Quotation of the Day…

by Don Boudreaux on September 30, 2011

in Cooperation, Reality Is Not Optional

… is from page 17 of the indispensable Harold Demsetz’s 1988 collection Ownership, Control, and the Firm:

Restricting one’s freedom to use pecuniary wealth to influence others, say by offering higher prices to win agreements to sell, results in greater emphasis on “personal characteristics competition.”

Ponder carefully this indisputable reality.

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{ 30 comments }

Invisible Backhand September 30, 2011 at 10:30 pm

Does this truncation of ownership relate to how the money is used and how much of it is used?

Mesa Econoguy October 1, 2011 at 2:14 am

Apologies to the rest of the room, but I’m fairly certain it refers to your hat size.

Invisible Backhand October 1, 2011 at 11:16 am

Could you translate that into sober for me?

Stone Glasgow October 1, 2011 at 5:31 am

No. It relates to the fact that if it becomes illegal to sell gasoline above $4.00 per gallon, the prettiest and most charismatic people will be the only ones with fuel in their cars.

Economic Freedom October 1, 2011 at 5:58 am

the prettiest and most charismatic people will be the only ones with fuel in their cars

I guess that counts out marxist-muirgeo, Invisible Backache, and House of Curds , as they’re all ugly and bland.

Stone Glasgow October 1, 2011 at 6:46 am

Durable kneepads is all one needs.

Methinks1776 October 1, 2011 at 1:26 pm

Ha ha ha!!

so true.

brotio October 2, 2011 at 11:06 pm

LMAO!

Muirpads?

Randy October 1, 2011 at 8:46 am

I have to disagree with this conclusion. The personal characteristic which has proven to be the most valuable in historically anti-market regimes is a propensity for violence and cruelty. Those possessing beauty and charisma are frequently enslaved or eliminated.

aub October 2, 2011 at 8:51 pm

+1

Doc Merlin October 1, 2011 at 12:54 am

So people high ranking in “personal characteristics competition” would likly be less capitalistic than the norm, all else held equal?

vikingvista October 1, 2011 at 3:55 am

Capitalism encompasses both methods. Perhaps it is a message to those who want to place a certain kind of value on themselves, or who might be interested in how much that is worth.

House of Cards October 1, 2011 at 1:07 am

I think Demsetz would sell more copies of his books if he spoke in plain english so that even a layman could understand what he is trying to say. Boudreaux, at the very least, tends to write in understandable words and terminology, although what he oftens says is cockeyed to my correct way of thinking.

Ghengis Khak October 1, 2011 at 3:07 am

For once I agree with you (except about your way of thinking being correct). I can make sense of almost nothing from this thread prior to your comment.

PeterI October 1, 2011 at 6:35 am

For goodness’ sake, Demsetz’s writings are mostly of academic nature, they are not blog posts.

lamp3 October 1, 2011 at 6:56 pm

You have the “correct way of thinking”? lol.

From my econ 101, this quote speaks to non-price competition. Think of rent control, or price ceilings — they restrict the ability to “offer higher prices to win agreements to sell”. This opens the door to competition based on “pull,” or who you know. What favors you can trade for, personal characteristics and who you like.

It removes economic incentives against acting out racism, if you were a white-supremancist for instance — since blacks and whites now both would pay $400 for rent-controlled housing, skin color preferences goes into play. Whereas before, if a black person would have paid what you thought you’d rent it for, you’d be more inclined to sell to them.

Stone Glasgow October 1, 2011 at 5:40 am

That’s a lot of big words for a conservative thinker. I previously considered left-leaning statists to be the only intellectuals who felt it reasonable to put a series of words together that were destined to be understood by less than 5% of the population.

W.E. Heasley October 1, 2011 at 5:52 am

Restricting one’s freedom to use pecuniary wealth to influence others, say by offering higher prices to win agreements to sell, results in greater emphasis on “personal characteristics competition.” – Harold Demsetz

Good one! Will give it a try:

(1) Competition comes in two forms: impersonal competition is directed toward a goal while personal competition is directed toward any one individual. *Would assume Demsetz is using the phase ”personal characteristics competition” as a synonym for while personal competition .

* a third form of competition has been identified as “cultural competition” however the concept is rather abstract and more evidence/studies would need preformed before it leaves its sociology based abstract conceptual propositional point.

(2) “Restricting one’s freedom to use pecuniary wealth to influence others..” would mean some exogenous power disallows the use of wealth in its pecuniary form [money form].

(3) “….say by offering higher prices to win agreements to sell” meaning that if the exogenous power did not exist, then competitor X could add in money form wealth [pecuniary wealth] into a impersonal competitive situation. Demsetz’s example in that the additional money form wealth [pecuniary wealth] would be used to offer the highest price [optimal price] to the seller hence winning the agreement to sell [exchange].

Therefore, at the point of exchange, during competition, impersonal competition changes to personal competition when pecuniary wealth is restricted. Personal competition can lead to rivalry and differing stages of conflict at the point of exchange during competition.

Note: if one would like to read a book by Demsetz that is very, very straight forward and a rather astounding 177 pages of insight, try From Economic Man to Economic System, Essays on Human Behavior and the Institutions of Capitalism, Cambridge University Press, 2008.

L. F. File October 1, 2011 at 7:59 am

So this is why successful communists are so good looking!

lff

JS October 1, 2011 at 8:42 am

Communists don’t like beauty. Have you ever read the book “Facial Justice”?

L. F. File October 1, 2011 at 9:24 am

Could be true – I haven’t read the book – but the really profitable personal characteristics are those related to the willingness to use coercion. These could well tend to override personal characteristics related to physical attraction.

lff

JS October 1, 2011 at 8:39 am

The paragraph, isolated, without having read what led up to it, is difficult to interpret. Don amuses himself by asking us to ponder it, knowing full well that we’re not pondering the point being made as much as trying to discover the point.

First, ‘winning an agreement to sell’ assumes a seller’s perspective, which means that the seller would naturally want to lower his price, but isn’t allowed. The restriction of not being allowed to drop prices is usually one that the firm’s management mandates to their sales force. Thus, the sales force has to rely on selling the factors unrelated to price, such as quality, delivery, payment terms, and personal factors, such as those related to friendship -golf trips, tickets to sporting events, kickbacks, going to strip clubs, etc.

As a reader, I can make a mistake, and maybe I did here. From a buyer’s perspective, only an outside force can restrict his offering more money, such as a law. In this case too, exchange involves a greater reliance on the other factors I mentioned.

With 30-35 years experience in business, I can attest that at least half the companies I dealt with weren’t motivated solely on price, or even quality and delivery. The ownership is often aloof from what the management does. In other words, the buyers are properly managed. They fear making mistakes, such as being blamed for trying a new vendor, so they don’t do anything. A young smart kid entering industry will discover, often to their amazement, just how poorly companies are managed, and how many seem to succeed despite themselves.

JS October 1, 2011 at 12:59 pm

I meant the buyers are poorly managed. Sorry.

Invisible Backhand October 1, 2011 at 4:54 pm

The paragraph, isolated, without having read what led up to it, is difficult to interpret.

Here’s the original source in Google Books:

http://books.google.com/books?id=hasIpn_pNR8C&pg=PA313&lpg=PA313&dq=“personal+characteristics+competition.”&source=bl&ots=VoLaCGkrch&sig=F2RHyMD-iOYCjRADhefORfUW3As&hl=en&ei=OnmGTtnLIMvKiAK7wIj_CQ&sa=X&oi=book_result&ct=result&resnum=1&ved=0CB4Q6AEwAA#v=onepage&q=%E2%80%9Cpersonal%20characteristics%20competition.%E2

I was waiting to see if anyone would look for it but of course no one tried. My hopes were truncated.

JS October 1, 2011 at 8:16 pm

Thank you, although I won’t read it. The only reason for me to read it would be to see if he knew what he was talking about, and since I don’t care if he did, there’s no need to find out.

Is there anything you ‘can’t’ find on the net?

simon... October 1, 2011 at 9:11 am

I thinks this phrase hides it’s shallowness behind big words.
In unrestricted society wouldn’t those with advantage in “personal characteristics competition” more likely to feature higher levels of “pecuniary wealth” anyway?
Waaay too generic.

Bastiat Smith October 1, 2011 at 11:39 am

I’m not one to criticize writing styles; we’re all different after all. The “generic” nature of Demsetz’s quote is perfectly applicable to personal behavior and interpersonal interactions. The magnitudes of such interactions are difficult, if not impossible, to quantify. The point here is that ‘market’ forces will force prices to function, regardless of legislation, though they will not be directly fiduciary. The result is a market with values compared in terms of personalized and indeterminate prices of a number of media of exchange besides money; the values and measure of which are less uniform across people than money. This can be said a number of ways. But the ambiguity of the results is part of the point — That we don’t know and can only presume which substitutes will be used in money’s stead.

Seth October 1, 2011 at 2:49 pm

I believe Munger and Roberts have discussed this on some of their podcasts. Control prices and the method of allocating scarce resources is simply pushed to other margins.

Ken October 2, 2011 at 4:37 pm

This. If money doesn’t clear the market, something else will.

Appo Agbamu October 26, 2011 at 5:27 pm

GenAppo is a blog that gives insight to our generation on economic issues that will impact us. These decision are being made whether or not we get involved. Lets Reclaim Our Future.

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