Monday, November 7, 2011

Market Forces force inequality

A lot of us agree that market forces should be allowed to shape the economy.

A lot of us also agree that marketing is the main function of any business.

We are unanimously in agreement that marketing is driven by perceptions. Perceptions lead people to pay a certain price for a certain product.

Effectively what we are saying is perceptions drive economy.

So if I perceive a certain product to be worth Rs1000 and its total cost (till the time of delivery to the customer and inclusive of post-purchase maintenance cost born by the company) is only Rs150, I am unknowingly ready to accord a profit of Rs850 to the company. There might be other companies offering the same at Rs250 but we might just not buy, believing or disbelieving whatever we have in mind.

Clearly, market forces do not favor equality or equal distribution of income.

If perceptions are what drive an economy, economics will always fall short - way way short - of giving any satisfactory explanation, forget any semblance of an accurate explanation, of the economy. And inequality in wealth distribution will always be a feature of the market-driven economics.