Business models describe how they pursue their given purpose or objectives in a financially sustainable fashion. The intricate dance of invention, production and marketing, pricing and product, commercial models, donor models, models in between. It is an exquisite combination of science and art, engineering and imagination, that achieves this incredibly difficult thing we call “profit”.

My studies of philosophy and economics have expanded and deepened my understanding and appreciation of “profit”… I now think more about “economic profits” and “opportunity cost” vs simple net positive revenue on the accounting reports… But the basic principle has remained the same:

Praise for profit… and for those serious, creative, adventurous people that understand that profit (across the great diversity of society’s enterprises) is the economic lifeblood of free and prosperous people.

Internet As A Public Utility?

Net Neutrality has been successfully advertised as a “Big Guys vs Little Guys” fight, but it is much more accurately a “Big Guys vs Other Big Guys” fight as the government shoves it’s clumsy foot into the difficult, nuanced, and ever changing pricing structure of internet bandwidth on behalf of some large market players (content providers like Netflix) and against other large market players (infrastructure providers like Verizon).

No one knows what “fair” is when it comes to the price of sending or delivering data. It is a constantly evolving point which takes into account the value to infrastructure providers of having content available for consumers, the value to content providers of having a platform over which to deliver content, the investment needs for maintaining and improving the platform systems, and a vast number of other factors.

The philosophy of “Net Neutrality” ignores all those difficult trade-offs that are best managed by flexible and free pricing, and envisions replacing it with price by govt fiat. That’s the same system that has given us our crappy, antiquated, centralized electrical grid, and now “Net Neutrality” wants to impose that on the internet, the greatest decentralizing, democratizing, wealth and knowledge engine we have seen in modern times.

If this philosophy continues to take hold, it means turning internet service providers into public utilities… Looking at other industries that have been turned into public utilities (with their chronic and sometimes dangerous underinvestment and innovative stagnation), who thinks this is a good idea??

Recognizable or Recognized?

“Do you know so-and-so?”

In its best form this question may be the entree to an introduction by the asker, sometimes it is fishing for an introduction for the asker, most often it is a conversational calibration tool (i.e. if you know so-and-so the conversation will go one way, if not it will go another).

For many years I have taken to answering this question the same way:

“Are you asking if I know them… or if they know me?”

For instance, at one time I was the personal banker for a very well known businessman in Tucson. I did work for him on a weekly basis, regularly interacted with his sister and other members of his family, received personal thank you cards from him when I helped associates of his, my parents attend a rather small Christmas party with him most years. I know this man fairly well… but I don’t think he could pick me out of a crowd.

This question of whether I know someone or whether they know me, is at the heart of a tension between the states of being recognizable vs being recognized. A recognizable person knows the right names and faces. A recognized person is known by the right names and faces.

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