On an otherwise dreary and ominous day, witnessing the miracle of free exchange restored a bit of my soul. It seemed as though the clouds had parted, and a celestial ray approvingly shone down upon the street corner. The entrepreneurial capitalism I witnessed this week was not out of the ordinary, but this instance was unique.
Family Business, Community Benefit
On my commute to work every day in Washington, D.C., I come across a particular souvenir stand. The owners are a small family of hardworking immigrants who fight every day for the small business that provides their livelihood. The typical stock is nothing more than trinkets and dingy T-shirts. The inventory does not change much day to day, but every so often, a seasonal item will appear or a new shirt that reflects current events.
On this day, the parkway purveyors did a little market research – they watched the weather – and their extra preparation paid off in a remarkable way. Instead of the usual knick-knacks and apparel, the stand was stocked entirely with umbrellas.
Fortunately for them, just yards away sat a fully-stocked umbrella stand.
With their own money, ideas, and time, they attempted to meet consumers’ demands. They took a risk buying so many umbrellas - perhaps they would not sell enough. They took a risk - perhaps the weather would pass. They took a risk - perhaps they set too high a price for their goods.
As soon as the clock struck 5:00 p.m., the heavens were opened and both rain and suits poured onto the street. As unsuspecting interns, facilities workers, security officers, and businessmen left their offices, they recognized that their lack of preparation for the day’s weather would have repercussions, and their phones, purses, and clothing would be soaked. They experienced a high demand for a solution, with a relatively inelastic demand, meaning the price wasn’t weighing much on their minds when they assessed their needs.
Fortunately for them, just yards away sat a fully-stocked umbrella stand. They ran by, wallets in hand, passed on some cash, and walked away happily covered by their new purchase. Both parties were made better off by this exchange. The seller now had a profit from the sold merchandise, and the buyer got a cheap solution to an otherwise ruined purse or phone.
The exchange was voluntary, as nobody was forced either to engage in the sale – and no one forced the seller to start a stand nor the buyer to be ill-prepared. The risk and reward for the seller was a beautiful victory, and that is why small businesses and entrepreneurial capitalism are so fantastic. It is the most moral economic system ever devised, and the only one proven to create wealth. Why would we prefer to have a bureaucrat stand in the way of voluntary exchange and mutual benefit?
Without this type of exchange, the low-income immigrant stand owner couldn’t buy new inventory, couldn’t bring home money to feed their children with, and couldn’t beam with pride for the business they successfully built and operate.
But what classic critiques of capitalism exist to rain on this parade? Let’s explore a few.
Playing Devil’s Advocate
Permitting and regulations are sometimes a criticism of those who want to engage in business. How dare this street stand just appear without permission from the government? That isn’t right!
But why would we prefer to have a bureaucrat stand in the way of voluntary exchange and mutual benefit? And why would we want a government to keep hard-working immigrants starting at the bottom rung from starting a new business?
Government permission should not interfere with the market, it only drags innovation and wealth creation. Had the stand been outlawed or shut down, there would have been two losers – the seller would miss out on profits, and the buyers would be forced to stand in the downpour.
And regulations can be detrimental to commerce. Suppose the government mandated a certain size umbrella or that certain material be used. That could reduce the number of people able to sell them. And absent fraud or complex products like medicine, consumers do not need protection from bad products; they will simply buy from places with the quality they prefer. Supply and demand create a price system, which is more efficient and powerful for growth than regulations are for consumer protection, in most cases.
The umbrella salesman didn’t cause the weather, she merely took advantage of it.
Inequity explains the plight of the buyer. The intern and building custodians with no umbrellas were victims of circumstances and a lack of privilege. Due to their lifestyle, the pressures of work, the expectations of society, stereotypes of their professions and backgrounds, and the impact of their community, they simply had no time to check the weather or did not own an umbrella before now. It is unfair to expect them to do more or work harder for what others were privileged enough to have – the time to check the weather or a home supply of umbrellas. Therefore, it is wrong to gouge them with high-priced umbrellas.
But they had the same opportunity as anyone to check the weather, and they chose to pay. Plus, the umbrella salesman didn’t cause the weather, she merely took advantage of it. There should be no subsidy or extra opportunity for people in a free country (excluding safety net programs for the destitute, elderly, or disabled).
And let’s not forget the disadvantages the stand owner faces. She and her husband had to fight an immigration system and social prejudice that worked against them. They had to fight permit applications and zoning laws. And every day they fight to convince customers to buy their products so that they can keep their business alive.
What about Our Morals?
With finite resources, we cannot give out umbrellas for all those in need.
Morality requires that we give umbrellas to those in the rain. Mandated charity is unsustainable and arbitrary, and this includes government mandated supply. After 50 umbrellas are gone, the 51st person is treated unfairly, because with finite resources, we cannot keep giving out umbrellas for all those in need.
But moreover, the umbrellas do not belong to the commuters, they belong to the salesman - do we really want to deprive this poor stand owner of her hard earned money and investment? No one is entitled to her umbrellas. The most moral option is to allow her to do with them what she wants because she is the only rightful owner. Her choice to offer them for sale is downright philanthropic, given the need for umbrellas in the area. She could have hoarded them. Instead, she brought them to market, and the voluntary exchange produced mutual benefit and helped the community.
But the free exchange did more than benefit the two parties because it provided the opportunity for charity. With the profit the salesman made, she could buy more umbrellas or lower her price. She could open another stand to reach more commuters. And because of her success, she was able to give a few away for free to those in dire need because she had made enough profit to cover the cost. That charity comes from the heart and is more moral and admirable than mandated charity, which is not charity.
Capitalism builds both parties up. Socialism, even if employed with good intentions, must tear people down to “help.” In that economic system, umbrellas must be taken from their rightful owner – the salesman – and given to the rain-soaked businessman, or the price and quantity are mandated such that the salesman operates at a loss.
In the free market, every exchange makes everyone better off. And when it will not, there is no exchange.
Socialism requires that the government own or control businesses, depriving our inspiring immigrant small business owner of her chance to grow and improve herself. The good done by helping the buyers is offset by the harm done to the seller. But in capitalism, the buyer gains and the seller gains, and no one had their property or rights infringed upon.
Some may say this woman took advantage of a tragedy by rushing into an area devoid of cover. How immoral, they claim, for her to shake down the weary travelers - and for profit! But if she had chosen not to come, they would remain wet! Her presence at all is a sign of progress.
Everyone Can Win
Capitalism allows entrepreneurs to take risks with their own money and assets, and enter an area where demand may exist for their product or service. Even if the area they enter is inhabited by the downtrodden, all parties to the exchange are better off for it. This model holds so long as there is no crony capitalism or corporatism involved, wherein government contracts are improperly made, or artificial shortages, surpluses, or subsidies are generated.
In the free market, every exchange makes everyone better off. And when it will not, there is no exchange. At one time, this stand-owning family was in the place of the wet umbrella-less people, but through free exchange, they were able to rise up and improve their station. Everyone is made better because it did not take money from the rich for the poor immigrant to become a small business owner. It took risk, hard work, and drive from the immigrant, which was rewarded with profit and enhanced self-worth.
The only thing that could have been better to witness is a competing umbrella stand with lower prices. Because when businesses compete, the consumer wins!
If you like capitalism, check out these great videos that explain the benefits of the system. If you think you hate capitalism, check out these great videos that explain why you are misunderstanding capitalism. Then maybe read some John Locke, Milton Friedman, and Thomas Sowell.
Reprinted from the Millennial Review.