Only if you consider the absence of costless, automatic, instant teleportation of goods from where they are made to where they are wanted an inefficiency. If that is inefficiency, there is no such thing as an efficient economy.
You might as well go further and consider the absence of instant creation of goods from thin air an inefficiency. Indeed, is there anything one spends effort on, that the existence of that effort could not be judged an inefficiency?
That is the coffee house asks more from the customer than it thinks the components of the coffee are worth.
There is no such thing as what the components of the coffee “are worth”. The growers grow coffee, the distributors transport it, the baristas turn it into cups of coffee, and the owner of the coffee house provides the premises and equipment. The customer pays all of them for providing a cup of coffee at the place and time he wants it. The “intrinsic worth” of coffee plays no part in any of this.
I don’t need to refer to intrinsic worth but the amount they are giving up in order to aquire the components of the coffee. Employees are paid salaries and coffee beans are bought.
There are markets where those assumtions are quite valid such as stock markets. I see I have hit some kind of nerve and seem to be playing a connotation bingo. If Bob were hired as a trucker that would be fine but the “economic niche” can be disproportionally large compared to any real input a trader gives. It gets especiallly blatant when a trader buys and sells the exact same good to generate a money advantage from its price fluctations. It smells more like abuse of the abstractions deployed to handle the economy than them being used to actually contribute to solve a real problem.
As said above, no economies are perfectly efficient, and traders make their money improving that efficiency. This is not a new revelation: we have over a millennium of history of people hating traders, moneylenders, etc. for “getting rich doing nothing” while they provide valuable efficiency improvements.
It gets especiallly blatant when a trader buys and sells the exact same good to generate a money advantage from its price fluctations.
Price fluctuations indicate real problems to be solved. That is what traders and middlemen do: resolve those problems. Prices fluctuate because the need for things varies over time and space and between individuals. “Buy low, sell high” means “buy something when there is so much that people want to get rid of it and sell when there is so little that people want more.” The profit in between is (1) recognizing that difference over time and (2) being willing to buy something you don’t want, hold it when you could be using that money for something else, and then sell it to people who want it more. If there were not value in that, you would just hold your surplus until you needed it. You can capture all the benefits that traders provide by just never trading (note: this is a bad idea).
The same applies with trading goods over space (excess in one area, dearth in another) or between individuals (finding the people who want to buy what you want to sell). The economy is not perfectly efficient, so the trader makes money by smoothing those inefficiencies and incurring the transaction costs of moving things across time and space, along with the risk of ″being wrong″ and losing the investment.
I would like to understand what is the efficency they provide, if they in fact do. I guess it is that Bob effectively makes Charlie appear in Alices world. Hopefully one would go from isolated individuals to individuals connected via traders to individuals connected directly to each other. Still it is in the traders interest to not tip off the existence of Charlie to Alice.
I do have a qualm about there being no upper limit how valuable this “organization” work is.
I’m presuming you do not sell things, much or often? Because finding buyers is a big transaction cost, especially if you are mass producing something. The expertise needed to make 1000kg of soap is not the same expertise needed to find 1000 people who each need 1kg of soap and sell it to them.
Can I presume you do buy things? A grocery store is one of those traders. Alice produces bananas, you are Charlie, and Bob the grocer buys bananas from Alice and sells them to you. But wait, that is Alice1. Alice2 grows peaches, Alice3 grows wheat, Alice4 grows… It would be very inefficient for you to visit every Alice to do your grocery shopping, especially when they are spread around the country and the world, and you can imagine the cramp it would put in Alice’s production to try to be available to sell to you whenever you needed in whatever quantity you needed. That is what Bob does: he talks to all of those Alices, brings all of those products together, and makes them available to you in arbitrary quantities and convenient hours. Bob is a trader.
Individuals connected directly to each other is nice for some things but misses out on a lot, such as economies of scale. Alice specializes in producing things, and Bob specializes in collecting things from producers and getting them to consumers. This is like how the water company brings water to your house; you are partly paying for the water, but mostly you are paying for the availability of water. If you want to get rid of the water trader, get a bucket and go to the stream.
Only if you consider the absence of costless, automatic, instant teleportation of goods from where they are made to where they are wanted an inefficiency. If that is inefficiency, there is no such thing as an efficient economy.
You might as well go further and consider the absence of instant creation of goods from thin air an inefficiency. Indeed, is there anything one spends effort on, that the existence of that effort could not be judged an inefficiency?
There is no such thing as what the components of the coffee “are worth”. The growers grow coffee, the distributors transport it, the baristas turn it into cups of coffee, and the owner of the coffee house provides the premises and equipment. The customer pays all of them for providing a cup of coffee at the place and time he wants it. The “intrinsic worth” of coffee plays no part in any of this.
I don’t need to refer to intrinsic worth but the amount they are giving up in order to aquire the components of the coffee. Employees are paid salaries and coffee beans are bought.
There are markets where those assumtions are quite valid such as stock markets. I see I have hit some kind of nerve and seem to be playing a connotation bingo. If Bob were hired as a trucker that would be fine but the “economic niche” can be disproportionally large compared to any real input a trader gives. It gets especiallly blatant when a trader buys and sells the exact same good to generate a money advantage from its price fluctations. It smells more like abuse of the abstractions deployed to handle the economy than them being used to actually contribute to solve a real problem.
As said above, no economies are perfectly efficient, and traders make their money improving that efficiency. This is not a new revelation: we have over a millennium of history of people hating traders, moneylenders, etc. for “getting rich doing nothing” while they provide valuable efficiency improvements.
Price fluctuations indicate real problems to be solved. That is what traders and middlemen do: resolve those problems. Prices fluctuate because the need for things varies over time and space and between individuals. “Buy low, sell high” means “buy something when there is so much that people want to get rid of it and sell when there is so little that people want more.” The profit in between is (1) recognizing that difference over time and (2) being willing to buy something you don’t want, hold it when you could be using that money for something else, and then sell it to people who want it more. If there were not value in that, you would just hold your surplus until you needed it. You can capture all the benefits that traders provide by just never trading (note: this is a bad idea).
The same applies with trading goods over space (excess in one area, dearth in another) or between individuals (finding the people who want to buy what you want to sell). The economy is not perfectly efficient, so the trader makes money by smoothing those inefficiencies and incurring the transaction costs of moving things across time and space, along with the risk of ″being wrong″ and losing the investment.
I would like to understand what is the efficency they provide, if they in fact do. I guess it is that Bob effectively makes Charlie appear in Alices world. Hopefully one would go from isolated individuals to individuals connected via traders to individuals connected directly to each other. Still it is in the traders interest to not tip off the existence of Charlie to Alice.
I do have a qualm about there being no upper limit how valuable this “organization” work is.
I’m presuming you do not sell things, much or often? Because finding buyers is a big transaction cost, especially if you are mass producing something. The expertise needed to make 1000kg of soap is not the same expertise needed to find 1000 people who each need 1kg of soap and sell it to them.
Can I presume you do buy things? A grocery store is one of those traders. Alice produces bananas, you are Charlie, and Bob the grocer buys bananas from Alice and sells them to you. But wait, that is Alice1. Alice2 grows peaches, Alice3 grows wheat, Alice4 grows… It would be very inefficient for you to visit every Alice to do your grocery shopping, especially when they are spread around the country and the world, and you can imagine the cramp it would put in Alice’s production to try to be available to sell to you whenever you needed in whatever quantity you needed. That is what Bob does: he talks to all of those Alices, brings all of those products together, and makes them available to you in arbitrary quantities and convenient hours. Bob is a trader.
Individuals connected directly to each other is nice for some things but misses out on a lot, such as economies of scale. Alice specializes in producing things, and Bob specializes in collecting things from producers and getting them to consumers. This is like how the water company brings water to your house; you are partly paying for the water, but mostly you are paying for the availability of water. If you want to get rid of the water trader, get a bucket and go to the stream.