For What It’s Worth
President Trump’s comment on the pricing of the United States Post Office (discussed in the Week, January 22) is based on a common misconception of what constitutes the value of a product or service. As Carl Menger explained almost 150 years ago, the production process is simply a means to an end: the satisfaction of consumer needs. Therefore, the value of the end product bears no relation to the cost of producing it but instead is determined by consumers’ value judgment, which determines how much consumers are prepared to pay for it. This, in turn, determines the value of production factors (capital, land, labor); a factory by itself is worth nothing if it cannot produce output that is valued by consumers. In order to go into business, the entrepreneur thus first needs to evaluate how much consumers value his goods (how much they are willing to pay) and then determine whether he can deliver the product at a cost below that expected future market price. Claiming it is the other way around (expecting consumers to pay cost plus profit margin) is not only a self-destructive business strategy but would also validate Karl Marx’s fallacious value theory, implying that the more wasteful the producer, the higher the cost and thus the higher the value of the products. The fact that we are used to invoicing our products by itemizing the costs of producing them does not change this; if our client feels the invoice amount exceeds what he perceives as the value of the product, he will balk and not buy from us again.
This brings me back to the president’s comment on the United States Post Office: Amazon pays the United States Post Office the prevailing market rate, which is the aggregate price consumers are willing to pay for the service. The Post Office should not expect the consumer to adapt to its cost structure but has to adjust its cost structure to what consumers are willing to pay, which is where wasteful public-sector companies usually fail. If this cannot be achieved, President Trump should finally do both consumers and taxpayers the favor of privatizing the company, requiring it either to compete in the free market or to sell itself to its private-sector competitors who have been able to meet consumer demand and remain profitable ever since online retailing kicked off. Continuing to have the taxpayer (and consumer) subsidize inefficient public-sector monopolies makes the country “dumber and poorer.”
She’s a Lumberjack and She’s Okay
I enjoyed your imaginative description of Melania Trump chopping down Andrew Jackson’s magnolia tree, but I must object: A woman as stylish as Melania would never wear high-heeled Fendi work boots. The toes are too narrow to kick rocks effectively, and everyone knows Fendi’s ostrich-skin uppers retain mud and grease like nobody’s business. Plus Hervé Pierre hasn’t made lumberjack shirts in peau de soie for years, ever since the Chinese started buying it all up, and as for Roberto Cavalli safety goggles . . . well, I swear I saw a pair at Home Depot last week.
NR publisher William Rusher famously said: “Never cross Sixth Avenue.” Maybe if you folks were not so intent on avoiding the Garment District, you might learn a little more about fashion.
“A Man on a Mission” (Kevin D. Williamson, December 31) asserted that EPA Administrator Scott Pruitt attended law school at the University of Oklahoma. In fact, he did so at the University of Tulsa.