Ah, Valentine's Day.

I have to say, I have a somewhat conflicted relationship with it.

On one hand, I'm both a romantic and an optimist, and that makes me predisposed to anything that reminds us of the better things in life, and the power of love.

On the other hand, it reminds me of the power of marketing; the holy day of an ancient saint is now a huge money spinner for the makers of cards, chocolate and roses!

(And Happy Singles Awareness Day Eve, for those who celebrate!)

But overall? Well, given everything else we spend money on, and all of the other marketing we're subjected to, I'm not sure a day put aside to celebrate love is so bad.

With my finance hat on, though, it's also a fascinating economic phenomenon.

Long before Uber had 'surge pricing', we had price spikes for roses on February 14, each year.

(Woebetide is the person who suggests celebrating Valentine's Day on a different day to save a few bob on the flowers. Some things just shouldn't be attempted in the quest for financial efficiency!)

Yes, today is the most expensive day to buy roses. And the 'why' gives us a nice look inside one of the – if not the –  most fundamental underpinnings of economics: supply and demand.

See, supply chains are long, complex things. Not only the physical logistics of moving products from raw input supplier to manufacturer, to retailer to customer, but the estimating, planning and production schedules that are required to assess and meet that demand.

Now think about that in the context of a product that has one of the shortest 'lives' in modern commerce: cut flowers.

You need the right blooms in the right place at the right time. And on the right day. Exactly the right day. There is no margin for error, either in meeting the size of the Valentine's Day demand, or the planning needed to ensure that each red rose is grown and flowering at precisely the right moment.

Baked beans have no real 'Use By' date. Salt lasts forever. But not so, flowers.

And that comparison is a useful starting point. If you're in the baked bean business, you can afford to buy the beans, sauce, tins and labels in bulk, and whenever they're cheapest. You can can them in March and sell them in December. Or February. Or June.

That means you can buy the beans when there's excess supply, hopefully getting a good price – or entering into contracts with growers for the same outcome.

You can produce the baked beans in large volumes, in very efficient factory 'runs', store them, and sell them over time.

Which is a large part of the reason that packaged, processed food is often cheaper than the fresh stuff – the cost of harvesting is the same, but after that, it's far cheaper to quickly process the produce into canned goods in a single location and then store it until needed, than to throw out the 'abnormal' specimens, keep the 'good' ones cold and fresh, transport them to different parts of the country, maintain their freshness in-store, then deal with the cost of spoiled food that never gets sold.

Roses aren't processed foods. And this isn't a smooth supply chain. Sure, people buy flowers all year, and that gives the growers some stability. But everything peaks on Valentine's Day.

Imagine a car factory. You run the plant 24/7, and produce, say, 100 cars a week. 

But you know that on a given day, car demand was going to spike to 300 cars.

Now, you can't make 300 cars in a day, but you don't have to – you simply make a few more each week, and stockpile them for that day.

The same happens, by the way, for things like canned tuna and canned soup – they have seasonal spikes in sales, and producers start to 'build stock' well in advance.

But roses?

You can't stockpile roses for months. 

So you need to have additional capacity – capacity that might remain unused through the rest of the year – to meet the demand.

It's this required additional capacity – space in the field, additional workers, processing facilities etc. – that costs money. And because you can't spread those costs over a year, you need to get a return on Valentine's Day to cover your costs.

And of course that extra return comes from higher prices.

The good news is that the existence of these higher prices also acts as an incentive for others to increase their own supply, or for new producers to enter the market.

It won't be enough to stop prices rising – these new producers have the same 'once-a-year' issues as existing growers – but it helps keep prices from rising too far.

And that, in a nutshell, is healthy capitalism.

Yes, this particular c-word gets lots of grief these days. Some – I'll suggest those who don't quite understand it as well as they might – see 'capitalists' as greedy robber-barons who are just looking to screw over consumers, suppliers and workers.

True, those people exist.

But they're the ugly underbelly of capitalism, not capitalism itself.

Capitalism is about the efficient distribution of scarce resources, to meet our wants and needs.

It's not perfect, and good regulation is required to prevent its excesses, but as a whole it's a very good system.

Or, if you prefer: democratic capitalism is, as Winston Churchill once described democracy: the worst system except for anything else that's been tried.

In our example, the interaction of supply and demand sends price signals to the market. And suppliers respond, accordingly.

I'm going to go back to Uber's surge pricing to illustrate.

At 1am on a Saturday morning, the pubs and clubs start to empty. But most drivers are home in bed. They don't really want to be up at 1am, ferrying people home in various states of intoxication.

So there's an excess of demand. Without variable pricing, that demand would go unmet, and people would face a long walk home (or the prospect of waking up in the morning in someone's garden!)

But supply and demand tells us that if those with unmet demand are willing to pay a little more, producers are likely to have sufficient incentive to increase their output.

Or, in our Uber example, a higher fare will entice more drivers out into the night.

But if the fare is too high, the demand will drop away, of course, and those drivers will go back to bed, without a fare.

In other words, pricing fluctuates to best meet the combination of supply and demand that exists.

Too cheap, and there aren't enough drivers. The drivers value sleep more than the revenue from the fare.

Too expensive, and there won't be enough riders – they'll choose to walk, crash with a mate or, yes, crash in your rosebushes.

The result is, as economists like to say, an efficient allocation of resources.

You mightn't like the idea of paying a 'surge' fare, but it's that very fare that means you're far more likely to get an Uber at all.

Now, back to flowers: the higher prices for roses means there are enough roses to go around. Otherwise, there'd be a shortage, and no-one wants that… especially of red roses on Valentine's Day!

Who said supply and demand wasn't romantic?

Don't get me wrong: capitalism doesn't always work. And it never works perfectly. There are rough edges and too often a lack of quality competition. There is information asymmetry (they know more than we do), and it doesn't sufficiently capture 'externalities' – things like pollution that doesn't have a 'price', even though it carries a real, societal, cost.

In those circumstances, we need strong, thoughtful and clever legislation and regulation to – as efficiently as possible – deal with the market's shortcomings.

But overall? Capitalism means our scarce resources are allocated as efficiently as possible. It means charging more when demand is high and supply is limited, but it also means prices fall when there's a surplus of product that needs to be shifted (think: 7pm at your local supermarket for bread and milk getting close to its 'use by' date).

By all means, rail against examples of the corruption or misuse of the system.

The current structure of the NDIS is one example of where an artificial market was supposed to drive efficiencies but has ended up being gamed in myriad ways. We absolutely need to care for those with disability, but a three-sided (government, provider, recipient) 'market' was always, and remains, a terrible structure for that service provision.

It's the exceptions that prove the rule, though.

Capitalism means we don't have breadlines. That suppliers are incentivised to produce through the movement of prices, and consumers can make choices, based on the relative prices of the goods they want, and the alternatives available.

Just don't suggest to your significant other that you should celebrate Valentine's Day next week. Sleeping on the couch is one 'externality' that isn't worth trying to price.

Happy Valentine's Day!

Fool on!