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Source link: http://archive.mises.org/12681/thank-goodness-for-capitalism/

Thank Goodness for Capitalism

May 11, 2010 by

There are thousands of people around the world wishing to live in the average American household, where bread is just a fraction of one’s income instead of the day’s main objective. What is it about the First World that allows its citizens such luxury? FULL ARTICLE by Jonathan M. Finegold Catalan

{ 16 comments }

greg May 11, 2010 at 12:46 pm

Finally, someone got off the money supply issues and got to the heart of our growing economy and standard of living – PRODUCTIVITY. It is productivity that is the great inflation equalizer for wealth is measured by the number of loaves of bread you can buy with the amount of money you earn in one hour.

Thank you for this article.

ABR May 11, 2010 at 1:27 pm

The US isn’t ‘first world’. It’ ‘new world’.

Nelson May 11, 2010 at 5:01 pm

This article is good, but it doesn’t address farm subsidies when talking about food being a small portion of income (which is the first response a pro-government viewpoint will come up with… might as well dispel that notion in the article itself).

Jonathan Finegold Catalán May 11, 2010 at 5:39 pm

Nelson,

The point of the piece is to underscore the relationship between capital accumulation, investment, production and wealth. It’s not to highlight how cheap food is. I could have used anything else as an example (and I did); when my television breaks I go out and buy a new one. I don’t think the average Sudanese enjoys this luxury.

There are a wide variety of specific and technical arguments that anybody can make. The fact that food is subsidized is the least of them. Clearly, the idea wasn’t to address each and every counter-argument, only offer the true reason why we are so wealthy as compared to most of the rest of the world.

J. Murray May 12, 2010 at 10:54 am

It’s not the price itself that matters, but the fact that the price was driven down there naturally. Sure, a socialist nation can set the price low, but what is the ultimate effect? My father regularly goes on business to Venezuela. He told me about a radio announcement from Chavez that bragged that socialism is better than capitalism because beef in Venezuela is $2/lb cheaper than in America. Of course, he failed to mention that no one is willing to raise cattle at that price and no one can find safe beef to eat. My father’s business pretty much has to shell out $100 for a burger to guarantee that it’s real beef (there is an expense of the hotel he stays in, it needs 24/7 armed security to keep criminals out).

The same thing happened with Venezuela’s coffee industry. Chavez set the price down to next to nothing, the coffee industry started losing money and Venezuelans were importing their morning Joe. Chavez then nationalized the whole thing, banned imports, and now coffee is impossible to find. But when you do, it sure is affordable.

Juraj May 11, 2010 at 6:00 pm

In fact, it is only thanks to the market and voluntary exchange that some of us enjoy the ability to waste bread while worrying about those who don’t.

Wonderful quote.

fatelephant May 11, 2010 at 6:37 pm

Can you comment on the Scandinavian countries and how they manage to do well with much more of a socialistic bend?

Jonathan Finegold Catalán May 11, 2010 at 6:56 pm

Fateelephant,

I suggest the following two articles: “The Sweden Myth” by Stefan Karlsson and “The Scandinavian-Welfare Myth Revisited” by Markus Bergstrom.

mpolzkill May 11, 2010 at 7:02 pm

Those are good articles, and btw, the U.S. is the biggest socialist experiment in the history of the world (hoping for a whimper, not a bang during the inevitable). You think Swedish gangsters give their car companies cherry deals like GM parasites get from Obama and W?

Jasonofcompsci May 11, 2010 at 11:43 pm

We need a thumbs up like facebook.

fatelephant May 13, 2010 at 2:11 pm

Yeah, human nature first making the conclusions, then selectively seeing the argument it wants to and ignoring the rest?

Jasonofcompsci May 11, 2010 at 11:34 pm

This one had some fuzzy math in it but its alright. It’s a good rally for being thankful for capitalism. Still, I thought the way of the Austrian was exact-ism. This article is just pro capitalism, fine and well. Well I can go onto many websites and find pro capitalist material forged on the idea of capitalism is good. But most people interested in Austrian economics rather have the nitty gritty proof of the capitalisms value or costs with unfeigned exactness.There are many points made in this article that are untrue that anyone with economic education would point out. Double the productivity means half the cost? Lets be Austrians. Lets be exact. Lets point out that some of the standard of living in this country is just plain fake. Lets point out the supply and demand are not specific numbers and when they are simplified to such they are measured as quantity and if one of them is cost then it is supply. If the worker is earning more, then the cost of supply increases above the simple half off. This adds up to: individual purchasing power is approximately total goods / people. The article claims (worker earns more in physical dollars) + (goods are half as costly in dollars), worker gets more than the real value. Cost is in the goods for the workers increased wages. Since when are nearly any goods completely elastic? It did not adjust for cost of the capital, or for the fact that in very few situation can variable cost be halved by an increase in capital. If twice as much is being produced then cost of goods sold is increasing as well, about double, keeping price nearly the exact same. Often due to the increasing marginal cost of production some firms experience, variable cost goes up with volume of production instead. This is called economies of scale. Market volume does not have a proportional relationship to cost, nor even monotonic, meaning that often double market volume can equate to more cost.

Jonathan Finegold Catalán May 12, 2010 at 12:08 am

I think you’re making too much of the math. If quantity demanded for a specific good remains the same and supply was to double, then the result is a halving of the price. The example in the article is not meant to be exact, because a rigorous mathematical exposition of how the price system works would be boring and tangential to the actual point (that it is production which causes an increase in wealth).

By the way, the notion that the cost of production directly influences price is expressly rejected by the Austrians. While I do disagree with Rothbard when he suggests that costs of production does not influence the final cost of the consumer-goods, because costs of production will influence supply, it’s clear that a doubling in the costs of production will not lead to a doubling in the cost of the good. I should also mention that in the example it is not assumed that the worker’s wage rises nominally. The argument is that real wages rise, as in the purchasing power of the same nominal wage increases.

Let’s not get ahead of ourselves, and let’s focus on the point the article intends to make.

NOMNOMNOM May 12, 2010 at 2:47 pm

Econ 101. In perfect competition, P = MC. Make it imperfect and P > MC. Make it a monopoly and P = AR.

matt May 12, 2010 at 2:15 pm

consider using an example other than routine, callous waste to demonstrate the benefits of capitalism. unless you intend to promote waste as capitalism’s goal.

Jonathan Finegold Catalán May 12, 2010 at 2:26 pm

As opposed to promoting waste, the piece suggests that it is capitalism what has allowed us to afford waste.

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