1. Skip to navigation
  2. Skip to content
  3. Skip to sidebar

The Ludwig von Mises Institute

Advancing Austrian Economics, Liberty, and Peace

Advancing the scholarship of liberty in the tradition of the Austrian School

Search Mises.org

The Economics of Here to There

Mises Daily: Wednesday, January 17, 2007 by

A
A

Not being a television watcher, I was amazed to discover, from watching an hour or two of commercials this weekend, that there is a little pill you can take that will turn your body from portly and weak to thin and strong in a matter of months, if not weeks.

And how much better will be the eventual results if you acquire this thing called The Bean, which looks like a blow-up pool toy but is really the key to flattening your belly and giving you abs of extraordinary beauty?

Also, there is this cream that will triple the amount of moisture in your hands, and there is a gel that will stop hair loss, and, also, it turns out that I would have a greater ability to concentrate if I ate a good breakfast that includes Frosted Mini-Wheats, each of which talks and has a charming personality. And there's this nose spray that will help me breath better and play trumpet like a pro, which will thereby earn my son's admiration, just like on TV.

Such are the claims we encounter minute by minute on the tube, advertisements on which millions and billions are spent, just so that we will buy this instead of that. And the socialist says: what a ghastly waste it all is! They ask: what is wrong with the economic system as it exists that vast sums of wealth are consumed to get us to believe the improbable when, at the same time, whole populations around the world suffer without access to clean water and enough food to feed children? And so they propose a global regime to expropriate the capitalist class.

And yet it is not as if the capitalists welcome the chance to spend vast sums on television advertising. How great it would be if all a capitalist had to do was to create something, and that alone would cause the multitudes to flock to the warehouse and buy! Alas, that is not the way the world works. There are multiple competing ends for how we spend our money. The first step that is required to persuade those resources to be used in one way as versus another is to have the knowledge that a particular product exists. The second step to persuade the potential buyer to make a choice in favor of a particular product. It is the very existence of the necessity of human choice in a world in which information is scarce that makes advertising a feature of our world. 

If they knew in advance that the millions they spend this way would be for naught, they would use the resources in other ways. The boss could increase his own salary, the company might lower its prices to undercut the competition, or attract better workers through higher pay. The resources it requires to promote your product are some of the most painful ways to spend a buck. It is pure speculation as to whether there will be a payoff. Even a temporary payoff says nothing about the future.

What the entire critique of advertising misses is the crucial and even decisive economic issue that is solved by the principle of marketing. How does a product or a service go from being a good idea or even a physical possibility to being available for people and available for consumption? Here is the major issue that has never been solved by any other system but capitalism. And capitalism solves it in a way that is wealth-generating and leads to constant improvements.

Thanks to the advent of mass blogging, many more people are acquainted with this issue than ever before. Let's say you take what is for most people a big and exciting step of creating a blog. There are so many sites now that make it easy. You sign up, you fiddle around with the look and feel, you add links, and the all-important "about me" page. You are ready to go.

You write your first post, thoughts you find funny, profound, insightful, or otherwise compelling in some way. Submit. And voila! You are published in a medium that is accessible to the entire world. Who can believe it?

The thrill doesn't last long because you suddenly realize something that had not yet presented itself. Only your family is reading this. Maybe. It's true that anyone in the world can access it but why should anyone want to? How are people even going to find out about it? How can you be sure that people are going to come back again and again?

This is a striking problem mainly because it is something that hadn't actually occurred to you before. You created a beautiful product. You could create a profound post. But you must then persuade people to read it.

You might have read somewhere that the key to blogging is to do it often. So you blog and blog. You post 3 times, or even ten times, per day. You keep this up for weeks, even months. Exhausted, you check your stats. They show no increase in readership. Still, only your family is reading — or at least they claim to be reading.

You then turn to other means. You link, you beg for links, you turn on trackbacks. You try boosting your search-engine ranking. Finally, you take the step: you buy a spot on Google ads. Then things begin to happen. And then you marvel at how much time you have spent on this project. It seems that you have spent 10 times as much time promoting than you ever spent writing your blog. And yet what is the point of writing if you have no readers?

In this way, average people are beginning to see the great hidden cost of capitalist production: getting from here to there. And take note that with blogging, the problem of distribution is already solved. The final product is delivered via a click.

Imagine if you had a book or a tire or an air conditioner part to sell. That presents all sorts of new problems. You must produce something physical. How many? You must have a warehouse. How big? You must be prepared to process credit cards, do the accounts, meet a payroll. And you must do all of this, not after you have the revenue, but before! It all seems like a wild act of faith. It is indeed.

And keep in mind that the problem and costs of distribution are not only a problem that faces the capitalist class. It also confronts the charity worker. What if I made a massive dinner and set it on the table and proclaimed that it was reserved for the poor of the world. Well, there are a few steps missing, aren't there? No matter what your ideology, the reality that you must do something to get the food to those who need it is inescapable. The costs of promotion and distribution are far more vast than the costs of production alone.

In order to be willing to undertake such a thing and bear such high costs, you must really believe in your product, or at least believe that you have entered into some kind of sustainable undertaking. The prospect of bankruptcy looms large and relentlessly.

Am I saying that the inventor of The Bean really believes that it can give you fabulous abs? Most certainly. And if used correctly, it probably does. The same goes for the hand-cream company, the mini-wheats makers, and the stop-hair-loss capitalist. These people are indeed believers. There are such things as hoaxes, to be sure, but capitalism tends to discourage them by imposing the costs of promotion and distribution entirely on the producer, while the choice to buy or not buy lies solely with the consumer.

$16

But why must it be tacky and unbearable to so many of us? Well, let's be blunt: business is trying to reach the masses. Mises explains:

"Business propaganda must be obtrusive and blatant. It is its aim to attract the attention of slow people, to rouse latent wishes, to entice men to substitute innovation for inert clinging to traditional routine. In order to succeed, advertising must be adjusted to the mentality of the people courted. It must suit their tastes and speak their idiom. Advertising is shrill, noisy, coarse, puffing, because the public does not react to dignified allusions. It is the bad taste of the public that forces the advertisers to display bad taste in their publicity campaigns. The art of advertising has evolved into a branch of applied psychology, a sister discipline of pedagogy. Like all things designed to suit the taste of the masses, advertising is repellent to people of delicate feeling."

A sister discipline of pedagogy? Yes indeed it is, and it is also art, and those with "delicate feeling" need to learn to appreciate it for what it is. They don't have to believe a word of it. Decline to drink the potion to make you thin. Refuse the breakfast that will make you concentrate. Eschew the hand cream that will restore moisture. Be as skeptical as you want and, instead, save every penny. Turn off the television if you hate it and sit in your perfect environment and listen to Gregorian chant.

But don't push for a system that would deny producers the right to persuade others, and don't deny others the right to make a choice for themselves.

__________

Jeffrey Tucker is editor of Mises.org. Send him mail. Comment on the blog.