Sunday, September 21, 2008

The 4 Ways to Spend Money by Milton Friedman


 
In his book Free to Choose, Milton Friedman described four ways to spend money.

1. You spend your own money on yourself - You shop in a supermarket, for example. You clearly have a strong incentive both to economize and to get as much value as you can for each dollar you do spend.

2. You spend your own money on someone else - You shop for Christmas or birthday presents. You have the same incentive to economize as in the first case but not the same incentive to get full value for your money, at least as judged by the tastes of the recipient. You will, of course, want to get something the recipient will like—provided that it also makes the right impression and does not take too much time and effort. (If, indeed, your main objective were to enable the recipient to get as much value as possible per dollar, you would give him cash

3. You spend someone else's money on yourself - lunching on an expense account, for instance. You have no strong incentive to keep down the cost of the lunch, but you do have a strong incentive to get your money's worth.

4. You spend someone else's money on someone else - You are paying for someone else's lunch out of an expense account. You have little incentive either to economize or to try to get your guest the lunch that he will value most highly. However, if you are having lunch with him, so that the lunch is a mixture of case 3 and case 4, you do have a strong incentive to satisfy your own tastes at the sacrifice of his, if necessary.

All welfare programs fall into either case 3—for example, Social Security which involves cash payments that the recipient is free to spend as he may wish; or case 4—for example, public housing; except that even case 4 programs share one feature of case 3, namely, that the bureaucrats administering the program partake of the lunch; and all case 3 programs have bureaucrats among their recipients.

   
Video Sharing Sites  
 

7 comments:

Ross Mann said...

Hey Drew,

Great post. I am liking this blog I will have to start reading it regularly.

Ross.

Unknown said...

i am glad to see your blog. thanks for sharing this valuable resources. keep it up. you can also earn money from here

http://hutmoney.blogspot.com

Unknown said...

Holiday leisure time you want to have sustained income?
Free market does not require expertise of a computer is you all
Welcome to about 49 countries around the
http://sn.im/vemma_usa

I wish you your heart happy! ~

StarIndia Equity Tips said...

This is a great answer but is it enough to make money online.


Stock Cash Tips
MCX Market Tips

abhishek said...

This valuable information is very useful. Thanks for sharing your knowledge with us.


Bullions & Energy

abhishek said...

I have read your articles many times and I am always inspired by your tips and knowledge. Thank you for sharing.

Moneyplant Research

Unknown said...

A cost report is a structure used to follow business spending. It is most normally finished by workers to organize uses for which they are mentioning repayment. Receipts are regularly appended to the structure if the connected use sums surpass a specific least sum. The business analyzes the entries for exactness and legitimacy, and pays workers the mentioned sums. The business would then be able to record the repaid sums as an operational expense, which factors into the measure of bookkeeping benefit and available benefit perceived.expenseondemand