The adage “no pain, no gain” is broadly true with two main exceptions. One is that some people put in the pain but because of misguided effort (which is only evident ex post, not ex ante) or being simply unlucky, end up with no gain. The other being that some people put in little effort but with sheer good luck or cunning criminality end up with big gains. Unsuccessful entrepreneurs who are uncountably many belong in the first category, and politicians and gangsters (but I repeat myself) belong to the second.
A different formulation of the adage is perhaps more in accord with reality: no expectations of gain, no investment in pain. If people cannot be confident that they’d be secure in their property rights — that they would not be dispossessed of what they have worked hard for — they’d have little incentive to put in the effort to create wealth. Continue reading “Fixed Costs”