My family is fortunate to be supplied all summer with a wide variety of fresh fruits and vegetables by a farm not far from our home. The produce is picked fresh each morning, and compared to what is available in a supermarket, the quality is off the charts.
A few days ago marked the first day Chris had corn for sale at his farm stand, and that event always brings the crowds. As my wife was purchasing our produce, she overheard a conversation. A buyer was complaining to Chris about his higher corn price this summer. Chris explained that he had purchased new equipment that allowed him to plant earlier in the season. The higher price, he explained, was how he would recoup his expense.
While Chris is an excellent farmer, businessman, and entrepreneur, he is not much of an economist. Or perhaps he is an armchair economist too and just doesn’t let on. After all, the explanation that he gave his customer for his higher corn price is a lot more palatable than the explanation I’m about to give.
Due to increased demand for ethanol, corn prices are up over the past year. Corn prices are up in the supermarket too. Although Chris’s corn is a premium product, the supermarket acts as competition. Regardless of Chris’s expense, if corn prices were not higher in the supermarket, he would have trouble selling his corn for a higher price at his farm stand.
Now, for Chris to tell a customer that he is going to charge what the market will bear will not go over well with some. Many will believe that the price is unfair. After all, they will reason, Chris is not selling his corn for ethanol, so why should he get a higher price?
While I think ethanol is a terrible idea (and I will explain why in another blog post), I for one am glad that Chris charges what the market will bear. It provides him a powerful incentive to plant his crops in early spring, take risks, and work in miserable weather. There are other farms stands in our area, but none have but a fraction of the produce Chris has.
There is a fundamental law of exchange in the free-market—that law is that both parties in an exchange are made better off. I value Chris’s produce more than the money I give him, and Chris values my money more than he does his produce. In that fundamental law of exchange, we find a basis for the cooperation and harmony of interests that exists between Chris and my family.
Having known Chris for many summers, I know he works very hard and although he likes his work, he also likes money. That combination is unbeatable. It works well for Chris and for his consumers too.