Profits and Market Economies

Posted by John Crandall Apr 17, 2007

I'm posting these thoughts in relation to my Railroads and the Market Economy Article. In that article I mention how profits of the railroads due to economy of scale were deemed offensive, and brought on the first real regulation of the American economy through the institution of the Interstate Commerce Commission to fix rail passenger prices. There will always be new economy of scale businesses, they are the most profitable kind. I don't think I have to say Gates or Walton for readers to get the picture that such things as made the robber barons still go on, or that such things are a natural phenomenon of a free economy. I think that's the grass roots of the profit motive, and not a bad thing. Now, when such businesses get special priveleges, take advantage of programs for the poor by paying their laborers so little that the government (i.e. the taxpayers) supports their workers for them, or get special legislation to protect them something is wrong, but in a real free market they would get my applause.

In, 2007, if you want to see a large scale business making huge profits, go to the local "discount" department store chain. If you dislike the idea of the rich getting richer stop shopping there, or if you must shop there refuse to buy goods where the price jumps a huge percentage in a short span of time. Should this chain be regulated? Yes it should, by the customers. You can't get good grapes, oranges, or tomatoes these days, and the green ones they sell are priced extremely high relative to their quality. I'm growing my own tomatoes on the back deck, maybe I should plant grape arbors and an orange tree this spring as well. The grapes couldn't be any worse than the early picked and shipped from South America kind, and they'll only cost a few hours of my own labor. It might even be fun. Just remeber, they have over 500 million customers, and every penny extra they charge you adds around 5 million dollars to their bottom line, every extra dime they charge you adds $50,000,000 to their profits, and so on.

I was buying baked beans and tomato soup for under 50 cents a can less than a year ago. The prices of both have doubled, and I no longer buy either one. It's not that I stopped liking to eat them. It's that the price is higher than the value. But then, I'm living in a world where 6 to 8 dollars for a prepared burger meal that costs about a dollar to make at home is not considered prohibitively expensive by most. Lets see, the typical fast food place pays their help about 7 to 8 dollars an hour, employing maybe 5 to 6 people thats 5 or 6 sales an hour to pay labor. One dollar retail (probaly 50 cents or less wholesale) for the product. Even if we are generous and give them an additional 2 dollars for overhead, thats 4 to 5 dollars profit on every sale after 6. If they sell 50 an hour on the average thats 176 to 220 dollars an hour profit on a fast food joint. Thats 8800 on a 40 hour week, and their weeks are more like 133 hours if they open at 7 am and close at midnight 7 days a week. 133X$220=$29260/wk. What's the average annual household income of their customers? I bet its less than one million five hundred twenty thousand five hundred and twenty one a year. Sure, some of it goes to the franchise, but still . . .

I don't know maybe I'm leaving out insurance and taxes even with a generous overhead, but my point is I don't eat there anymore because I believe the price is too high. I cook my own hamburgers and french fries, in most cases they are better, and they are always cheaper costing me about 1 dollar for ingredients and maybe a half hour to 45 minutes of my time. In this case I am earning in the neighborhood of 10 to 12 dollars an hour during that time usually in my shorts and t-shirt with the TV or radio on with nothing better to do instead except maybe veg out on the couch. I am still a sucker for ordering pizza though. It's the only food place where the prices are still what they were when I started shopping there, maybe they were overcharging me then, maybe they have more mom and pop competition. Whatever the case as long as its $9.99 with a coupon for a medium pepperoni delivered they have my business. If it goes to $14.99, I'm calling my mother for her pizza crust recipe. Maybe profits can be obscene, but only when the majority of consumers have no brains, options, or initiative to do for themselves, or when the government grants special privileges to special businesses or sectors of the economy (a practice in direct oppostition to equality under the law, I might add).