Back To Economic Basics

My blog is about 2½ years old now, and I’ve had well over 30,000 views. Articles automatically also get posted onto my Facebook page, where a larger number of my friends see them; most of the comments show up on my Facebook page.

While I still write posts myself, the lion’s share are re-posts from friends around the world who write well on the issues which are important to me (hey, it’s my blog). Many times, I fall into the trap of forgetting that many (most?) readers have zero training (and less understanding) of the subjects I blog about.

Because so many people (Americans and not) have no real clue about the good that is Capitalism and the benefits that they each person enjoys because of Capitalism, I’d like to go over a few basics. So, this is for the good people out there who say things like, “He can afford it,” and “He’s just greedy and only worrying about making a profit.”

At the most basic level, consider a single person (or family) living on an island. He has to provide the food, shelter, clothing, and everything else he needs. He has only 24 hours in a day and must make the necessary tradeoffs to eke out his living.

After some time, he finds that he is not alone on the island. At length, they decide to cooperate – he’s better at some tasks, while his neighbor is better at others. They ‘agree’ to concentrate on what each does better, and trade for what the other produces. This is called ‘Comparative Advantage’ and ‘Division of Labor.’

So long as they both come out better, they both participate. Over time, they discover other neighbors living on the island, each possessing abilities and preferences different from the others. Voluntary cooperation and trade allows each person to be better off (much better off) than if he had to produce everything he needed and wanted all by himself.

Nobody says who should do what, but the community prospers under this system which, by the way, is basic Capitalism.

At some point, a carpenter finds that everybody wants the tables and chairs that he makes, and he can’t supply everybody. He finds a neighbor’s child who knows nothing, but is willing to learn. The carpenter takes him on to train and to work for him, and offers in exchange some of the food he has traded for.

The child is happy, the carpenter is happy, and all the ‘customers’ are happy. Everyone is better off than he would have been.

Somebody comes up with an idea for a new furniture making tool, and the carpenter buys a bunch of these tools. Output goes up, and the carpenter has more things than he can use. He likes a design that someone made for a new product – a dresser. He ‘hires’ another person in the community to train and to work for him.

His first employee has proven that he can follow directions, that he can show up for work on time (clocks?), and that his skill has grown to the point that he can work unsupervised. He and the carpenter agree on an increase in ‘payment’ for his services.

Everybody is happy, nobody has been forced to do anything he doesn’t want to do, and the community is thriving.

One child in the community is sickly compared to all the others and grows up less able to do much of anything productive. The family of the child provides as best they can from what they ‘earn’ and they get some voluntary aid from other neighbors. The now rich carpenter may give zero or he may be giving twice as much to the family in need, but all recognize that that’s his choice.

Another child in the community is not as industrious as others, and though he gets by with little effort, he is noticeably less well off than others in the community. Some people help him, but most don’t.

So far we have examined only the carpenter and a few children, but things haven’t stood still for everyone else. Many things are invented. The useful stuff gets traded widely and the inventor gets rewarded for his time and efforts. He likely will invent again.

The stuff that nobody wants rewards the creator negatively! His wasted time and energies make him less well off, and he must work harder just to get back to even. He may never gain enough leisure time to try inventing again.

Trade may soar to the point that wagons are created, and serviceable trails or roads may be laid down. Many useful skills may have been identified, and somebody opens a ‘for profit’ school. The community may have grown in population and ‘wealth’ to support much greater specialization, including doctors, architects, and engineers.

Some specialties are in greater demand than others, while the skills needed for that specialty are difficult or time-consuming to master. People in those fields will gain wealth greater and faster than others, and rather than harming any neighbor to gain that wealth, they became wealthy by providing goods or services that others wanted but would not have had otherwise.

At some point, a wealthy person might recognize that the carpenter could expand greatly if he had more Capital. So, the wealthy person lends to or buys into the carpenter’s business. A new building goes up, new tools are created and bought, new products are designed and brought to market, more people are hired, and a whole new level of wealth is created for the carpenter and his wealthy business partner. Everyone in the community benefits, and all are happy.

Capitalism has turned what would have been a rude existence for all these people (if they had continued each to produce everything they needed for themselves) into a much, much higher standard of living for all.

But as we said, things haven’t stood still in the community. A medium of exchange has been created, and the unscrupulous controllers of the money decide to steal from the community by debasing the money. They print and print more and more paper money and then blame the shopkeepers as prices rise. They track the price increases and then lie about the data they have collected.

A government has been created through force, levying taxes to pay for things that otherwise would not have been created by the free to choose community. They decide on a Minimum Wage, and many people can’t find that first job they need to build their resumes.

They decide on a minimum existence level for all, and use the taxes extracted by force to distribute the booty among the less well able to work, the lazy, and those who can’t get a job because of the effects of the Minimum Wage. Work effort is reduced, and the community suffers as less is produced.

This situation, while nominally remaining Capitalism, through the rules and handouts and taxes and mischievous tinkering with the otherwise voluntary functioning of the Economy, has turned into what is better called Socialism (also known as Fascism, Communism, Welfare Statism, Progressivism, Crony Capitalism, Keynesianism, etc).

Socialism tears down what Capitalism has built. Worst of all, for Socialism to flourish, the people must be mis-taught that becoming wealthy is evil,  that wealthy people are evil, that trying to improve your lot by hard work is stupid and evil, and that envy is the order of the day.

But, just as Hate and Envy are taught, we must teach that hard work, ingenuity, innovation, risk-taking, and success are good. Un-teaching Hate ad Envy are not so easy, so be patient.

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