Asbiro. An alternative school of business.
They are aware of importance of free market and fight to keep it.
Once I built a parking lot, and I ensured that nobody else could build another parking lot near me.
And from this point on, I have changed from an entrepreneur who fights for the free market into a bastard who deters others.
The biggest environmentalists became those who bought a plot in a beautiful mountain
and then they become environmentalists deterring others to build nearby because they wanted to be surrounded by pure nature.
Little Socialist.
This is an argument for you when discussing the free markets.
With whom do you discuss it with? Do you remember this quote: "The free market is the opposite of equality."
And now the question: if everyone earns the same, no matter what they do, which job would you prefer?
A miner or a photographer?
Who wanted to be a miner? Or is it better to take pictures of naked models?
Is it better to be a television star or clean toilets?
When wage equality is introduced, there is nobody to do the essential manual labour.
Even during Communism miners earnt more than most.
-But photographers still earnt more.
It depends which one. If there are a lot of photographers the demand for pictures will decrease.
Again, here is the role of the state, which favours certain artists and pays them more while others live in poverty.
Do you remember when we said that people who had less pleasant jobs requiring specialized skills earned more?
You can make money not only through production but also by convincing someone: give me your money and I promise you... the heavens.
One can earn also by coercion. Generally, people do not want the free market. They do not want to compete with the Chinese.
Economists, as I said, do not use words such as coercion, theft, fraud, etc.
But they should, because coercion, theft, fraud, etc. exist in common transactions.
Recently I developed the concept of BFDS, which means "Basic Factor of Developments of Societies"
The most important factor which enables social development.
The basic mechanism that enriches the community.
The permission for producers to accumulate profits from the voluntary exchange
of their production surplus.
If it does not exist then there is no social development.
In our country it exists, to a certain extent, but we can observe the return to the previous situation.
I will explain why the State would like to get their hands on everything.
I am a software developer. I provided the software to one clinic, which has operated on the market for 12 years.
We cooperated from the start. This clinic has the most advanced system of all its competitors.
I was invited to celebrate 10 years of this clinic.
The owner thanked everyone involved.
Of course, he thanked those who invested their money into the clinic.
He thanked the employees who ran the clinic, helped, did a good job, etc., etc.
Then bowed to a government official, who awarded him a grant at some point.
I was the last one, at the very end.
Look how simple it is. I gave you money. You are grateful because you received it for nothing.
The state official gave away other peoples money. It costs him nothing, but he is adored the by receivers. It is like this everywhere.
I came back from Hawaii 2 weeks ago, they were discussing the same thing.
I talked to Americans about the process of the development of socialism. How it works until the economy collapses.
-Do you think there is the danger of socialism in America?
I said: I do not know, but I've never seen an Anglo-Saxon country hustled into socialism.
And they said: Really? And what about the United Kingdom?
Look, it is not so simple.
Poles, my cousins, who fled to the United States during Communism because they didn't want to live in misery. They became citizens and voted for Obama.
So I asked them: do you see a contradiction? They answered: No, we are just prosocial.
They are scientists with titles, and they don't understand basic social mechanisms.
Why did they flee from here?
When we have power, which provides money, we start to have obsequious people, who live off the money provided from the power.
Study the Calhoun Experiment. And become the rats of the 1st level, and raise your children as 1st level rats.
The experiment shows that from the 3rd generation of rats, they no longer reproduce.
You should always be hungry for knowledge, achievements and results.
But we digress...
BFDS. So the free market guarantees the development of the Economy.
If I can produce what I want I can keep the surplus from the free exchange for myself.
So the free market is an integral part of BFDS.
If you read "Everyday Life in North Korea", by Barbara McCormick, people were able to survive because of the free market.
She wrote how a mother started making cookies with grass, which sold well, so she could live a little better.
My first example was with my sling. It was how I discovered the Economy. Now another example.
My father was an engeneer and worked in ironworks. My uncle was a well-known film critic.
My aunt was a director of a pharmacy. But the richiest person was my grandmother. She didn't work, she only made nice sleeping bagd for neonates and she lived off it..
And I just wondered, my uncle worked day and night writing articles for the State-owned press, and yet grandmother was the richest.
She was the first one to have a television. If anyone begged for money, she gave it to them, often without asking to be repaid.
She was the richest because she did something which others needed and wanted to pay for.
Saint Matthew's Ratchet. Now I want to tell you about some natural mechanisms,
which are present in society.
Let's imagine an ideal community, consisting of 100 people.
Everybody makes products for exactly 100 (denomination is unimportant).
The first person makes cakes for 100, the second bread for 100, the third, a shoemaker, shoes for 100, a tailor makes pants for 100,
peasant grows potatoes for 100, carpenter builds a home for 100 a month, doctor cures for 100.
All of them are producing for 10 000, and they share it equally. After, everyone has goods worth 100.
So we shared bread, butter and beer, so we have what we need. Can you imagine such a situation?
There were kibbutzim, there was communism in the USSR. It doesn't work at all!
Even smart Jewish people recognised that kibbutzim don't work.
Do you know why?
I will explain this. I found out, but Bastiat worded it very nicely.
One of the fundamental elements of economic research is sensitivity analysis.
What will happen if something unpredictable occurs? How will the system cope?
What will happen to my salary if I lose a penny?
Nothing.
Sensitivity analysis: What will be the reaction of the system if something happens?
Variance 1: One of the community produces nothing. We don't know why. He may be ill or drunk. He produced 0.
The rest did their duty, so the commune produced 9900 instead of 10000.
Po podziale 9900 na 100 osób każdy dostaje 99. After sharing, each person received 99.
Individual benefit of this person who did nothing i +99. He did nothing and received 99.
Everybody else lost 1. Did they lose a lot? No.
And he received a lot.
Variance 2. There is one guy who devotes himself for the society and works twice as hard.
He produced for 200, so the community produced for 10100. After sharing, everybody recived 101.
So look now. The income of the hard-working guy is -99. He produced for 200 and received 101.
As a matter of fact he lost 99.
And individual income of the others is +1.
So one produced twice as much 200 and other produced nothing 0.
This is what Bastiat said. I do not know why none of you cried: I already know why people don't won't to work hard.
Bastiat said, therefore, a will do everything in his power to convince 1000 others to give him one dollar.
That he is very important for the society, that he deserves this,...
So it is natural that the communist systems don't work
Because the first one earned a lot by doing nothing, and the second one lost a lot by working too hard.
The theory of comparative costs explains why we specialise and cooperate.
All kibbutzem fell apart.
- A worse model is when anybody receives what they need.
Yes this is pure utopia.
I explain this in more detail in my book "The Physics of Life"
4 ways of spending money. Who knows what I will talk about?
Milton Friedman is a man connected with the Chicago school of economics
He said that there are 4 basic ways of spending money, and saying more precisely,
4 ways of optimisation used depending how one spends money.
I spend my own money on myself. I spend my own money on someone else.
I spend someone else's money on myself. I spend someone else's money on someone else.
And Milton Friedman put it like this. My money which I spend on wyself is done rationally.
I know what to buy, so I try to lay as little as possible - this is rationalism.
I don't spend my money rationally on somebody elese, because I don't exactly know what they need.
A husband buys his wife the present that he really wants. And vice versa. A wife buys the present she wants.
But they don't overspend. Even if we don't buy what the other person really wanted, the spendings are still rational to some extent.
And how do we spend anothers persons money on ourselves?
- Dinner on the company account.
So we eat the most expensive food in the most expensive restaurants, and if possible, buy ourselves the most expensive gifts.
And how do we spend anothers persons money on them?
A state employee gives money to someone.
What profits does he gain?
He wants intangible adulation.
It depends on the hierarchy of needs. A poor state employee wants to receive a bonus, and the rich one, prestige.
Look, due to my generosity you have become richer.
As a matter of fact, it wasn't his generosity, because it wasn't his money.
So you can see that this cognitive model is very simple.
I developed a little on Milton's model
I added a new item:
Not only "my money" but "my money earned by myself"
Because "my money earned by myself" is different than "my money" received from my Gramdma.
Because the way you have earned determines the way you spend it.
There is a big difference between earning your money on free market and as a salary.
We have a lot of scientists, economists, philosophers and so on, who receive a salary from the state.
On the free market they would not exist.
.One professor is saying to another: "You are a spendid professor", and the other replies "You are too"
And after their sweet chat they say to the Government: "Give us a lot of money because we are splendid".
And because they are splendid the government pays.
And the second amendment to Milton's model: my money earned on the free market when I am competing with others.
When someone works really hard he spends money extremely rationally.
Remember Milton Friedman's four ways of spending money.
When you start to run your own companies this will tuch you very deeply.
You will see how your employees will ask you for extra money or extra financing.
They will ask you for expensive hotels. Some of them receive money for a hotel and sleep in hostel.
Some of them sleep with family memebers.
The people are saying: Leaders should lead by example. And what happens?
I have always lived in modest conditions.
Competition. The unique mechanism causing a decrease in prices.
There is no other mechanism. There is no other guarantee.
If the society wants to have all prices at a low level, it needs competition.
If there is no competition, like in socialism, prices sky-rocket.
And at a certin point, there is nothing to eat. It means we have a lot of money, but no products to buy.
I remember during socialism, while the price for eggs was free, eggs were available.
When the government said that the eggs are to be sold for not more than a penny, eggs disappeared from the market.
Poland switched to the black market.
Peasants killed all their chickens, because if they had to pay taxes on them it was reasonable to have just enough hens to survive.
North Korean government went further. You can not own chickens. You can not produce anything.
We had some remains of freedom in Poland during socialism.
Because there is no such thing as a totally free market or a totally regulated one.
Theoretically, in North Korea the free market does not exist, yet some semblance of it remains.
In Poland there was more than a semblance: we had small enterprises, free agriculture and some free trade. It wasn't so bad.
But when we read about North Korea, it seems that Communist Russia wasn't very bad either.
If several people offer you the same resource, you can choose the cheapest option.
If several people are producing the same resource as you are, you should be either cheaper or better quality or both.
Only when we have many suppliers and many consumers do we have pure competition
If there are a lot of suppliers and only one consumer, there is no pure competition.
If you have built a car park you are endevour to eliminate all free parking in the area.
This is human nature. We prefer to get rid of competitors rather than to compete.
Only a few of us accept competition. If I produce something I don't want someone else to produce the same product.
So what do I do? I support the government which has introduced certificates, licences, permissions etc.
I think I have had an interesting life.
I was raised in Socialism. Socialism educates very well because of hard conditions. It educates the rats of the first generation (see Calhoun's experiment),
Who are malnourished, but very active, and they know what they want and know how to win.
Then I lived in a period of free market and I made my own observations.
And I saw the real estate agency exposion, which did not exist in Socialism.
Who was a real estate agent?
It was a guy who helped to sell or buy property.
He collected the offers and presented them to potential customers.
In some moment, the real estate agents saw that they can join forces and create associations.
Because I have had my variety of offers, you have had yours. So if we join forces we can propose twice as many.
So it is cool to associate.
And at this moment the deceptions appeared.
The basic mechanism was like this: give me all your offers, but I will only give you my unpopular ones.
So the federations and associations emerged and began to impose their rules.
And what did I see? The presidents of these associations began to reap their profits, not from the sale of real estate but from the fees of other agents.
This is true econmomy.
Now it is worse.
The state has monopolised certificates and licensing.
Again, there is no freedom. You can produce under the condition that the government lets you.
Monopoly is when we have to deal with only one producer or one buyer, which cannot be changed.
Is monopoly bad?
The great artists are monopolists: Leonardo da Vinci, The Beatles, etc.
A monopoly in luxury resources is not a problem.
But in essential resource it is a major problem.
An example of a monopoly is giving the licences only to the chosen few.
Subsidies are also a means of monopoly.
It is common for governments to monopolyse and control some resources and activities.
State monopoly of matches. It no longer exists but it was introduced in Poland 80 years ago.
State monopoly of spirits. The production of 1 litre of spirit costs 50 American cents,
So if we sell it for 10 dollars, there is a profit of 9 dollars 50. And during the communist regime alcohol was far more expensive.
If we are a monopolyst, we can dictate the prices and people are forced to buy at this price. There is no other choice.
Profit is revenue minus expenses.
A Japanese proverb says: to make a profit is like digging a grave with your fingernail.
But sometimes there are golden shots or miracles.
The latter are usually games without rules.
If you read about the great entrepreneurs, those who have come into great money using their own work and inventiveness, they write memoirs explaining how they achieved if.
However, I suspect that most of the Polish, Russian and Ukrainian oligarchs have never written such books.
Please ask the 10 richest Poles what is their recipe for success?
They will not give an answer.
However Bill Gates willingly explains all the details.
He created something, he began to sell it aggressively, ruled out the competition, etc., etc.
We precisely know what his source of income is: Windows.
He invented and gave something to society which we now use and rely on.
When I started my business, I was your age, I worked on a minicomputer which was 2 metres high, 4 metres wide and 5 metres deep.
I asked my mother if she would let me buy such a computer for home. It will fill my room and the keyboard will be in the hallway.
"Mum will you agree? Programming is may passion"
She replied: If you really want it, I will agree... Nevertheless it will take over our house
Nowadays, the computing abilities of my cell phone are many millions times greater than this computer I dreamed of.
Why? Because there was competition. There were such people as Jack Tramiel, Bill Gates and Steve Jobs who competed.
They invented to try to destrou their competitors.
Does anybody know the inventor of the Commodore computer?
No? When I was at your age the Commodore was the elite.
Has anybody heard of Wang computers?
Nobody?
There was a strong competition between Commodore, Atari and others
As a consequence of this competition we now have what we have.
Lots of money can be earned without competition. For example by the detection of oil in your backyard or changing government regulations to your favour.
Imagine you produce fire extinguishers. Your colleague from the government introduces a new law saying that all vehicles must have a fire extinguisher.
This happened in Poland. We have fire extinguishers, they are shit, they won't even put out a candle.
I needed to use them. Once I saw a minivan in flames, one metre high.
There were a lot of drivers who wanted to help. They quickly gave their extinguishers to the two men trying to put the fire out.
We used about 50 of them, they had no effect until a guy brought two large fire extinguishers from the shop nearby.
These small fire extinguishers are useless. It is true but someone made money from them.
The Austrian School of Economics. Those who can predict the future needs of the market usually earn the most.
So says the Austrian School of Economics. Real life says no. It is those who are affiliated with power and sell, for example, strategic raw materials or arms.
Or deal with energy, or receive crucial information before others.
I have invented a lot of new things, with pleasure, I have predicted the market
and in this time of my activity I was successful. I am happy.
And now, seeing how the state is introducing new legislations, I quote the joke
When the state is saying that the legislations will mean that we will soon live in paradise,
I am not afraid because I will not live that long. I am too old for the new legislations to bother me, but you are young enough.
It is up to you to take this knowledge and do something for the benefit of society.
Pursuance is a generalized model of human relationships. Remember this word and study it carefully at http://physicsoflife.pl/dict/pursuance.html
Because any human-to-human relationship is pursuance.
If we have time I will go into more detail.
The intervention of the state in the free market can bring unexpected gains or losses.
Usually, in the long-term, it brings losses.
A rule of thumb for business. Because you are businessmen. This rule has helped me a lot.
Divide the projected profits by two, multiply the anticipated costs by two. Subtract the second from the first
and if the result is positive you can start thinking of business.
If you think that you will gain 100 and the costs are 4, substract 8 from 50.
Jak zaczynałem biznes przeczytałem taką książkę o jakimś blacharzu amerykańskim. When I started my business, I read a book written by an American auto-detailer
I blacharz powiedział, że ojciec mu sprzedał tą regułę i ja tą regułę stosuję do dziś dnia. And this guy said his father gave him this rule, and he used it all his life. I do the same.
If I think I will earn 100 and I estimate the costs as 20, I divide 100 by 2, multiply 20 by 2, and substract 40 from 50.
10 is not much, but probably I will earn something.
I am emphasising this rule because it was very important for me.
Of course, in many cases this rule is not reliable, because the projected costs or profits can be much higher.
It is a rough rule not a computer calculation.
Once again, if you think you will earn 100 by spending 10
Divide 100 by 2 and double 10. Substract 20 from 50. The predicted profit is 30. It means you can do this.
Something needed fixing in my home and the cost is the same as my payment for this lecture, so there is no loss nor benefit.
How to set the price? You produce something so you need to price it. Of course you compare the prices of similar products, etc.
I will distinguish 2 methods of pricing.
And more generally, 2 types of functioning on the market.
Either sell a little for a lot or a lot for little.
The first method is good if you produce something of high quality or uniqueness
I saw that this rule is used in poor countries. When you go to this countries, souvenir sellers are always looking for their "golden-shot"
You say: I want to by this socks. They reply: they cost 2000 but you are my friend so I will sell them to you for 200.
So you reply: I will take them for 20. They start to shout: you are killing me and my family, I will sell for 20.
And so it happens.
And now, as you begin to read economics books, you can learn that the Anglo-Saxons invented the second method and Americans use it all the time.
Sell a lot with a small profit. High sales cause high profits.
If I have 10000 customers and all of them pays me 20 over the cost of production, I earn 20 000.
So it is a good deal to predict the needs of 10000 people.
And the risk is not so big.
My way of business is the former, because we are producing tailored IT systems.
There are tailors who make hand-made suits. I never buy them because I think that it makes no sense.
But people buy my systems because they are what these people need. If I push this button, it should do what I want. If I have a problem, I have someone to the call.
I provide such a service, so I sell less for a higher profit.
In our Polish culture there is a strong desire to use the first method, but I urge all of you to use the second.
This method made the Anglo-Saxons rich and powerful.
Such a business is safer, and drives nations to become efficient and strong.
Note: Nokia was strong, but nowadays Samsung is stronger. They became stronger because of this method. Selling 15 million phones at a one dollar profit per item.
And so they have a profit of 15 million.
And now production and methods of payement.
You can pay people either by their time or their performance.
If you sell tomatoes, the price is according to the quality rather than to the time spent.
In a free market you can earn for your time or for your effort.
Specialising may reduce costs and raise profits.
What are the disadvantages of hiring a worker who is paid a fixed piece rate for each unit produced or action performed?
Look at this issue from both sides: the employer and the employee.
The work may be done to quickly by taking shortcuts.
Splendid! I see that you are an experienced businessman.
- My father is a farmer
Piece work. How does it work?
I want you to tell me how much it will cost to lay the cables - structured cabling for my network IT.
Plus, of course, the electric cables to make my computers safe.
No problem, it will cost you 10000 dollars.
Which cables will you use? UTF 5? OK. And electric cables?
We have to use 0.8 cables, according to the law.
In real life, the guy is laying 0.5 cables instead of 0.8. Because they are in the wall. He earns 2 dollars for each metre.
From the wall I have 0.8 and in the wall I have 0.5. I accept the work because I cannot see. Everything works perfectly for 1 year.
The same for the following year. In the third year, there is a fire.
Because on "piece work" we pay for what we can see.
It is not a best market solution but it is popular.
And when you are paid for time. What are the advantades and disadvantages?
All of us are intelligent. Everybody can explain to their "stupid" boss why they had to spend 100 hours on a task and not 16.
This is simple. You observe people paid hourly and you see how they start to find justification for their long work,
that they need more time to do this, they need an expert to help, they need a longer break and so on.
This is not beneficial for the job being done well or efficiently.
The most beneficial form of payment, according to me, is to be paid by "brand".
So I have something I produce and I know that I will sell a lot of it.
When I sell 600 products with one flaw, I know that 600 customers will come to punch me in the nose.
Not respecting my freedom nor liberty.
Rewarding by "brand" is the best way of production and payment.
And the majority of people will work this way only when there is a free market with many small enterprises,...
In 1991, I landed in Switzerland, I got a job in a small factory. And I started wonder who the president of this country is.
What do they produce here? Statistically, Switzerland is the richest country in the world.
And I don't know who the president is. What do they do here that makes them so rich?
And later I noticed that there are milions of small businesses. In any village, you are either a peasant or a businessman.
Many Swiss people know the subtleties of business. They know that it is hard work, devotion, knowledge and sacrifice
And due to this Switzerland is so rich.
You have to read the book "Target Switzerland". I recommended it to someone on the previous course and he told me:
I have read this book, I thought I knew the history of Switzerland and I am only now beginning to understand it.
Onec I visited my French friend who lived in a village 30 kilometres from Geneva. He bought an old house in the French countryside.
And in this house, his kids found a pile of different wtch parts made 100 years ago by a former owner who produced them on his own.
This guy made these extremely precise, small pieces, only using his own files. Then he would drive to Geneva twice a year and sell them on the open market.
He now recognizes the demand, what is needed in six months.
I was in shock. 100 years ago, a farmer who bred cows, plowed the land and in winter he filed these intricate watch cogs.
The ability for the people living in this region to produce is not because of the climate but because of the free market.
When I, the guy from communist Poland, landed in a French village, I noticed that the average French citizen is 10 times more resourceful than the average Pole.
And, additionally, 10 times more efficient.
When a Pole, under communism, came out in winter, and saw the pavement covered in snow, he complains that there is nobody to clean it.
And in Switzerland everything was cleared up. Because the system forced it.
You earned your money by cleaning my pavement, and I earned my money by producing a watch for you. It is an exchange functionning well.
The system is the most important. We have no system in our country so everything goes in the wrong direction.
Payment and vindication. More economic terms.
We can pay by cash, card or direct debit.
These are the forms of payment one can use
We can pay in advance, immediately or after.
If I want to buy this pen from you, and you say: "I will sell it to you after you give me the money".
This is an advance payment. I have to pay before I receive the goods.
If you give me the pen and say: "You can pay me in 2 weeks" a deferred payment.
If I pay by cash - the form of payment is cash. If I pay by card - the form of payment is card.
But if I pay by card in a shop, the seller receives less money because he has to pay a commission to the bank.
When I saw people paying for a pack of chewing gum by card I consider it ridiculous.
Not only do we have to wait, but also the poor salesman receives less due to commission. It does not pay off.
I heard on the radio that they are going to increase the cash dispenser fees so that there is less cash in circulation.
The commission is not credited to the customer account, only to the seller. If you will pay cash for 10 zlotys bread, he will get 10 zlotys.
In the United States, stores sets net prices and when you pay the full amount you feel the impact of the tax.
I use these examples just to highlight the economic terminology
What is debt collection? It is pressure on the customer to pay.
It turns out that a lot of customers take the goods, get an invoice and not pay.
People who are not producers, who do not sell, do not even think of not letting you pay.
A lot of transactions take place on the principle that the customer will not pay.
And the sellers need to do something about it.
Interestingly, taxes in Poland are not due when the money is paid, but when the receipt or invoice is issued.
This is a coercion of the state.
I have a customer who has not paid all year. What can I do?
It should be like in Switzerland. I paid taxes for a not completely legal business.
The bank paid my tax automatically when I withdrew my money. They gave me the requested money but also took 6% tax from that money.
This is a good and simple method.
The regulations for entrepreneurs in Poland are highly complicated. Ok, let's continue with the economy.
Entrepreneurship. Without entrepreneurship there is no innovation, no progress.
Entrepreneurship can not be coerced. But it is not true.
In the Soviet Union, some scientists and engineers were forced.
Either make this plane fly faster or you will spend some time in Siberia.
The prospect of the heated cell will make you do your best and will make you very innovative.
You can read this in the journals of famous aviators.
In theory, you can not coerce the masses. You can force some constructors, some people.
Russians have never produced luxury goods on a large scale.
When you read the memoirs of people from the Soviet Union who met American troops, they were shocked by the civilization differences.
The difference in possession of resources. What Americans had, and what the Russians or Poles had.
In general, entrepreneurship can not be forced, but if we threaten the loss of life, then man becomes very enterprising.
People should be free to be entrepreneurial.
There is still coaching. You can motivate people to become entrepreneurial.
Let's return to entrepreneurship.
In general, the country becomes rich when the majority think about what to do better, what to do cheaper, more efficiently, etc,
In increasingly complex societies, entrepreneurship is highly desirable.
There is a booklet "I, a pencil", in which it describes how many people are involved in the production of one pencil.
Due to our development, we deal with a range of different experts, some better, others worse.
The more complex the society, the more entrepreneurial people are needed to tackle the problems.
Entrepreneurship is: the information that controls production processes, taking various decisions, taking risks, seeking new solutions.
Taking risks is a challenge. A challenge alien to bureaucrats.
There is a great film titled "Ikiru", by Akiro Kurosawa. He was mainly shooting samurai films, but this is about a government official.
The movie is trying to show what kind of person an official is. In my opinion, anyone who wants to be a state official should watch this movie and pass the test.
The movie begins with a public official looking at the clock, because only the clock is keeping him there.
Risk and innovation. Free entrepreneurs (producers, speculators, artists, inventors) take risks and put effort into:
in the creation of a new product or service that does not yet exist,
the creation of better products than already available, cheaper production methods.
Innovation is needed for all of these.
The risk is that you can make something that nobody wants to buy.
The process of biological evolution proposes good solutions to address the problem of risk and innovation. Start ups also.
What is the link between innovation and biological evolution? You start a business and you start to spread information about it.
For the first customer you sell a computer program, for the second the program is a little bit different, for the third, more so.
It turns out that one of them works the best because another customer requests it.
Therefore, you put all your emphasis on the popular products.
Biological evolution does the same. It gives different configurations, but only the best fit gives life to the next generation.
We have the same principle here. We try different variations, and we develop the bestsellers.
But you always have to have this pool of different products or services that might be required by your customers.
How do we do that? If you are a perfumier, try different scents.
What's going on in scents?
In any airport you can see the duty-free with a multitude of different smells.
How does the producer know that this scent is the best one. By the level of sales.
It is feedback from the free market.
It is a same mechanism found in biological evolution.
Very often people on Asbiro courses ask the same question: how do I learn?
My answer is: motivation is most important. If you are motivated enough, you will learn the rest by yourself.
Another peculiar characteristic of the expansive pioneers is their willingness to improvise and experiment.
Not constrained by tradition, they can apply any available resource for their own purposes.
If one method fails, they try another.
Unrestricted by rules, textbooks or common knowledge, the only way to solve every problem is to practice.
And they analyse the results caused by this given action.
This is a pioneer. This is the rat of the first generation (John Calhoun's experiment). It works like this.
Rules, regulations and compulsions. They are needed because they are the rules of the game and the state should guarantee they are followed.
Notice that maintaining a free market requires everyone to accept it, accept it as a rule, and defend it.
Because the majority do not want to defend the free market, the true free market does not exist.
People do not want a free market. As famous Polish journalist Mr. Ziemkiewicz said, the free market is only needed by young people who want to become rich.
I need it too, because I like to compete.
And is definitely rejected by civil servants.
If a state economist is paid by the state and receives money to go to conferences,
where he meets other state economists, who are also paid by the state, this guy will never say that printing money by the state is wrong.
He will say that it is a fantastic idea, that it makes the economy flourish. Because of that he eats fine dining and stays in 5 star hotels.
The state should guarantee the rules of the game, not to be a player who can change the rules to their own benefit.
Professor Kik from Kielce, an economist, once said this on television. But he only said it once and does not say it anymore.
The state can not be a producer, it can not be a player. The state should only be the judge,
who settles disputes and imposes the rules of the game which are equally applicable to everyone.
The state is not an abstract concept, it is a group of people in power with their colleagues.
Their philosophy is: if I control the energy, I will earn a lot of money as a monopolist.
It is like this.
They don't want to compete, they want to fully control the market.
Economic crises are caused by governments that break the rules. But the people of power maintain
that crises are like weather phenomena.
Have you ever heard on the radio or on television that a crisis was caused by the government?
No. "We have a crisis and it is a situation similar to a thunderstorm". The government claims that the crises are natural, they come and go as rain does.
After all, this is all human action. The crisis does not come out of nowhere.
People dependent on the government or vulnerable to propoganda accept it.
If I was a stste official, I would like that the government prints money to pay may salary.
Or because the state subsidises what I like to do.
Or am I foolish enough to believe what they say on television?
There are systems that provide economic development and systems that lead to economic collapse.
Rules and constraints are elements of these systems.
Rules and constraints, if applied properly, cause economic development.
If applied improperly it causes economic collapse.
Everything depends on whether the rules and constraints are good or not.
If we have a lot of freedom then people try to dominate each other. Eventually the most radical groups win.
The most radical means those who can manipulate or do in others in the best way.
Those who can mercilessly kill.
When such people kill all their opponents, they start to impose rules that ban killing.
Because now they are in power, and they don't want to be killed.
Therefore they are trying to keep the masses subjugated.
Traffic regulations can be set to facilitate the flow of cars or to increase the revenue from fuel sales.
I am traveling in different countries and I have the feeling that the Polish government appreciates the money from fuel taxes,
And in doing so, the government ensures that I am constantly stopping and starting. Because when I do, I use the most fuel.
The Polish government is not interested in the steady flow of vehicles.
It is of no interest to the state.
One of your older colleagues is selling photovoltaic panels, transforming sunlight into energy.
He said to me: "You hang up one panel at home, but you do not consume all this energy, so you can sell it to the state.
And the state will pay for it. It seems very profitable from the point of view of the society.
But those who already monopolise the energy fight against it,
because it means competition to them. We already talked about this. People don't like competition.
As we built our parking lot we want to remove all the free parking spaces around it.
Taxes. Are taxes good or bad?
This is a question that affects us all.
Free-market economists argue that taxes are bad.
I am saying "Misappropriation of taxes is bad".
In theory, taxes are the means to ensure that all players follow the same rules of the game.
In theory. We pay taxes for the army, the police.
Because they protect us.
That's the theory. What's the practice?
In practice those who produce pay the taxes, and bureaucrats multiply and grow fat.
In practice it is veiled theft and looting.
Jaroslaw Romanchuk's study showed that when taxes are in the range of 20-25%, and are spent exclusively on common capital,
such as education, basic health care, police, military and justice, it causes the greatest economic growth in the countries.
He studied it as follows. He took the most developed countries, surveyed these periods, and studied the taxes paid at that time.
And if they were spent wisely.
It is known that there are criminals so the police are needed. It is known that the army is needed, and it is known that medical care and education are also needed.
If there is education the people are wiser.
If 25% of my earnings is taken for this, I can tolerate it.
This is a real story: I earned a lot of money, so I build a home.
I had a spatial development project: single family housing, but then someone got permission to build a block of flats.
And just behind my fence a skyscraper appeared.
You laugh, but a friend of mine has this situation. There is a four-storey block behind his fence and all the butts from the balconies land on his property.
He is bloody angry because he was put in this situation by a state official. So I am asking myself why I should work hard and earn money.
In such a manner, all my initiative and entrepreneurship is extinguished.
If I do not have two houses, then the Polish state will have fewer houses to tax.
People who would make repairs, electricity, maintenance of these homes, will not have an occupation.
The country will not develop.
Only the right system pushes the economy.
Income tax and VAT.
During the communist regime we had an income tax. It meant that if you earned 1000 you should pay 5% as tax.
It worked like this: If I bought goods from you, you paid 5% of the money you received from me.
If I the sold these goods then I would pay 5% from what I received.
Consequently, this chain was broken because this tax cumulated, and people could not pay
To avoid this, after the political transformation, VAT was adopted from Anglo-Saxon countries.
VAT - Value Added Tax.
Here is a drawing: so we have a customer, we have me and we have a manufacturer.
I bought something from the manufacturer and sold it to the customer.
The manufacturer produced something for 100, added 23% tax to it, and sold it for 123.
I sold it to the customer for 246.
My income is 200-100. This is net income.
My income is 200-100 and I multiply it by 0.18. This is my income tax.
I did exactly the same with VAT. I got 46 from him. I already paid 23 to the manufacturer, so I have to pay 23 to the state.
In my opinion, this is a fair and transparent tax.
But look at what the state is doing? It says that if I bought the fuel, I can not deduct the VAT I paid from the VAT I have to pay. They changed the rules...
And it no longer becomes transparent, easy to calculate, etc, etc.
The rules in Poland are very complicated. Schwarzeneger said: simple laws, as in the United States, are not found anywhere in Europe.
He wrote it 40 years ago. But I think America has really simple laws.
The law in Switzerland was simple too. I went to the bank and wanted to set up a company account. I did not know that it was necessary to register a company somewhere.
A woman asked me if I already have a company statute. I replied that I would do it later. "Can I?" She replied: "Yes, you can".
I set up an account and started doing business and paid taxes on this principle:
the bank automatically transferred my 6% tax when I withdraw money.
She also told me that up to 400000 Swiss Francs, I do not need bookkeeping.
Shock. Up to a million Polish zlotys I do not need accounting books because all income passes through the bank.
For a certain group of people this is a great solution.
So remember, that with taxes and coercion everything is not easy.
Life is not simple. Life is a game. Life is interaction. Because of this there are no simple rules which explain everything.
Some of you asked how to hire people. Do you think that I will give you the golden rule how to hire people and
according to this rule you will employ the best people on the market.
There is no such thing. You have to learn it yourself. You have to feel people. You have to understand people's behaviour. People change.
Today, the one who comes in the tie is a jerk, and the one who comes badly dressed is cool and swell. And tomorrow may be the opposite.
You judge people depending on how they dress. This is not the way. How should you judge? You have to discover your own method. How to do this. Become a Pioneer.
You have to be proactive and find out the results. I cannot give you YOUR experience!
Remember, there are no golden rules when people interact.
So what can I tell you?
How to learn, how to discover other people's patterns to succeed.
I will not tell you what to do to become an Olympic champion.
If you do not train, if you do not know the theory of training, the theory of nutrition, your own psychology, biochemistry and physiology,
you will never become an Olympic champion.
There are no set rules, only patterns.
One basic mistake that many do is to perceive the state as a group of people who want your goods.
All the time they inform you that they want your goods, but, as the matter of fact, they only care about their own private businesses.
Reality is a side product of the interactions between different groups with different, contradictory, goals.
And in these interactions there is, among other things, the Natural Pressure for Social Exploitation, which I talked about recently,
Do you rememebr the guy who did nothing earned a lot, and the guy who worked twice as much, lost.
The state employee does not think in global terms. You think globally, because you're interested, and because you are motivated.
Because generally, people in society prefer to watch television, football matches and drink beer,
They want to go to the mine, get 5000 salary for their work and then sit in the garden.
And there are few people in society who think a little bit more broadly.
When I met the candidate for governor of Hawaii he just said:
"Don't think the average person thinks in global terms. He thinks in terms of his salary."
And if a politician says they will increase the minimum wage, people do not think that 15% of people will lose their jobs just so your salary will increase by 3%.
.Practical economics. No one teaches it.
How to borrow and not return?
How to convince everyone that printing money by the government is good for everyone?
How to make money out of nothing? Banks know how to do it.
How to scare people into buying my product?
I sometimes get spam claiming that if I do not purchase special training I will lose my business.
Only we can explain the rules to you require.
How to force people into buying my product?
How to buy and not pay? etc. etc.
When you talk to entrepreneurs you feel that most of them are dishonest.
The main skill of people who run a business on the free market is to recognize the other side.
Is it worthwhile to enter this business at all?
I have a director in my company who is struggling for a big contract. And another says: You think it will be big money, and I think it will be big trouble.
This is a guy who has been working with me for 20 years. And it never happened that his earnings went below what he wanted.
This is a guy who understands very well the other side. In my company, he teaches client psychology.
This is a practical economy. This is how it looks in practice and you have to be aware of it.
Free-market economists: Carl Menger, Ludwig von Mises, Friedrich Hayek, Hans Meyer, Murray Rothbard of the Austrian School of Economics.
Milton Friedman is from the Chicago School of Economics, but for us there is no difference.
On the other side we have John Maynard Keynes and what he said about Lenin. When I learned it, it shocked me.
We can use his quote when arguing with Communists.
Keynes on Lenin: Surely Lenin was right when he said:
The best way to destroy the capitalist system is to debauch the currency.
By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.
By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some.
This process engages all invisible economic forces on the side of destruction and does so in such a way that,
few can give the real reasons for this.
Lenin said that, and Keynes admitted he was right.
If you know this quote, in every discussion you can say: You are a Communist, a socialist, and you think that people should receive. What did you give?
The socialist says: You should give it, not me. So you ask: What did you give, because I have already given to charity.
These are arguments are strong because the socialists only demand from others, not from themselves. Hypocrisy.
Remember this, because this is the last slide.
We produce or steal resources to reduce our needs.
The resource you create has value for you.
Resource values are different for different people.
The more we have, the smaller we value it.
We specialize in production / stealing to have more resources for exchange and possession.
We have as much as we can accumulate and defend.
Remember that. You can hoard, to accumulate money in the form of gold at home,
But you can lose it, because you have to be able to defend it.
How we operate depends on the system in which we operate.
And this is also an argument in any discussion with socialists.
Just remember, one of the quotes said that socialist promises are more attractive than competing in the free market.
On the free-market exchange, both sides profit because for what I value less I receive what I value more.
Free market forces economic development.
A system based on free market principles is highly vulnerable to destruction. This is the nonlinear phenomenon I mentioned.
Free market is not stable. Effort is needed to maintain it.
On the other hand, the pursuit of socialism is highly stable. Many societies are yearning for socialism.
Rome fell because they were debauching coins and giving food for free. It was socialism.
A wise guy, John Glubb, wrote: "The fate of empires."
The first phase is the age of pioneers, people learn from their own mistakes.
Then there is the phase of economic development. Prosperity phase, phase of intellect. Decadence phase.
And then decline.
The first phase is the best because everybody wants something and are willing to work for it. These people are fighting, winning and losing, and they learn by practicing.
Thank you for your attention.
Enjoy more of our videos.
Asbiro. An alternative school of business.
Recommended links: http://physicsoflife.pl/, http://www.pafere.org/
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