Prices and Present Values

Whether a home, business, or farm is maintained, repaired or improved today determines how long it will last and how well it will operate in the future. However, the owner who has put in these improvements does not have to wait to see the future effects on the property's value. These future benefits are immediately reflected in the property's present value. The present value of an asset is in fact nothing more than its anticipated future benefits, added up and discounted for the fact that they...

Present Value

Although many goods and services are bought for immediate use, many other benefits come in a stream over time, whether as a season's ticket to baseball games or an annuity that will make monthly pension payments to you after you retire. That whole stream of benefits may be purchased at a given moment for what economists call its present value. However, more is involved than simply determining the price to be paid, important as that is. The implications of present value affect economic decisions...

Insurance

Like commodity speculators, insurance companies deal with inherent and I inescapable risks. Insurance both transfers and reduces those risks. In exchange for the premium paid by its policy-holder, the insurance company assumes the risk of compensating for losses caused by automobile accidents, houses catching fire, and numerous other misfortunes which befall human beings. There are more than 41,000 insurance carriers in the United States alone. That includes more than 11,000 life insurance...

Business and the Market

Those who favor government intervention in the economy often depict those who prefer free competition as pro-business apologists. This has been profoundly wrong for at least two centuries. Adam Smith, the eighteenth century father of free-market economics, was so scathingly critical of businessmen that it would be impossible to find a single favorable reference to them in his 900-page classic, The Wealth of Nations.Instead, Smith warned against the clamor and sophistry of merchants and...

Supply Under Rent Control

Rent control has effects on supply as well as on demand. Nine years after the end of World War II, not a single new building had been built in Melbourne, Australia, because of rent control laws there which made buildings unprofitable. Declines in building construction have likewise followed in the wake of rent control laws elsewhere. After rent control was instituted in Santa Monica, California in 1979, building permits declined to less than one-tenth of what they were just five years earlier....

Law And Order

Where government restricts its economic role to that of an enforcer of laws and contracts, some people say that such a policy amounts to doing nothing. However, what is called nothing has often taken centuries to achieve-namely, a reliable framework of laws, within which economic activity can flourish, and without which even vast riches in natural resources may go unused and the people remain much poorer than they need to be. Like the role of prices, the role of a reliable framework of laws may...

Specialization And Distribution

A business firm is limited, not only in its over-all size, but also in the range of functions that it can perform efficiently. General Motors makes millions of automobiles, but not a single tire. Instead, it buys its tires from Goodyear, Michelin and other tire manufacturers, who can produce this part of the car more efficiently than General Motors can. Nor do automobile manufacturers own their own automobile dealerships across the country. Typically, automobile producers sell cars to local...