Recently by Bob Murphy: Everybody Knows Bernanke Is aJoke
An amusing story on NPR recently explained the origin of a new collection of Dr. Seuss stories.
The tale involves an entrepreneurial dentist with a passion for Seuss and a knack for exploiting price spreads. Explaining profits that are fat? We here at Mises know a lot about that! Is There a Doctor in the Magazine?
We can excerpt from the NPR transcript to see the entrepreneurial component of the story:
Every now and then a treasure-trove of seemingly "lost" literature is discovered. The latest such find is a collection of stories by Theodor Geisel, better known as Dr. Seuss. Seuss scholars and collectors have known about these stories for a while, but fans will have the chance to read them in a new book to be released by Random House next fall. …
These are not half-written stories found in a dusty attic after the death of the author. These are stories that have already been published. Dr. Charles Cohen, a Massachusetts dentist with a passion for all things Dr. Seuss, simply managed to collect them all in one place.
"They came out in the ’50s in magazines," Cohen explains. "And then when the next month’s magazine would come in, people would throw away the old one. And those stories were forgotten. And literally it’s been 60 years for some of these stories and very few people have seen them."
While doing research on the children’s book author, Cohen began tracking down original copies of the stories. But he needed a way to support his habit.
"I would find some of these magazines that these appeared in and I would purchase them on eBay for $2 or $5 from people who didn’t know they had these Dr. Seuss stories in them," he says. "And then I would list them on eBay and explain what they were. So a $5 magazine would bring in $200 or $400, and that was a great markup for me."
Naturally, the NPR story goes on to explain the significance of the collection. If anything, we are led to believe that Cohen’s eBay profits were a necessary evil in order to produce the end result.
Yet I want to focus just on the eBay transactions themselves. Even if nothing else had come of this so that there was no new collection of Dr. Seuss stories, and we never heard an NPR story about it Cohen’s actions provided a socially useful service, which was reflected in the profits he earned.
Entrepreneurs: the Driving Force of the Market
In his masterpiece Human Action, Ludwig von Mises wrote:
The driving force of the market process is provided neither by the consumers nor by the owners of the means of production land, capital goods, and labor but by the promoting and speculating entrepreneurs. These are people intent upon profiting by taking advantage of differences in prices. Quicker of apprehension and farther-sighted than other men, they look around for sources of profit. They buy where and when they deem prices too low, and they sell where and when they deem prices too high. … Profit-seeking speculation is the driving force of the market as it is the driving force of production. (pp. 328-329, Third Edition)
Among all the various schools of economic thought, the Austrians place the most emphasis on the importance of entrepreneurship. Indeed, it is no exaggeration to say that one could get a PhD in economics from a top university without ever hearing the term "entrepreneur" discussed in the classroom.
The Social Function of Entrepreneurship
Most people recognize the contributions of bold pioneers like Henry Ford or Bill Gates, but Mises recognized that even mundane operations, where lesser-known entrepreneurs "buy low and sell high," adjust the market to better satisfy consumers.
In Mises’s analogy, consumers "vote" with their money, and every dollar constitutes a separate vote. Entrepreneurs enter the market for labor and other resources in order to bid on these inputs and produce finished goods and services for the consumers hoping to "win their votes." The importance of various possible items is indicated (however imperfectly) by how much money consumers are willing to spend on them.
For example, because consumers are willing to spend some of their money on retail vegetables, the grocery stores are able to spend money on wholesale vegetables, and so on up the chain of production, until we reach the farmers who are willing to devote some of their scarce land to growing vegetables.
At the same time, however, smokers are willing to spend some of their money on cigarettes. This is why the market process ensures that some arable farmland is devoted to tobacco. Mises made clear that the profitability of a good wasn’t a sign of its morality, but rather an indication that at least some consumers valued it more than other potential goods they could have purchased instead.
Mises was clear that those who condemned "capitalism" for producing cigarettes instead of (say) baby formula were really condemning the buying habits of their fellow citizens. If smokers quit and used the money instead to donate baby formula to poor mothers, then capitalism would cater to those preferences just as efficiently.
The Capitalist in the Hat
We can now understand how Dr. Cohen provided a service when he found obscure Dr. Seuss stories in forgotten magazines. Someone putting up such a magazine on eBay for $2 or $5 obviously didn’t realize its significance. Had Cohen not spotted the offer, it might have been purchased by somebody else who didn’t know about the Dr. Seuss story either.
Enter Cohen, with his superior knowledge. He had earlier discovered many magazines that contained Dr. Seuss stories, and so he could recognize the particular volumes when he spotted them on eBay. By purchasing them (at a low price) and then relisting them for a much higher price and advertising the fact that they contained unknown Dr. Seuss stories Cohen "created wealth" in a very meaningful sense.
Specifically, Cohen bought magazines that people were willing to sell for only $5, and he in turn sold them to people who were willing to pay up to $400 for them. Each side of the trade was voluntary; everybody thought he or she benefited when each transaction was consummated. The magazines were transferred out of the possession of the people who didn’t realize what they contained, and into the hands of people who did (because Cohen told them).
In an economically relevant sense, Cohen created those extra copies of original Dr. Seuss stories, just as surely as an artist can create a figurine out of a block of wood with a knife. It’s true, he could have simply emailed the eBay sellers and informed them of what they owned, rather than buying it from them. But then in this case, those sellers probably would have simply jacked up their asking price. The magazines would ultimately end up in the hands of Dr. Seuss lovers. The only question is, Who should reap the profits from the discovery Cohen or the ignorant original owner?
Following Mises, modern Austrian economists stress the primacy of the entrepreneur. At bottom, the entrepreneur simply buys low and sells high. But in order to do this, the entrepreneur must see an opportunity in the market pricing structure that others have overlooked.
By pursuing personal profits, the entrepreneur ends up rearranging goods in a way more pleasing to consumers. The case of Seuss enthusiast Charles Cohen beautifully illustrates the harmony between personal profit and service to others in the voluntary market economy. For good or ill, entrepreneurs will provide what the customers want whether it’s one fish, two fish, red fish, or blue fish.
Reprinted from Mises.org.