One of the most common ideas about the behavior of a perfectly structured market is that it would provide higher rewards for people who work harder. In the end, this is how it should work, this is the fair way to distribute income - rewarding effort, punishing idleness. Or should it?
The most important, if not the only, purpose of markets is delivering goods and services by facilitating cooperation between market players and providing information, mainly through prices, that is helpful in making decisions regarding proper modes of production. But what about incentives to keep people motivated enough so that they make just another effort to listen to a concerned customer, call the supplier for an updated price list or finish this dull report on time? They just are not there, at least not directly, and the ones that are present tend to give preference to people who actually work less.
In reality markets offer greater rewards for delivering the same result with less resources (or delivering more with the same amount of resources). If Bob’s Automobiles Inc. produces 1000 cars using the same amount of marketing, R&D and production capacities as Pete’s Specific Motors Corporation when producing 1500 cars positioned in the same market segment, the later firm will be more profitable. Its revenues will be higher and prospects for expansion will look better. This is true not only for companies but also for individuals. If Andy and Randy offer similar services (let’s say, business consulting) for comparable prices and Andy spends, on average, twice as much time and other resources providing them, it is Randy who’s margins will be bigger and who will have more time to pursue other activities like taking his family to the theater or developing his business to strengthen his advantage over Andy even more. In effect, all other things being equal, the less one works, the more rewarded one is. Which allows us to conclude that if one could deliver quality service or goods without even blinking one’s eye, the bonus for doing so would be even greater.
This is not, however, the whole picture as hard works is what ultimately makes success more probable. And this is how every extra drop of sweat that transforms into a well performing venture or project pays off. Markets contain no automatic process of transforming effort into money but, at the same time, real success is heavily dependent on how much energy one contributes to attain more wealth, fame or simply happiness and self-fulfillment. The only reservation is that no two efforts are created equal and one cannot expect that one’s struggle will turn into riches only because it has been made. Competitors can still be more efficient and one can be left with nothing after years of sacrifice. Thus the ultimate result of taking part in this strange social machinery called markets is that rewards are transfered to those who not only work hard (it is necessary most of the time but does not guarantee anything) but also deliver something of value to others.
Sounds fair, doesn’t it?