Re: whooo!!! iv got a job at last

In message <op.sz6k5rr2wpdz4z@paul>, Paul Dean <paul_nospamplease@xxxxxxxxxxxxxxx> writes
On Sun, 13 Nov 2005 13:31:18 +0200, Michael J Davis <?.?@trustsof.demon.co.uk> wrote:

A *market* (in economic terms) is a place where people can buy and sell to establish a 'fair price'.

I don't think that definition of a 'fair price' is in line with Christianity.

Suppose you want to buy a motor vehicle. If you are the only person in the world to want one, you may have to pay millions to obtain one. If there are many other people who want one, it is possible that you could get a new one at a few thousand dollars, or even a pre-used one at less.

Which of those prices is a "fair price"? Why should the price you pay depend upon the number of other people who want one?

The buyer cannot determine what would be a fair price to pay - it is up to the seller to determine what would be a fair price to charge.

I am amazed - if you haven't got a buyer then you haven't got a price - just a price tag. Market economics is about matching the expectations of buyer and seller. Just because something is up for sale does not mean there will be a buyer.

The fair price to charge is the cost + enough to make a living. So for a motor vehicle, the cost changes depending upon how many you make, the 'enough to make a living' per vehicle also goes down. Note I've had that definition of 'fair price' all along in this discussion, so I'm confused that you're asking me what is a fair price to *pay* rather than to *charge*.

See above. Price *only* has meaning in the context of a transaction. I have had too many discussions with ('business') people who think they can ask a ridiculously high price and calculate their budgets on that. Equally, with people who claim to be able to give a 20% reduction in price and expect sales to increase - what? - double? They rarely do, and even if they did, they'd make less money.

Lets take a small factory, making superwidgets from a simple widely available raw material of stable costs[1].

Variable costs are materials $5.0, labour $3.50, other direct overheads $1.50. Fixed costs [2] are in the region of $200,000.

[1] Fluctuating costs of raw materials, especially those that are seasonal, imported, liable to demand from other industries, all make these concepts far more complex, of course.

[2] note that sales and marketing costs are semi-variables but for the moment we'll treat them as fixed.

The company is currently selling 100,000 units pa. at $15 ea.

direct costs:   $1000,000
fixed costs:    $ 200,000
income          $1500,000

margin $ 300,000 out of which interest on working capital, loans, tax and investors have to be paid.

Reducing the price to sell more, how many does he have to sell to make the *same* margin?

@ $14.00        sales have to be 25% more (125,000 units)
@ $13.00        sales have to be 67% more (167,000 units)
@ $12.00        sales have to be 150% more (250,000 units)

(Ignoring for the time being that as the volume goes up other things regarded as fixed also increases, so even more need to be sold)

Alternatively, increasing the price also has an effect...

@ $16.00        sales can be 16.7% lower (83,333 units)
@ $17.00        sales can be 28.5% lower (71,430 units)

So where does that leave your definition of a fair price? Is it not equally fair to think about the objectives of the business - and, of course, whether and how these quantities can be sold. In practise, as I'm sure you're aware, a fair price is more likely set by the competition in the market place than some theoretical ethical consideration.

(Look I'm not arguing about necessities, here, but I am challenging that a fair price is not *inherently* a Christian pov. The issue comes that employees have to have 'fair wages' and the investors have to have a 'fair return' are all part of the complex ethical considerations. Equally you may like to consider whether a company that deliberately undercuts the competition paring its own profits, bur puts the competitor's employees out of work is ethical, too.)

So should I find a small specialist company in the UK, capable of making the same thing for 40-100 x the price, because that would be the 'fair price'?

I'd go with the fair price option if it's available and you know about it - but in the situation you quote it sounds like neither is fair. In the Chinese product the workers probably aren't paid enough, with the director probably paid too much, while in the UK product they might all be paid too much. Who knows? 
Precisely!

One can't judge every situation because one doesn't have all the information, but in principle, if I were giving advice on what people should charge (and I do so in my work, we have 20 income generation projects we train and advise and help), I would try to advise them to not oppress the poor.

One *never* does have all the information - that, in part - is my point. Not oppressing the poor is a jolly good thing, too! But would the poor rather have some income at low rates or no income at all. How does your consideration enter into that?

For instance, one of our projects has now been trained to sew to proper production standard and speed. We're going round the local schools to get bulk orders - the idea is that schools can buy thousands of uniforms from us, add a little on for their own time and sell to parents. Parents must buy from the school because the school determines the colours.
Indeed. setting up a monopoly certainly does call for ethical considerations.

We could try to make it very sweet for the schools and say, "look, there's a captive market, so if you resell our stuff you can charge a hefty margin and make a bit of money for the school. We'll also charge extra and use the money to supply free uniforms for the orphans and the very poor." But would that, for example, be right? These are very tricky issues which we have to be very careful about before God because we are accountable to Him. 

Thanks for those examples.

I have never said we are not accountable to God even in a complex marketplace of selling luxury cars or perfumes! ;-)

But what's clear is that we have to think about these issues in a Christian way, and not in a way driven by the world's values.

I am not quarrelling with that - I am disputing that one can sit down and come to an answer 'this is *the* fair price'.

In practice, we can support - as best we can - small traders, but we live in a corrupt world.

I agree, but then I wouldn't advise a small trader to charge whatever the market can stand. I think that would be bad advice for his or her salvation... Unless of course they really aren't charging enough - i.e. not making a living from it - then yes, they should charge more if the market can stand it. If the market can't stand it, then make something else :)

Look, a small trader really *should* be charging what the market can stand - the issue here is the price too high so that it brings lots more small traders into the market place, when a lower price might give them more opportunities! The fact is (and I have worked in many markets) that the honest small trader usually charges far too little for their skills and workmanship.

Let's get back to basics. I don't know whether you have yams or cabbages where you are.... 

Cabbages.

A local smallholder sells yams at, what? say $1 per kilo. Other local smallholders offer theirs at the same price. Let us also assume that the smallholders make an adequate, but not exorbitant living in normal circumstances at these prices.

The customer goes round from stall to stall and picks the ones with the best quality. At the end of each day, there are a few misshapen ones left that the smallholder(s) sell to the poor at $0.5 per kilo, and what is left, are given to the local beggar.

Before proceeding, which of those is a fair price?

The first price, $1, is fair because the trader is making an appropriate amount of profit for his time.

The second price for rejected goods to the poor is not a fair price. After selling all that can be sold at the fair price, he finds himself with some squashed and bruised stock which won't sell at a fair price - i.e. the cost to him + something to make a living. Instead of taking business away from the other cabbage sellers, and selling something no-one wants at a fair price, he should give or throw them away - thus making friends in eternity (Luke 16).

That's a really interesting observation. You don't, then, believe in charging more to the rich?

The third price for whatever is left is not a price at all - he should have done that with the ones rejected in the first round.

Now comes a drought, the smallholders crops are restricted, and each smallholder can only offer misshapen small yams, but has only one-third of the quantity (weight) to sell.

Should the sellers reduce the price to $0.5 per kilo, thereby making one-sixth the income for the same (or even greater) labour, or put the price up to $3 per kilo so that their income remains the same for the same effort?

Please tell me which of these is the 'fair price' and explain your thinking.

He should put his price up to cover his costs plus something to make a living.

But in the circumstances I have described he cannot sell his stock at that price, everyone else is suffering from the effects of the drought too. So he's going to make a loss anyway. Is it fair to charge the price that will minimise his losses?

Indeed, the world is imperfect and capitalism is imperfect. Should I expect to get interest on my savings?

IMO no. IMO one should use savings for God's work - invest them in yourself or in the church, but preferably in yourself. To draw interest makes you more likely to not invest money in what God wants you to do - very much like the steward who buried his money in the ground. 

Yes, I preached on that yesterday. :-(

[snip]

No answer to this? How does a Christian business ensure it only overcharges the rich and not the poor?

Apart from the emotionally loaded phrase "overcharging the rich",

Ok, I'll use the Luke 16:8 phrase of "dealing shrewdly" instead :) With our projects, sewing, woodworking and food gardens, we have different strategies if a product is marketed towards rich internet-shoppers - we will charge as much as we can because I don't mind overcharging (i.e. charging more than my 'fair price' for) the rich, especially because the proceeds are used to help widows and orphans, so I think God may give us a bit of leeway. These are all issues, again, it's worth being very careful about though.

Indeed.

there are plenty of answers that can be employed by Christians: Branding, market segregation, differing channels of distribution.

Fine. But if a poor person wants to better himself in a worldly way or wants to appear less poor or is simply badly informed, he might buy the expensive product. Difficult situation - would I want to take the risk of oppressing the poor just on the percentages of making more money for myself? I don't think so.

Suppose it's for setting up a new operation to give employment to even more local people, is it right then?

Mike
[The reply-to address is valid for 30 days from this posting]
--
Michael J Davis
http://www.trustsof.demon.co.uk
<><
For this is what the Lord has said to me,
"Go and post a Watchman and let
him report what he sees." Isa 21:6
<><
.

Relevant Pages

  • Re: gold coins, what do I have and other questions
    ... Trying to figure the best way to sell them and the price I can expect. ... Say the spot price of gold is $930. ... and that would hopefully make up the difference for the "dealer ... but I'd like to get a fair price on my side too. ...
    (rec.collecting.coins)
  • Re: gold coins, what do I have and other questions
    ... Trying to figure the best way to sell them and the price I can expect. ... That's for an unformed "blob" of gold. ... That much of discount to sell to a dealer? ... but I'd like to get a fair price on my side too. ...
    (rec.collecting.coins)
  • Re: Help me lard up my bike!
    ... I find it a very fair price. ... At, say, $400 per, it might sell in some numbers. ... all-in-wonders lack unless they're built ito take advantage of that. ... It's longer and built for heavy duty service. ...
    (rec.bicycles.misc)
  • Re: Price Check LOTR
    ... ramp, gold leg bolts, all the fixes, a ton of extra men) I couldn't ... I'll sell a pin before I buy the new one. ... take to sell a pin for a fair price ($2750-$3000 both with newly CC'd ... I Saw Craigs MrPinball Ad & with the Mods & things done to his I think ...
    (rec.games.pinball)
  • Re: F650 - help please
    ... I was hoping to sell you a NOS tank;( ... Even that's a fair price for one that's not ex dispatch/riding school. ... one bid, and sold, which suggests that this was indeed its value.... ...
    (uk.rec.motorcycles.classic)