The Wealth of the People:

The Wealth of the Market

An Inquiry into the Relationship between 
Wealth, Freedom, and Life


By
Fernando Urias

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SMASHWORDS EDITION

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PUBLISHED BY:

Fernando Urias on Smashwords

Copyright © 2011 by Fernando Urias

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Disclaimer
This book is designed to provide information and entertainment. It is published with the understanding that the publisher and author are not engaged in rendering legal, economic, accounting, political, financial, or any other type of professional service. If legal or other expert assistance is required, the services of a competent professional should be sought.
It is not the purpose of this book to reprint all the information that is otherwise available to authors and publishers but instead to complement, amplify, and supplement other texts. You are urged to read all the available material and learn as much as possible about economics and human organizations and tailor the information to your individual needs.
Every effort has been made to make this book as complete and as accurate as possible. However, there may be mistakes, both typographical and in content. Therefore, this text should be used only as a general guide and not as the ultimate source on economic or social organizations. Furthermore, this manual contains information on economics and social sciences that is current only up to the publishing date.
The purpose of this book is to educate and entertain. The author and publisher shall have neither liability nor responsibility to any person or entity with respect to any loss or damage caused, or alleged to have been caused, directly or indirectly, by the information contained in this book. 

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The Wealth of the People:
The Wealth of the Market

An Inquiry into the Relationship between
 Wealth, Freedom, and Life

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Introduction
This is the third book of the "Wealth of the People" series. The series is an inquiry about the requirements for the production of wealth in a society.
The first book looked at the economics of one person alone in an island and concluded that to produce wealth you have to work using your capital structure. The time and intelligence invested in your capital structure determines the income that you can make. Your capital structure is made up of the physical tools that you make, which is called physical capital and the knowledge and skills that you have for the construction and use of these tools, which is called human capital.
The second book looked at the requirements for the wealth production process to continue when a neighbor appears in the island. An agreement to respect life and property emerges as a requirement for the wealth production process to continue and becomes a factor of production. This and other agreements that are necessary for the production of wealth are factors of production and can be grouped under the concept of social capital. Your capital structure in this way is composed of physical, human, and social capital. Social capital is identified as a prerequisite for the existence of physical capital. Your capital structure, including its social components, determines the amount of the income that you can make with your work.
This is the third book. It is about the wealth of the market. It assumes that there is sufficient social capital in a society to allow the existence of a market. The removal of this assumption will be discussed later in other books of the series. The economic conclusion of this book is that a free market has many advantages that contribute to the wealth production processes making it very advantageous for all individuals to participate.
This book assumes that you have read the first and second books. If you have not done so, please go to smashwords.com and obtain the first two books.
A full list of the "Wealth of the People" titles can be found at the end of this book.
 
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The Wealth of the People:
The Wealth of the Market

An Inquiry into the Relationship between
Wealth, Freedom, and Life

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The Market
The advantages that you and your neighbor found respecting each other’s life and property and engaging in trade are multiplied many times in a market where many people can buy and sell. With many buyers, you might be able to sell as many turkeys as you can hunt. Your investment in the bow and arrows can be fully utilized and you can increase your income many times.

The Emergence of Money
When you were alone in the island, your time was your money. You would convert your time into products by working in the production processes of those products. With your neighbor, you could exchange a product of value that you produced for a product of value that he produced. This is called barter. For the market, a common media of exchange emerges naturally because it is difficult to find a coincidence of wants. It is difficult to find a person that will have the product that you want and at the same time that person will want the product that you have. 
This common media of exchange that facilitates trade is called "money". Any product that has demand in the market could be used as money but the market will prefer a product that is not perishable, that is portable, that is divisible, and that has a constant value. Instead of asking the buyers of your turkeys to give you a product that you want in exchange for your turkeys, you would be willing to exchange the turkeys for another product that would be accepted by everybody. You could later exchange this other product for the things that you really need. 
Let's say that to build an extra room in your shelter you would need several hundred bundles of palm leaves that can be tied up side by side to form the walls and the roof of your shelter. Let's say that it takes one hour to build one bundle. If everybody in the market wants to build an extra room to their shelters, the bundles of palm leaves would be widely accepted. These bundles could be used as a common media of exchange. This common acceptance and their non-perishability make the bundles a good currency but their weight does not. Instead of carrying the bundles around to make transactions, assume that there is enough trust in the market such that everybody will accepts a piece of paper stating the number of bundles that you have available. The trust would be based on everybody abiding by the rule that all these paper notes are backed by a one hundred percent existence of the bundles. This would the start of paper money. The paper stating the amount of bundles that you have could be used as a common media of exchange and it would not be heavy.

Your Income in the Market
 With a market, instead of being limited to produce only two turkeys per day when you were hunting for you and your neighbor, you could work the whole day hunting turkeys with the expectation of selling them all. Before the bow and arrow investment, when you were taking two hours to hunt a turkey, you would have been hunting five turkeys per day and selling them for two bundles each. You would be making an income of ten bundles. This is the same income that you would make if you would spend the ten hours making bundles.
After the bow and arrow investment, when you were able to bring down the hunting time to half an hour, you could make a profit of one and a half bundles in every turkey that you could hunt and sell. You could work ten hours a day, hunt twenty turkeys, sell them for two bundles each, and make an income of forty bundles per day. This is would be a four hundred percent increase in your income thanks to the investment in the bow and arrows and the existence of a market that will take your entire product.

The Specialization of Labor
In your relationship with your neighbor, it was advantageous for you to become the hunter and for your neighbor to become the vegetable gatherer. In the market the effect is more profound because there are enough buyers to allow you to become a full time turkey hunter. Once you are dedicated to this profession, you would become a better turkey hunter because you would go up in a learning curve of the skills required. This improvement in your hunting skills would be a specialization that would increase your human capital.

The Specialization of your Physical Assets
If you were able to hunt and sell twenty turkeys every day, you would invest in the tools necessary for the best hunting process. You might be able to increase the product of a ten hour working day to twenty five or more turkeys by improving your tools. You would be looking for the possibility of gaining greater profits by making your physical assets better for your process. This would make your tools specialized for this process.

The Specialization of your Capital Structure
In addition to the improvements of your human capital and your physical capital, you would be going to the market to establish contacts with the turkey distributors. You would be increasing your social capital. Your whole capital structure will be specialized to make turkey hunting the most efficient possible.

The Market Specialization Principle of Wealth Production
The market provides the trading ground for the individual capital structure of the individuals participating to be specialized and be efficient.

The Utilization of the Specialized Capital Structure
 As a full time turkey hunter, you would be motivated to hunt as many turkeys as you could. You would use your physical tools to the utmost. To sell one turkey to your neighbor you might have used your bow and arrows an hour per day. With a market, you would use them for the entire working day. You would be giving your capital physical assets the most use that you can give them.
You would also be utilizing your specialized labor and your human capital to the full extent of your working day. The human capital of your hunting knowledge and skill combined with your labor would be fully utilized.
Working a full day to get the maximum quantity of product that you could get would maximize your revenue and would be the most profitable course of action for you. You would try to hunt all the turkeys that you could in a working day with the expectation of selling them all.

The Market High Capital Utilization Principle of Wealth Production
The market provides the buyers necessary for the individual capital structure of the people participating to be operating at a high utilization.

The Conversion of Profits into Buyer Savings
After an investment, the improved wealth production process yields profits that were not there before. When you were hunting a turkey in two hours with a spear, the price of a turkey in the market would be close to two bundles. After the investment in the bow and arrow you would be able to hunt a turkey in half an hour. You would enjoy one and a half bundles of profit for each turkey sold. If you work ten hours to hunt twenty turkeys and sell them for forty bundles, you could say that you made ten bundles of labor wages and thirty bundles of profit. 
You would like to keep this profit but the market might not buy all your turkeys at the two bundle price. You might have to reduce the price to one bundle per turkey. With this reduction in price, you would be passing part of your profits to the turkey buyers as buyer savings. If you sell twenty turkeys for a bundle instead of two bundles each, each turkey buyer would save one bundle. Your profit would be reduced from one bundle and a half to half a bundle per turkey. Your total profit would be reduced from thirty bundles to ten bundles.
Your motivation as a turkey supplier would be to maximize your income. You would hunt the highest quantity possible of turkeys at the lowest cost possible to maximize your income and your profit. This will motivate you to sell as many turkeys as you can even if the price of the turkeys has to be reduced.
At the price of one bundle per turkey, your income would drop to twenty bundles, much less than the forty bundles at the old price but still one hundred percent of the income you could make making bundles. The income for each one of the twenty turkey buyers would go up one bundle each. If they are working ten hours per day making bundles, the savings in the purchase of a turkey represents a ten percent increase in the income of the buyers.

The Market Profit Passing Principle of Wealth Production 
The higher productivity of the specialized and highly utilized wealth production processes in a market makes it the self-interest of the producer to pass the profits to the buyers as savings in order to sell the higher quantity of product produced.

Competition
When the turkey hunters that are hunting using spears see you using a bow and arrows and making four hundred percent more income, they will invest in a bow and arrows. If you did not drop the price to one bundle to sell all your turkeys, you will have to drop it when all the suppliers come to the market with twenty turkeys each. The price of one turkey for two bundles will not last long. Even at the price to one bundle per turkey, other people will see that turkey suppliers are making one hundred percent more of the bundle income rate and will want to invest in the bow and arrows.
When the supply increases due to this competition for market share, the price will drop. It might go low enough to approach half a bundle. At this price, all the suppliers that invested in the bow and arrows will survive. All the suppliers that did not invest in the bow and arrow will not be able to sustain the losses and will have to abandon the business. The investment in the bow and arrows is not optional once one of the suppliers has done it. In the process of this competition, most of the profits in the market will be passed to the buyers as savings. 
In a free market is very difficult to maintain high profits if you are not constantly innovating and guessing right about what the customers will want because any high profit product or process can be copied soon by the competition.
In the market, it is not the strongest or the smartest that survives. It is the supplier that is able to provide the product or service that the customers want with the least amount of resources. The market in this way rewards the ability to serve, hard work, investment in better processes, and frugality.

Competition from another Industry
While you and your competitors are getting bow and arrows to improve the process of hunting turkeys, a farmer that grows grain might find out how to domesticate turkeys and feed them with grain. If this process can produce turkeys for less than half a bundle, it might be the end of the turkey hunting business. The same farmer might grow chickens using the same process and might find out that pound per pound, chickens are less expensive than turkeys. Customers in the market might prefer the inexpensive chickens instead of expensive turkeys. Competition for the turkey hunters can come from other industries or from another product. The buyer is constantly evaluating the set of products that gives him the highest value for his budget.

The Competition Principle of Wealth Production
Competition in the market makes the suppliers invest in the best process possible or risk being left out of the market. In the effort to sell the higher quantity of product resulting from the more productive processes, suppliers will drop the prices of the product to a level close to the new lower cost having the effect of passing most of the profits as savings to the buyers.

Unemployment due to Competition and Specialization
When you were alone in the island you did not have enough time to produce all the products that you wanted to consume. Your time was one of the resources that limited your production capability. You would decide between activities depending on the products that you would want and could afford. You would drop the production of any product and pick the production of another one without thinking that it was wrong to drop the product that you did not want. You would be constantly deciding how to use your limited time budget and you would never be unemployed.
In the market, a decrease in the demand for a product or the lowering of price by a supplier with a better process will cause that some of the people that are specialized in the production of this product to be unemployed. The people in this business will have to work in another production activity. One of the causes of this unemployment is competition and the specialization of labor.
In a sports tournament there are many teams that play by fair rules that are agreed by everybody. Competition in the tournament results in the best effort from all the teams to achieve the best performance. Nobody would suggest a change in the rules because one of the teams finished in last place. It is understood that this is part of process for all the teams to do their best. In the market, the production teams compete to win the business of their customers. The winning teams are able to makes sales and stay in the market. Any team that stays behind because it did not invest in the best processes will lose the business or will incur losses. The team that falls behind or stays static will eventually have to disassemble causing temporary unemployment to its members. This is a necessary readjustment to ensure that all persons in the market are working using the best wealth production processes.
In the market, persons experiencing a lowering of income or a loss of job because somebody is offering the same product or an alternative at a lower price have to examine their business and industry situation and decide the proper course of action. They might have to make investments, change companies, or change industry. It is painful to lose your job and having to look for another but unemployment in the market is the equivalent in the island to dropping an activity that you decided to drop.
Competition forces all the suppliers to use the best wealth production processes. When a supplier offers a better product produced with a better process, it will set the standard. All the other businesses have to meet or exceed the standard if they want to stay the market.

The Meaning of Losses
 If you sell turkeys for one bundle each and this becomes the new price in the market, the suppliers that are still producing at a cost of two bundles will be selling at a loss. Their revenue will be cut in half. They would still be producing five turkeys in a ten hour working day and instead of selling them for two bundles each for a total of ten bundles, they would have to sell them for five bundles. They will be better off abandoning the turkey hunting business and make ten bundles per day in the bundle making business. If they stay in the hunting business, they would be producing turkeys at a loss because a competitor found a better process. The losses are a signal that a competitor has found a better process that has to be equaled or surpassed or that the market does not want the product.

The Competition and Specialization Unemployment Principle of Wealth Production
The market has the unwanted result that competition and the specialization of the capital structure can cause unemployment when there are readjustments in the supply or demand of the products in the market due to buyers' preference changes or the capital structure of the suppliers. This is an unwanted result the stems from the necessary fair rules of the market for all suppliers to use the best wealth production process.

Unemployment due to Other Causes
There are other causes that result in unemployment. They will be discussed as they come up. Some of them are: the lack of social capital in a nation, a state of war or violence, monetary disturbances, wrong fiscal policies, and minimum wage laws.

The Definition of Quality
When you were working alone in the island, the quality of the products that you would produce would be determined by you. You would be your own customer. When you started trading with your neighbor, the quality of the products that you would trade would have to be determined by both. You would determine the quality of the products that you would buy and your neighbor would determine the quality of the products that he would buy from you. Both would have to agree on the barter exchange. In the market, the quality of the products is part of the competitive offerings of the different suppliers and it is determined by the best supplier. Buyers decide what they want to buy from the options offered in the market. They will pick the best combination of price and quality offered by the best supplier. The market will get used to and expect the best option and it will become the standard to enter the market.

The Market Quality Principle of Wealth Production
The market improves the quality of all the products by making the best supplier set the standard in the market.

The Difference between Labor, Capital, Profit, Sales, and Purchase Income
When you were hunting a turkey with a spear in two hours, you might not have thought that there was any income attributable to the spear. In comparing the spear hunting process to the bow and arrows hunting process, we assumed that the hunting time dropped from two hours to half an hour. Therefore, we could attribute the one and a half hour of savings to the bow and arrows investment. This income could be called capital income since it is due to a capital investment. Once the investment is made, it will be difficult to remember that the savings came from the investment because the hour and a half saved will be used in the production of another product.
 When you exchanged one turkey for a pound of vegetables with your neighbor, you gained half an hour in the sale. This income could be called sales or profit income. It will also be difficult to remember later that this half hour came from the sales transaction because the time saved will be used in another activity and it will not be remembered as being attributable to the sales transaction. 
In the same transaction your neighbor saves one hour of time by acquiring one turkey. These are purchase savings that could be called purchase income. The time saved will be used to work on something else and it will not be remembered that it came from the purchase transaction.
For you and your neighbor, there is no difference between these income gains. They are all income. They all came from working with an improved capital structure. The savings that come from the capitalization of the wealth production processes is split into components as the products move through the market as labor income, profit, sales income, or buyer savings. The total of all these incomes is equal to the savings gained in the better wealth production process that was possible with the original investment. The structure of the market, and as we will see later, the laws of the state will determine how this income is distributed.

The Increases in Income
With every capital investment, the productivity of your time increases and yields a greater quantity of product in the same time worked. An hour of labor hunting with the bow and arrows is of higher productivity than an hour of labor using a spear. The yield of turkey product in one hour with the bow and arrows would be two turkeys and with the spear only half a turkey. 
Before making the water pouch investment mentioned in the first book, a ten hour working day might have been spent in two hours drinking water, two hours hunting a turkey, one hour collecting a pound of vegetables and the remaining five hours could be used to build palm leave bundles, yielding five bundles in the five hours. With these processes, you would think that it costs two bundles to satisfy your thirst, that a turkey would exchange for two bundles and that a pound of vegetables would exchange for one bundle. 
After the investment in the water pouch, you would have an extra hour to build one more bundle for a total of six bundles. This would increase your income to eleven bundles. When you invest in the bow and arrows, your income per day would go up one and a half hours to twelve and a half bundles for the day. When you trade on one turkey for one pound of vegetables with your neighbor your income would go up to thirteen bundles per day. When you become a full time turkey hunter selling twenty turkeys at the market for two bundles each, your income would go up to forty bundles per day. At this income, you would not build any bundles anymore because you could build the extra room in your shelter four times faster by hunting turkeys than by making bundles.

The Increase in the Wage Rate
Another way to look at this improvement in income is to look at the productivity of your time reflected in the average wage rate. After the investment in the water pouch, one bundle would increase its purchasing power from two pints to four pints of water. The purchasing power increases again with the investment in the bow and arrows that increases from half a turkey per hour to two turkeys in per hour. 
When you become a full time turkey hunter, if you are able to sell twenty turkeys for forty bundles, your wage rate would be four bundles per hour. When you reduce the price of the turkeys to one bundle each, your wage rate would drop from four bundles to two bundles per hour but the wage rate of the people that are buying the turkeys will increase even if they do not make any investments. If the buyers of the turkeys are earning ten bundles per day, the savings of one bundle in the purchase of one turkey represents an increase of ten percent on their income from ten bundles to eleven bundles or an average increase in their wage rate from 1.0 to 1.1 bundles per hour. 
The larger capital structure of a society is the reason that a person without skills can make a higher wage rate in the society that has the larger capital structure than in the society that has a smaller capital structure. 

The Market Increasing Wage Principle of Wealth Production
The market provides the trading ground where the capital investment of a market supplier increases his average wage and the average wage rate of the people with whom he trades.

The Supply Curve
The supply curve is a line in a graph that has the price of a product in the vertical axis and the quantity in the horizontal axis. On the left side of the graph, suppliers will provide a low quantity of product at low prices. The suppliers will be willing to supply a higher quantity of product as the price increases because the high prices give high revenue and profits. This is illustrated with a line that slopes upwards to the right. The response of the suppliers to supply a higher quantity of product at the higher prices is because the higher profits of their operations that result from the higher prices. Suppliers will expand their operations and invest in the industries that have the greatest revenue and profit giving an increased supply.

The Supply Curve Effect on Investment
The high profit of an industry will entice more investment into that industry. A business that has a very high profit will attract investment until the profit drops. The investment in an industry would be high at high profits and it would decline as the supply increases, the prices drop, the profit drops. Investment would stop at a profit level that would be equal to any other in the market. 

The Supply Curve Effect on Prices
As the investment increases in the wealth production process of a product, the supply increases and the price will drop. This has the effect passing the profits as savings to the buyers.

The Supply Curve Principle of Wealth Production
The high profit or prices of a wealth production process attract investment to the effect that the supply will increase, the prices of the products will drop, and the profit of the industry will drop until most of the profits of the investment are passed as savings to the buyers.

The Demand Curve
The demand is built in the same graph as the supply curve. On the left side of the graph, at high prices, the quantity demanded will be small. As we move to the right, a quantity will increase with declining prices. This is would be illustrated with a curve that would slope downwards to the right.
 At the price of two bundles each, a number of buyers have already accepted this price as a price that they can afford in their budget. If the price drops to one bundle, moving to the right of the curve, a greater number of people will add a turkey to their budget and the quantity demanded will be greater.

The Supply Curve Effect on the Demand Curve
The supply curve effect on investment is to increase the supply of the product and lower the prices. This will cause an increase demand for the product because more people can afford the product.

The Supply to Demand Principle of Wealth Production
The profit seeking efforts of the suppliers will result in an increase of the supply that ultimately will lower prices and increase the quantity demanded.

The Market Equilibrium
The two effects above are pushing to meet at a common point of equilibrium. The supply curves goes upward to the right and the demand curve starts high and goes downward to the right so that both curves together make an X. The point where the supply and demand curves intersect is the point where the market clears. At high prices and high profits the supply will increase making the prices drop. The drop in prices increases the quantity demanded making the product more affordable. Both processes stop when the price is such that the high profits have disappeared and most of the profits are being passed to the buyers.
At a given price, the market will clear a number of turkeys. The adjustment to clear the market occurs from the supply side. If the turkey suppliers have excess inventories, they will sell at a loss if necessary and reduce production. If there is excess demand, the price will go up and the suppliers will increase production. These adjustments will maintain a temporary equilibrium point that is marked by the crossing of the X.
With investments, the temporary equilibrium point will move to lower prices and higher quantities. The temporary equilibrium point is slowly moving to the right and downward as products become less expensive to produce. Every new discovery in an industry forces all the suppliers to adopt the best process possible and moves the price/quantity intersection to a new temporary equilibrium point that is lower in cost, reflecting the advantages of the new investment.
The suppliers will respond to the profit and will invest only until the profit percentage is equal to the profit percentage that can be obtained in any other industry. The passing of profit as savings to the buyers is the mechanism that brings the equilibrium point between supply and demand. It is when the profit is approaching an average profit that would prevail in the market that investment will stop.
In the market, with the existence of competitors, this process is accelerated because all competitors are constantly making investments to capture profit and market share. These and other investments will cause a reshuffling of the supply, the demand of products, and the relative costs, in a continuous improvement of the purchasing power of the work hour.
If you stand still, the market will move past and you will not be a part of it. The market is a place where you have to work and improve your capital structure constantly to be able to stay with it.

The Continuous Investment Principle of Wealth Production
A market will be in a continuous path of investment that reduces costs and prices driven by the motivations of the suppliers trying to capture profit and market share.

The Establishment of Shopping Stores
In order to sell your turkeys, you would have to go to the town to advertise that you have turkeys to sell. You could walk through the streets shouting that you have turkeys to sell. This is called peddling. Peddling is nonexistent in advanced nations but it is still a way of business in countries in development. If you hunt turkeys, instead of peddling the next day, it is more efficient to set up a store that can be attended by a person dedicated to sell while you are hunting. The store would pay for a person to receive goods from the people that bring them from the hunting areas and wait until the buyers come in.
The store and its keeper are maintained by the differential in price between the purchase price of the goods to the suppliers and the selling price to the people.
The store brings great savings in time for suppliers and buyers. Instead of all of the suppliers looking for all of the buyers, a supplier can sell the stock to a store owner that has a known address. The store becomes a known place where all the buyers can go. If twenty suppliers had to look for twenty buyers, the market would need four hundred contacts. With the shop, the number of contacts is reduced to forty. There would be twenty contacts necessary for the suppliers with the store owner and twenty more for the customers with the store.
The store also serves as a buffer stock that is available for purchase. This stock eliminates waiting time between suppliers and buyers because all of them can attend to the store at their convenience and there will be product available.
The store also simplifies the process of appointments. It has an established address where the interested parties can go and during business hours. The suppliers and buyers can talk to the store owner that is available eliminating the need for appointments between buyers and sellers.
The store has savings in transportation costs because there is a single point of sale. Each buyer contacting each supplier would take four hundred trips while the existence of the store reduces the trips to only forty.

The Service Store
Anybody that wants to provide a service can establish a store where customers know where to find him. Barbers, doctors, beauticians, restaurants, teachers, tailors, and anybody that has a service to offer can become full time professionals by lending their specialty services in a market that has a large number of people. The market provides the volume necessary for the specialization of the services.
When you were alone in the island, you had to cut your own hair, cure your wounds, and cook your meals. In the market, a person can cut hair all day long every day and gain a skill that is very difficult for a person to achieve when his own hair is cut only once per month.

The Market Location Principle of Wealth Production
The market provides stores that are efficient locations for buyers and sellers to meet without having to search all for all and without having to have direct appointments.

The Manufacturing Site
The large volume of a market allows the existence of a manufacturing site where labor, raw material, physical capital, and human capital are combined to produce in a mass production process.
One consideration for the location of the manufacturing site would be the proximity of the markets but inexpensive transportation and the different wage rates in different countries due to their different capital structures makes the wage rate an important factor. If there is enough social capital in a country with low wages such that a manufacturing plant will not be expropriated, a company might be willing to take the physical capital of a plant to that country to make products for the higher wage rate countries.
Manufacturing is one of the fastest ways that the income of the country can be increased since the companies that establish a manufacturing plant bring with them the physical and human capital necessary to produce wealth at a higher rate than the country can produce.

Mass Production
Through mass production, it becomes very inexpensive to produce continuously in one place to supply several markets. As the quantity of products that are to be produced increases, more efficient production processes increases can be used. To produce five hundred widgets per day a producer can use the production process to produce one widget five hundred times, fifty widgets ten times, or he can design a production process that is the most efficient at five hundred widgets per day.

The Division of Labor
Inside the manufacturing shop, the division of labor makes the wealth production process very efficient. Mass manufacturing is many times more productive than artisan manufacturing. An example is mentioned by Adam Smith in the Wealth of Nations where he describes the high efficiency by which a few people, with some tools and arranged in a way where they specialized in their tasks, are able to produce thousands of times the pins that the same number of people separated would be capable. Once you are in a mass production, there are great efficiencies that come from the division of labor. 
The possibility of having division of labor comes as a result of the existence of a market that demands high quantities of product. Once you have the demand for mass production, a business enterprise can be formed where the production process can be made more productive with the division of labor.

The Division of Labor Principle of Wealth Production
The market provides the demand of great quantities of product that allow wealth production processes that are very inexpensive due mass production and the division of labor.

The Availability of Human Capital in the Market
The market has a congregation of brain power that you alone cannot equal in the island. While you are working in the island thinking how to make turkey hunting and other processes better, the market has thousands of people doing the same in other processes that will make life easier for you. This will result in many investments made that will benefit you when you go to the market to make a purchase.

The Transfer of Human Capital
Another way to benefit from the market is that any producer can copy any other producer’s wealth production methods upon the realization that it is a lower cost or better process. Competition makes this transfer of human capital mandatory to the benefit of the buyers.
In the market, the transfer of human capital is institutionalized and it becomes a necessity and a service. There is a great value to teach a person the knowledge that is already available and this service becomes very important. The need for this service requires the use of schools, universities, trade schools, and corporate training.

The Market Transfer of Human Capital Principle of Wealth Production
By participating in the market, participants can benefit from the human capital available by copying from each other and through learning institutions without having to develop each wealth production process.

The Power of the Consumer
The consumer has the power to decide if the price of a product or service is right and if it fits in his budget. Competition between several suppliers gives options to the consumer where he can tell the range of prices for a product or service. The consumer has the power in each individual purchasing decision. 
The condition for the consumer to exercise this power is to work for the market first offering a product or service of value. The consumer gets paid for his work and then he can exercise his buying power. Once the consumer has worked and earned an amount of the medium of exchange or money, he can exercise the power to decide which product to buy. 

The Market Consumer Power Principle of Wealth Production
Every consumer in the market, after working to earn an income, has the power to spend this income in the way that he needs or wants it. 

The Income of the Market
The average income of a market is a function of its capital structure. The market will produce higher income for the people in a market that has the physical, human, and social capital that allows production in an effective and efficient way. 
The most obvious capital available in a market is the physical capital but the most determinant capital for the income of a nation is its social capital. Social capital is a prerequisite for the formation of physical capital. The absence of social capital is the main reason that a nation would have low income. The income of the participants of the market with social capital will be higher as compared to a market where people are fighting, stealing, or taxing each other. 
Another component of the wealth production equation is that people have to work to produce wealth. The average income in the market will also be higher when the percentage of people dedicated to value added wealth production activities is higher instead of being checking, regulating, or harassing each other. 

The Market Principle of Wealth Production
To be able to continue in the path of increasing wealth, a free market has to exist to give its advantages to its participants. These advantages include the use of money, the specialization of labor, competition, the conversion of profits into buyer savings, mass production, the division of labor, and the transfer of human capital. The market provides a trading ground where the improvements on the capital structure of any individual improves the income of that individual and the individuals trading with him.

The Wealth of the Market
In society, the amount of income that you can make is dependent on your work and your personal capital structure but it is also dependent on the capital structure of the society to which you belong. The society to which you belong has a market that gives many more options to increase your wealth. The market in the society that you belong is part of your capital structure giving you many opportunities to increase your wealth.

The Freedom of the Market
The freedom of the people in a market is increased many times. Stopping at a red light is a very small price to pay for driving an automobile. If you would compare the situation of having no automobile and not having to stop at a red light with the situation of a person in a developed market that has an automobile but has to stop at a red light, you might agree that having an automobile is a higher level of freedom.
The requirement to work is not a requirement from the market. It is a requirement from nature. In the island alone, you would have to work very hard to reach a low level of wealth barely above poverty. The market makes work easier and more productive, improving the chances that you will achieve wealth.

The Life of the Market
The life of a person is increased in the market by the efficiencies brought by all the products that are offered at lower costs due to the investments in all the industries. Every increase in income, every saving in time, increases the availability of your time and hence, the life that you can expect.
The market also offers added life in a more literal way. The market offers medical attention and other services that are life extending. 

Conclusion
The market is a necessary institution for the wealth production process to continue. The options for a single individual are expanded in a market that makes many more wealth production processes possible. From the individual point of view, the market becomes part of the individual’s capital structure that opens these possibilities.

End of Book Three

Final Notes on Book Three

Dear Reader,

If you have any comments, suggestions, or corrections regarding this book, please send me an email to uriasf@aol.com and I will review them before the next edition.
If you have read this book, liked what you have read, and would like to contribute to this author, please go to smashwords.com and purchase a copy of my book titled "The Automatic Time Management System". The author will get a high percentage of your contribution according to Smashwords policies and you will get a time management book that will help you improve your business life as well as your personal life.
While you are doing this, download a free copy of my e-book titled: “My Low Carbohydrate Story, Diet Book, Cookbook and Shopping List". It will tell you what I have learned about nutrition. You might find something interesting that will change your eating habits.

Fernando Urias
uriasf@aol.com

The “Wealth of the People” Book Series
The task of explaining the causes of the wealth of the people in a society is a long and complex subject for a single e-book. To facilitate the explanation and the delivery of the material, an e-book will be published in each set of topics. 
The following are the planned titles of the book series:

Your Wealth
The first book looks at the time savings gained by a single person increasing his physical and mind assets in an island.

The Wealth of Your Neighbor
The second book is about the agreements that two people have to make to be in a path to increase their respective wealth.

The Wealth of the Market
The third book explains the opportunities offered by a free market to produce wealth for the people that participate in it. This book explains the wealth production results when there is a market that brings the competitive advantage of every individual to the table.

The Wealth of the Business Enterprise
The fourth book is about the function of the business enterprise to produce wealth for its customers, its owners, and its employees.

The Wealth of the State
The fifth book discusses what happens when we remove the assumption that everybody is going to behave correctly. The book explores the historical formation of the state and the implications for the production of wealth.

The Wealth of Social Capital
The sixth book is the core of the series. Social Capital is defined as the ability of a society to learn and agree on the rules that are necessary for the production of wealth. This is the key for the wealth of the people in society. This is the ingredient that is a prerequisite for physical and human capital formation and is the ingredient missing in many countries that are not able to achieve wealth. 

The Wealth of Physical Capital
The seventh book is about the wealth of the physical capital that humanity has today. It should make you grateful that you live in this age and not five hundred or five thousand years ago.

The Wealth of Human Capital
The eighth book is about the wealth of the human capital that humanity has today. A great deal of the human capital available is taken for granted and it is wasted so it will be good to review it.

The Wealth of a Nation
The ninth book takes us to Adam Smith's Wealth of Nations. A nation is an entity that comprises a geographical area with a legal setting. It is governed by a state that is the keeper of the social contract. The state maintains the rules of a nation’s social capital and thus determines the capital structure of the nation and its citizens and in this way the state determines the income of its citizens.

The Wealth of the Planet Earth
The tenth book is about our planet. It introduces the concept of Natural Capital. What we think as natural resources is actually the capitalization of life that has been happening for millions of years. Unfortunately, many of the actions that we do in the pursuit of wealth production reduce the planet’s natural capital. If the planet was treated as a capital asset, it would be maintained correctly and it would not be consumed risking a drop of the whole world to a lower income level.

The Wealth of the Human Spirit
The eleventh book will be an inquiry about what of all these economic principles might mean in the spiritual world.

End of the Series