5: Actual Distribution the Result of Social Organization
From an economic perspective, social organization provides for collaboration and exchange. Men may work together to achieve more than they could when working individually, and they may specialize in doing what they are best suited for and exchange their products with one another. The conveniences of society do not nullify the universal laws of economics (no labor produces no product for ten men as well), but it does enable men to overcome some of the problems of solitary existence as well as adding a few problems of its own (men attempting to cheat one another).
In the independent homestead, a person decides to spend their time making things for consumption. A certain amount of time is spent on tasks to provide food, another amount on tasks to create clothing and shoes, another amount on tasks to maintain and repair the home, and so on. In town, the blacksmith spends all his time at his forge, but trades a certain amount of his product (representing a certain amount of time) for the things that he needs. The situation of the modern factory worker is much the same as that of the smith, spending time working a job to produce a product, then allocating his wage (representing time worked) to purchases of various kinds.
Phases of Distribution
On the societal level, all of the nation needs a certain number of shoes, and so it needs a certain number of workers to devote themselves to the creation of shoes. If less than the necessary number are so employed, shoes are scarce and become expensive - making wages rise to attract more workers to the profession. If more than necessary are employed, there is a surplus of unsold shoes, prices drop, wages drop, and some portion of the workers seek to better their income by moving to more lucrative occupations. In this way, the workforce of a nation is encouraged to those professions where it is most needed. The principle is the same as the independent homesteader, who directs his labor to other things once he has produced enough shoes for himself.
(EN: The principle is similar, but the problem is the feedback lag. A person sees immediately that they have what they need and seeks another task. The shoe manufacturer predicts the number he can sell, but does not know for certain until he has invested labor and capital in the production of shoes - it is only when they are made and shipped that he knows whether he has made enough or too many. Granted, he is compensated for this risk, but there is some merit in the criticism that it is inefficient. Unfortunately, the critics propose an even worse system - in which a central authority with no knowledge or experience set production for all producers - but that's a separate matter.)
So the first phase in distributing the wealth of society is as a reward or encouragement for industries to produce the things that are wanted by the public in the correct proportions - as it is the consumers in aggregate who decide how much money they will spend on the various articles they need or desire, which again is like the independent homesteader's apportioning of his time to various tasks.
The second phase in distributing the wealth happens within each industry, in which firms compete for market share. Different customers have different desires and different budgets, hence the amount of wealth directed to the shoe industry is divided between manufacturers of work boots or fashion pumps, between cheap boots and expensive boots, and so on. And then, where there are two makers of cheap work books, the wealth is divided between them according to the preference of the customers.
The third phase is apportioning wealth to the makers of components. The boot-maker must pay the supplier of leather, the supplier of rubber, the supplier of thread, the supplier of laces, the supplier of grommets, the supplier of boxes, and so on. Each of his suppliers has their own suppliers, to whom they distribute part of the wealth given to them by the boot-maker. Thus the leather supplier pays the herdsman for hides and others for the chemicals he uses to treat the hides.
The fourth phase is apportioning wealth to the employees of the firms, which happens for all of the makers of components. The thread-maker pays the farmer for cotton, pays the worker who spins it to thread, pays the mechanic who maintains the spinning-machines, pays his buyers and salesman and accountants and so on.
Catallactics
The author first looks to "catallactics," a subset of economics that deals with trade. When trading is rational and voluntary, both participants gain value by giving something they value less for something they value more. In that sense, trade produces more benefits using the same amount of physical goods. Trade also preserves the value of things that are produced above the need for consumption - if a man produces more food than he can eat, his surplus need not go to waste but can be traded to others who need it, in exchange for things the food-producer could not create for himself because he devoted himself to producing food.
The amount of money exchanged for a good is primarily dependent on customers. It is customers who decide what they will pay for a good and how much of it they will purchase, considering their desire to have that object in the context of all the other things they wish to purchase. The second determinant of price is the competition in the marketplace - as most customers will seek to purchase items at the lowest price, and the supplier who offers the best price will win their purchases. Third, there is the matter of supply and demand, which is often given primary consideration by economists - but demand is merely the aggregation of customer desire and the aggregation of competitors' quantity supplied. When supply exceeds demand, the sellers opt to lower their prices to capture sales; when demand exceeds the supply sellers opt to raise their prices to capture profit. And the lat determinant of price is the cost of production - which is of no concern at all to the customer. A supplier will seek to gain a price to cover their costs, but if customers are not offering it, they have no power to force them.
A further complication is that markets are not static, but are in a state of constant change. There are many reasons for this, but the author cites five in general:
- The population increases/decreases - This changes the number of buyers in the market, hence the level of demand. It also changes the labor available to suppliers, but that is of secondary importance.
- The wants of the customers are changing - There are certain things people consume in the same quantities over their entire lives, but for many goods the customer changes their consumption habits over time in terms of the manner and quantity they consume.
- The wealth increase/decreases - Wealth in general gives customers the ability to purchase more or fewer things and investors the ability to invest more or less in production.
- Technology is Improving - Production technology makes it possible to produce more and better goods, consume fewer resources, or both. In general, technology moves forward, enabling more and better to be created more cheaply.
- Competition is evolving - New firms spring up in profitable industries, existing ones close down in unprofitable ones, market share shifts from one firm to another, and so on. This is generally a reaction to changes in the market, but it also drives further change.
It's generally considered at the level of consumable goods, but any fluctuation in the demand for consumable goods also affects the markets for industrial materials. The demand for boots affects the demand for leather, which affects the demand for hides and the chemicals to treat them, and so on. There is also a ripple effect to other consumer goods: if the decrease in the demand for boots leaves the tanner with excess leather, he may make it available more cheaply to makers of belts, saddles, and other products, which decreases the costs of those producers, who can then increase their output and lower their prices. Markets entail a highly complex and interconnected system of trade.
It is also a general pattern that society evolves with its productive capabilities. A poor farming community becomes a middle-class town and then a wealthy city as goods are produced more cheaply, in greater amounts and qualities. Over time, societies tend to become larger and wealthier, though it is also seen that cycles of regression also occur. This, too, feeds back into the change process. Very few societies are stagnant, with an unchanging population and consumption patterns, over a long period of time. The time in which parents had only two children to replace themselves and sons followed in the trades of their fathers is passed.