Fortune Cookie Economics
Have you noticed how the text of the "fortunes" in fortune cookies seem to be improving? In contrast to the old days when the fortune was a mere throw away, these days, the language is clearer. The thoughts are more profound. Some of them are real keepers.
Is this a consequence of China's having become more capitalistic?
While I can't comment on the "lucky numbers" printed on them — who knows? — the last four fortunes I received in my cookies just astounded me with their very erudition (even without adding any words at the end of them). Indeed they seemed to sum up the essence of core postulates of Austrian Economics!
Let's see, and keep in mind that these are real.
Now, here we have a popular summary of the subjective theory of value. Value is not embedded in the material properties of any good or service. Neither does a thing acquire value merely because labor was employed to create it. Value is not dictated by the production process or social conditioning. An economic good is valued because an individual mind values it. It is a product of the human mind.
As Menger says:
Value is therefore nothing inherent in goods, no property of them, but merely the importance that we first attribute to the satisfaction of our needs, that is, to our lives and well-being, and in consequence carry over to economic goods as the exclusive causes of the satisfaction of our needs.
Next we come to a further condition that affects economic valuation:
Admittedly, this fortune is not quite as scientific but it makes a good point. Prices are the result of the interaction of subjective valuation and objective conditions of the relative availability of a good. They represent a historical record of trades that have already taken place. They do not and cannot dictate the future.
And yet even given a good with a certain price on the market, the desirability of a good cannot be imposed on others. It must be adopted and accepted by buyers, who assess prices based on individual usefulness.
Or as Mises says,
It is ultimately always the subjective value judgments of individuals that determine the formation of prices…. The concept of a "just" or "fair" price is devoid of any scientific meaning; it is a disguise for wishes, a striving for a state of affairs different from reality. Market prices are entirely determined by the value judgments of men as they really act.
So let us accept the fortune cookie's implied claim that past data cannot somehow dictate our actions and therefore the future. The market is always forward looking. Our actions to buy or sell or invest or save are always a speculation, a judgment call. Nowhere is this more clear than in the institution of entrepreneurship, about which the next fortune speaks:
Given the forward-looking nature of the market process, and the human desire for economic development, there must be individuals who can imagine a future that is yet to be experienced, invest real resources in seeing their judgment come to pass in the production process, and thereby enjoy the rewards to come from profitability. This person is the entrepreneur-capitalist: the dreamer who imagines a possible future and then commits real resources to making that future happen.
The market process does not stop with one entrepreneurial success. Profits call forth emulators, people attracted to a certain idea or sector because a good or service is yielding high profits. For example, if a software entrepreneur comes up with an excellent anti-spyware program and becomes rich, others will take notice and enter the market and provide competition.
The method of success becomes part of the social store of knowledge that others are free to acquire and employ for their own use. As more producers enter the market, the result will be lower prices (if nothing else changes) and reduced profits for each producer.
In short, the successful entrepreneur will attract many people who strive to be just like him. His sucess in making his dreams become reality provides a model for others who do the same. Following the text of the fortune, we can call these people "friends."
The fortune is already ahead of us here, because it also speaks the reality of losses. Let us never forget that capitalism is not only about profits, that win friends. As Rothbard says, entrepreneurs also face the prospect of losses, sometimes big losses. When this happens, people flee our adversity. We lose our friends. We are humbled, and learn from our errors. We then look to others who are making profits and follow their ways, and the process continues without end, to the continual improvement of our standard of living.
If China's path to economic development continues on an upward path, can we expect ever-increasing economic sophistication from fortune cookies? I heartily await other fortunes that discuss capital theory, interest rates, the business cycle, and perhaps even price controls. If some entrepreneur wants to take the risk and create them, and I find them in my next set of cookies, I promise to scan them and make them famous. In your prosperity, your friends will know you.