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If you go to the local cinema to see a film, what would it cost you?
Most people would say it would be around R140 or so. But the cost is more than the price. There are also what is known as opportunity costs, which vary person to person even if the price of the ticket is the same.
For instance, if you spend R300 on one product you can’t spend the same R300 on other things. You chose some goods over other goods.
Just as you can’t be in two places at the same time you can’t spend the same money on two things at the same time.
But cost encompasses more; it includes that problem of being in two places at the same time. If you go to that movie on Thursday night you can’t go shopping at the same time.
You might want to see your mother when she’s visiting, which interferes with your desire to see the movie.
Every time you give up something to gain something else an opportunity cost takes place. The cost of anything includes those things and time you give up.
But you may still come out ahead because the profit is more than just monetary. You may pay R140 to see a film but if the enjoyment you get—if you put a monetary value on it—were R200, you profited.
This means there are costs and profits to every choice you make even when no money is involved. While we don’t monetise most our choices there is value in them—and costs. We gain personal value from time spent with loved ones. In fact, the choices we make reflect those values and how much we profit from them.
If you choose to do something it is because you value that thing over the other choices you have.
The non-monetary profit idea was driven home to me by Nobel Prize winning economist Milton Friedman in 1990. I had asked him to speak at a conference and he consented.
Normally, he was paid $10,000 for a lecture but this night he got dinner at my table and nothing else. No honorarium was involved.
During the dinner we told the 240 audience members that if they used the hotel parking garage we had coupons to discount parking fees.
Dr. Friedman leaned over and said to me, “Make sure I get one of those.”
I told him he didn’t need to worry as we’d be paying for his parking. He smiled while saying, “Oh, I don’t mind paying, I just don’t want to pay full price.”
My reply was to hand him a ticket and I said, “Well, this has to be the cheapest honorarium you’ve ever received.”
His response was, “Any good economist will tell you there is more to profit than just financial gain.”
We see this principle at work all the time. People often do acts of kindness because they value the happiness it creates more than any financial cost. Individuals with more than enough money in the bank may keep on working even if they could retire in comfort.
One advocate of markets who is routinely slandered as uncaring—mainly because her charitable deeds weren’t publicised by her—was the novelist/philosopher Ayn Rand. In her novel The Fountainhead she has her main character Howard Roark, an architect, explain his motivation for working:
“I’ll be glad if men who need it find a better method of living in the house I built, but that’s not the motive of my work, nor my reason, nor my reward! My reward, my purpose, my life, is the work itself—my work done my way! Nothing else matters to me!”
Another such comment in the novel was, “Before you can do things for people, you must be the kind of man who can get things done. But to get things done, you must love the doing, not the secondary consequences.”
Yes, financial profit may be one of those secondary consequences. It may come out of the “love of doing” but the love for “doing” is first and foremost.
The Financial Times said of those who earned millions at Microsoft: “Very few retired, and those who left the company did so to pursue their interests. One wrote self-help books and became a professional poker player; another opened a literary centre. Some founded their own companies. But plenty of others stayed at Microsoft. Presumably they were already doing what they wanted to do, so they just kept on doing it.”
A sense of purpose and accomplishment are a reason for many to labour, once their basic needs are met and their futures secured, yet they still labour for these other “profits”.
Yes, the costs are more than you think, but so are the profits.
James Peron has written for multiple publications and is the author of several books, including Exploding Population Myths and The Liberal Tide. He is a senior associate of the Free Market Foundation.