Economic concepts and economic systems matter. We are individually better off when we slow down and begin to recognize the subtle signals of the economic structure and learn what they are telling us. A signal from the pricing system reveals to us dependable information that will help us make better decisions. Signals tell the producers what the consumer thinks something is worth. Signals tell me where to go to get the best deal. There is always a healthy friction of discontent between the producer who thinks he is receiving too little for the gallon of milk he produced and the mom who just knows the price is too high. That’s good.
While traveling around the world, I am intrigued as I observe various economic signals. I have seen with my own eyes that if you raise the cost of doing something, people will do less of it. There is no behavior that is not affected by cost. Higher income, for example, becomes one of the greatest controllers of the birth rate. When people become richer they have fewer babies (one of the cardinal factors of the occurrence of genocide in Rwanda—the Hutus were outbirthing the wealthier Tutsis nine to one).
But there is another set of signals that I have been trying to process lately. There seems to be a direct and positive correlation between cost and value. Something that comes to you without cost will more than likely be regarded as having little or no value to you. You assign a higher value to something if it has cost you something. Studies have shown that a college student who has earned the money for his or her tuition will do better than the student who is on a free ride. A bike that is earned is treated better than a freebie.
An interesting thing happened to me in the early days of Project C.U.R.E. People who were preparing to travel to a foreign country and desired to take some donated medical goods with them to present to a foreign hospital or clinic or medical group needing clinical supplies for their mission would come to our warehouse and ask us to furnish them with the goods. We began to assemble boxes of about $1,500 worth of donated medical goods and just let them walk out the door with our blessing. Later, however, I discovered that should those well-intentioned people run into difficulties getting those boxes on the airplane as luggage, or should they encounter aggressive border or customs people upon entrance into the country, they would simply turn their backs and walk away from the donated goods, saying, “Oh, well, they were free to us, and when we need more we can go back to Dr. Jackson, and Project C.U.R.E. will always give us more.”
When I learned what was happening, I started charging a fee of $100 for the $1,500 worth of donated goods. That simple personal investment changed everything. From that date forward, we never lost a box. And now, even when we donate a huge ocean-going cargo container of medical goods valued at close to half a million dollars, we require the recipient country or sponsoring group to pay the cost of shipping and handling of the container as their buy-in requirement. That guarantees that the recipients will be at the customs building to protect their investment and see to it that the container is received by the hospital or clinic.
In my mental processing of this positive correlation between cost and value, I have come to this conclusion: as a rule of thumb, you can determine the true value to you of something by deciding how much of your personal life you would be willing to exchange for that object or service—because there is no behavior that is not affected by cost.