The First Law of Economics
Now, you understand the human soul, so you are ready to know the economy laws, which were 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 price. Who dictates them? Even the price of people's work, the salary. Why doesn`t the government simply raise them, to make people rich?
In fact, the so-called “invisible market’s hand” determines the price of all things. In these chapters, you will finally 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: the gold.
The price of it 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. It is to provide these satisfactions that 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 over millennia of trade, the people have developed a very strong desire to possess it. It is the whole set of desires and feelings that can be satisfied with the gold that makes it useful for it to be high 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 it is being negotiated at a certain price, because there are people wanting gold who accept to pay this price and there are people who have gold and accept to sell it at this price too. 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 than they are paying. So only when a buyer and a seller accept the same price the deal can 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 make 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 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 those who got gold for free. Therefore, the business among buyers and sellers will occur until prices reach an equilibrium among the traders again 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 it as much as they desire.
Therefore, gold just would not be scarce if all people interested in having it, would get gold as much 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 equilibrium reflecting their usefulness to each person and the level of their 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, just get up and take it, that is, what has no owner is free. So for something to be rare and because it has price it is necessary that besides being useful and scarce it is possible for one to be its owner.
Does this seem simple and obvious? However, 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 be the owner and therefore to be able to negotiate these works is why they invented the protection of intellectual property and patents of invention.
Thus, we have the first and most important economy law.
1st Law of Economics:
To be rare, something need to be at the same time:
- Be considered useful by at least one person.
- Be scarce.
- 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 obey this law it is rare and therefore it 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 market’s hand”. 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 it to your advantage, because your profits depends on the level of rarity of what you sell, even if it is wage labor.
Let's apply the first law of economics on 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, malaise, to save their lives, but also for aesthetic services, such as plastic surgery. So note that the usefulness of medicals services are beyond the satisfaction of the survival instinct because these services are also useful for the satisfaction of various other desires, feelings and emotions.
Moreover, do you remember what I tried to do with the price of gold, force it to zero? Trying it seemed out of touch, didn`t it? However, in many countries there are public government hospitals trying to give all treatments for free to their citizens. 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 many people without getting medical care and waiting months for the treatments. Consequently, many people go in search of treatment outside these hospitals, paying for them, because doctors, nurses, equipment’s and drugs are useful, scarce and have an owner. A surgery depends on the doctor, his specialization, his health conditions and his time. Therefore, the medical services are rare, so this has 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 with their death waiting for care. Therefore, it is not possible to escape the first law of the economy, 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 your profits!
We need more examples.
Look at these three items, which I placed in order from the most expensive to the cheapest. Noting but the air costs nothing. So I ask: which one is the most useful for all people?
Since we cannot live more than a few minutes without breathing, the air is the most useful. However, its price is zero.
Let's apply the first law of economics on the air to explain why it costs nothing.
Note that we could do the math and get to an exact number of how many gallons of air there are on the planet, that is, there is no infinite amount of air, but the atmospheric air is not scarce, because all living beings can breathe as much as they want and they still have breathable air. Furthermore, it is not possible to own the air in the atmosphere. Therefore, although it is very useful, it does not meet the other two criteria of the first law and therefore its price is zero. However, if you want to do a submarine dive you will have to buy air, which will be inside a cylinder and this cylinder will have an owner. This owner will want to charge at least for the use of this cylinder, right? So, we can say that air has a high level of rarity inside the water, but that it is not a rarity in the atmosphere. Therefore, in one situation, the price of it is high and in the other the price is zero.
Let's look now at a case where a product is priceless just because it does not have an owner. In many places of the world, there are valuable minerals without an owner.
In this case we have the first criteria of the first law, that is the utility, and the second criteria, which is the shortage, are verified in relation to the ore without owner, because many people see utility in this ore and there may not be in this mining field for all that are interested. However, the third criterion is not fulfilled, because this mining field has no owner, so people can get as much as they can out of it. Note that although the ore has price in the market, the ore in these deposits are priceless. If these deposits had an owner, either he himself would do the mining or he would charge each miner for the ore withdrawn. Note, if something does not have an owner, it is impossible for it to have a price, because there would be no one to negotiate with. For something to have a price, it is necessary for that thing to have owner.
Ownerless mining fields still exist and the explorers are always in search of these natural resources.
Now, we need the example of a product that is priceless only for lack of scarcity.
Have you noticed the grass that we see on the vacant lots, on the roadside, and in other places? It does not exist in infinite quantities; however, the owners of animals that could feed on it could feed all their animals and there would still be left a lot of this grass. Therefore, this grass is not scarce, because all the people who see in its usefulness can serve themselves to it until they are fully satisfied, and yet you can look at the land and still see grass left over. So, the price of it is zero and the owners of this land and this grass do not care about the people who have the grass.
Look around and apply the first law on what you want and see how nothing escapes it.
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.