The First Law of Economics
Now that you understand the human soul, you are ready to learn the Economic Laws discovered more than 150 years ago.
As the Economic Laws are a consequence of the human soul's way of being, I will show you that it is not possible for anyone to escape from these laws, precisely because it is impossible for anyone to escape from his own soul.
We'll start by talking about the prices of all things.
We are so accustomed to seeing prices that we never stop to think how they came about or why things have a price. Who dictates them? Even the price of people's work, otherwise known as the salary: why doesn`t the government simply raise salaries, to make people rich?
In fact, the so-called invisible hand of the market determines the price of all things. In reading these chapters, you will come to understand what this invisible hand is. You will see that it is not possible to manipulate the prices of things. Moreover, this knowledge will be essential for you to master the arts of selling, pricing, and trading anything you want to sell.
To understand what price is, we will analyze a very expensive product: gold.
The price of gold is high because of its rarity. Moreover, knowing what makes gold rare is the key to understanding the price of everything.
For something to be rare, first, it must be useful to someone. In the previous chapter, you learned that people want products and services to satisfy their desires, pleasures, feelings, and emotions. Its ability to provide satisfaction makes something useful for a person.
See what happens with gold: people want it to make jewelry, for in addition to its beauty, it is eternal and has been traded over millennia. People have developed a very strong desire to possess it. It is the whole set of desires and feelings that can be satisfied with gold that makes it useful, and this will strongly impact its price. However, utility alone does not make something rare.
For something useful to be rare, it is also necessary that it be scarce. Let’s look at gold to understand what happens when something is scarce.
At this moment, one kilogram of gold is being negotiated at a certain price, because there are people who want gold who accept to pay this price and there are people who have gold and accept to sell it at this price. However, not everyone can do business, because we have in the market people who, despite seeing utility in gold, think that it is not worth the price, and then they don’t buy, and we also have people with gold in their hands, but at that price, they don’t accept to sell it, because they think their gold is worth more. So only when a buyer and a seller accept the same price can the deal occur.
Now I will show you that all these negotiations only occur because of the gold shortage. Imagine that you had the power to take all the gold of all people of the world and to become the sole owner of it all. Soon after, you start distributing it for free, in an attempt to allow everyone have gold. All people who see utility in gold will come to pick it up, including those who wanted to pay prices lower than it was selling for on the market. What will happen is that you will distribute all the gold you have in your hands, but there will be people who are interested in having it and who will either run out of gold or have less gold than they want, because for each person, gold has a different level of utility! The result is that those who are not satisfied will naturally begin to make offers to purchase gold from those who got it for free. Therefore, the business among buyers and sellers will occur until prices again reach an equilibrium among the traders according to the utility of the gold for each of them.
I need to tell you the difference between a good being scarce and not being scarce.
Note that gold is scarce because it is impossible for all people who see utility in gold to have as much of it as they desire.
Therefore, gold just would not be scarce if all people interested in having it could get as much gold as they wanted until, when no one else wanted it, there would still be gold left.
However, when something is scarce, business among people occurs naturally, with prices coming to an equilibrium that reflects the good’s usefulness to each person and the level of its scarcity in the marketplace.
Finally, we must observe that people can only negotiate what they own, because if something has no owner, you do not have to negotiate—you can just get up and take it—that is, what has no owner is free. So for something to be rare, and because it has a price, it is necessary that besides being useful and scarce, it is possible for it to be owned.
Does this seem simple and obvious? It is not. For example, how do you own things that can be easily copied, such as a book, a computer program, an application, or the discovery of a drug? To allow a person to own and therefore to negotiate these works is why we invented intellectual property protection, copyright, and patents.
Thus, we have the first and most important economic law.
1st Law of Economics:
To be rare, something needs to be at the same time
- considered useful by at least one person;
- able to be owned.
We will use this law until the end of this book, because with it you will understand how everything happens around you. I will launch it on various things from your life so you have no doubt that whenever something obeys this law, and only when something obeys this law, it is rare and, therefore, has a price. I will also show that it is not possible to manipulate the prices of things, and then you will clearly see the so-called invisible hand of the market. As an example that it is not possible to manipulate prices, I will start showing that it is impossible to give health treatments for free to all people!
Since there is no way to escape from the Laws of Economics, you must understand, respect, and use them to your advantage, because your profits depend on the level of rarity of what you sell, even if it is wage labor.
Let's apply the First Law of Economics to various things to see that it is impossible to escape from it.
Take the case of medical services. Let us begin with its usefulness. People seek a doctor to eliminate their pain, to cure their malaise, and to save their lives, but also for aesthetic services, such as plastic surgery. So note that the usefulness of medical services is beyond the satisfaction of the survival instinct, because these services are also useful for satisfying various other desires, feelings, and emotions.
Moreover, do you remember what I tried to do with the price of gold, to force it to zero? Trying it seemed out of touch, didn`t it? However, in many countries, public government hospitals are trying to give citizens all treatments for free. The attendants will say that the medical services there are "free." However, what is the consequence of forcing the prices of these services to zero? Go to these countries and see with your own eyes the endless queues and the many people waiting months for treatment. Consequently, many people go in search of treatment outside these hospitals, paying for the services, because doctors, nurses, equipment, and drugs are useful, scarce, and have owners. Surgery depends on the doctor, his specialization, his health conditions, and his time. Therefore, the medical services are rare, and so they have a price.
Moreover, note that those who opt for the falsely free treatment are paying for it through taxes and with their waiting time, their suffering, and even at times their lives. Therefore, it is not possible to escape the First Law of Economics by trying to manipulate the prices of things.
That is why you need to understand this law very well and respect it to know how to use it to your advantage so you can make profits!
We need more examples.
Excerpted from "No One Can Escape the 4 Laws" by Eloy Rodrigo Colombo. Copyright © 2017 by Eloy Rodrigo Colombo. Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher. Excerpts are provided solely for the personal use of visitors to this web site.