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Originally Posted by papill0n
your logic is flawed
the pie is indeed a limited resource. the pie is the earth.
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The pie here is a metaphor for wealth. One of the arguments brought forth by socialists and others advocating some kind of "redistribution" is that there's "
enough for everyone, but the problem is that it isn't distributed fairly". So their solution is to redistribute things fairly and that way there will be no more poverty and war.
That way of thinking is mostly rooted in flawed economic theory. Socialists, syndicalists etc use the Labor Theory of Value (it's the ugly cousin of that other flawed theory of value namely the Cost Theory of Value).
In the 1870s we rediscovered the Subjective Theory Of Value (it goes all the way back to Aristotle). The price of an item is basically determined based on how much 2 individuals (the seller and the buyer) value that item. (Google:
Carl Menger marginal pairs for more info).
Why is this relevant? Because, yes we live in a world of 'scarcity'. There's no unlimited supply of iron, gold, water, uranium, oil etc. However, one thing is unlimited and that's the number of human goals or wants. We all want and desire different things. And once one goal is accomplished we set new goals. When we're hungry we'll want something to eat. And we all prefer different things to eat. Once we've eaten we go on to accomplish our next goal etc etc etc.
So how do we make sure the maximum amount of goals, the most important goals (the things we value most) are accomplished with that limited supply of resources?
One simple thing plays a very important role in that process. I'll cheat and copy/paste one of my posts from another thread:
Quote:
Huge profits serve society as a whole. Supply & Demand 101
Human are not perfect all knowing beings. No, they are imperfect. They do not know everything that goes on in the world. They do not know what other people are thinking. They do not know exactly how much of certain resource is available right now or will be available 5 days or 10 months from now. They do not know exactly how much of a certain product people will be buying next month. They don't know exactly how many visitors their websites will get. etc.
Every entrepreneurial activity (every investment of saved resources) is by definition speculative. To reduce risks, people gather information and to the best of their ability try to analyze that information.
Let's say your company produces product A and another company produces a totally different product B. Your company is the only one on the market that sells product A (or anything even remotely similar). People like product A and you (being the only one selling it) charge a high price for it and as a result you make a huge profit. The company that produces product B however has very few customers and looses money.
Is this good? Yes it is. Prices mean something, they have a "signal function" in the market economy. The fact that you can charge a high price for product A and that people value product A enough to pay that price for it sends a message to other actors (entrepreneurs) in the market economy. They too will want to make a huge profit and will start producing products that are similar to product A (products that perform the same function or some of the same functions or solve the problems that product A solves in an alternative way). The result is that supply of product A goes up and prices come down. Society as a whole benefits from this because now more people will be able to buy product A and they'll be able to buy it at a lower price. Society also benefits in other ways: no one in his right mind will start investing his resources in producing a product like product B because they now already now that people weren't interested in that product.
Prices help distribute/ration resources that are already available.
Example: Let's say a copper mine in Brazil collapses during an earthquake. The total amount of copper available decreases. The price of copper goes up. Every company around the world that uses copper in the production of whatever it is they are producing now knows there's less copper available and they can adjust their production accordingly.
The most important purpose that prices serve whoever is in the coordination of the future rationing of resources. As I've shown in my product A vs product B example, it's is because a company was able to make a huge profit selling product A, that other actors in the market were able to figure out what the public wanted.
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So prices play an essential role. Prices can however only be established in a world with property rights. Prices aren't arbitrarily chosen things. One can't simply say "I value that article that much". How much you value something can only be expressed in relation to or in comparison to another product.
If I've got 20 euros in my pocket and I can either buy a steak and a coke or a spaghetti, a glass of wine and an ice cream, then I'll chose the one I value most at that moment in time. If I take that steak and the coke that means that at that moment in time I valued that one unit consisting out of a steak and a coke more than one unit consisting out of a spaghetti, a glass of wine and an ice cream. The fact that I pay one unit consisting out of 20 euros in exchange for a steak and a coke also shows that at that moment in time... you get the picture.
To quote Carl Menger: "Value is a judgment economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well-being. Hence value does not exist outside the consciousness of men."
So if we have no method to determine which goods are at our disposal (which goods are yours to use, to decide over,...), we cannot express how much we value something. So if there's no system of private property rights, it's impossible to coordinate the process of distributing/rationing scarce resources I described.
Systems like socialism (no private property), syndicalism (means of production owned by those using them at that moment in time), fascism (means of production are privately owned but the state dictates how they can and must be used),... are all extremely inefficient and can in time only do 1 thing: fail. for the very simple reason that without private property, there can be no prices. Without prices, there can be no economic calculation.