Adam Smith.
The Wealth of Nations,
published as a five-book series, sought to reveal the nature and cause of a
nation’s prosperity. Smith saw the main cause of prosperity as increasing
division of labor. Using the famous example of pins, Smith asserted that ten
workers could produce 48,000 pins per day if each of eighteen specialized tasks
was assigned to particular workers. Average productivity: 4,800 pins per worker
per day. But absent the division of labor, a worker would be lucky to produce
even one pin per day.
Smith used this insight
on equality of returns to explain why wage rates differed. Wage rates would be
higher, he argued, for trades that were more difficult to learn, because people
would not be willing to learn them if they were not compensated by a higher
wage. His thought gave rise to the modern notion of human capital. Similarly,
wage rates would also be higher for those who engaged in dirty or unsafe
occupations, such as coal mining and butchering; and for those, like the
hangman, who performed odious jobs. In short, differences in work were
compensated by differences in pay. Modern economists call Smith’s insight the
theory of compensating wage differentials.
Smith used numerate
economics not just to explain production of pins or differences in pay between
butchers and hangmen, but to address some of the most pressing political issues
of the day. In the fourth book of The Wealth of Nations—published, remember, in
1776—Smith told Great Britain that its American colonies were not worth the
cost of keeping. His reasoning about the excessively high cost of British
imperialism is worth repeating, both to show Smith at his numerate best and to
show that simple, clear economics can lead to radical conclusions:
A great empire has been
established for the sole purpose of raising up a nation of customers who should
be obliged to buy from the shops of our different producers all the goods with
which these could supply them. For the sake of that little enhancement of price
which this monopoly might afford our producers, the home-consumers have been
burdened with the whole expense of maintaining and defending that empire. For
this purpose, and for this purpose only, in the two last wars, more than a
hundred and seventy millions [in pounds] has been contracted over and above all
that had been expended for the same purpose in former wars. The interest of this
debt alone is not only greater than the whole extraordinary profit, which, it
ever could be pretended, was made by the monopoly of the colony trade, but than
the whole value of that trade, or than the whole value of the goods, which at
an average have been annually exported to the colonies.6
Smith vehemently opposed
mercantilism—the practice of artificially maintaining a trade surplus on the
erroneous belief that doing so increased wealth. The primary advantage of
trade, he argued, was that it opened up new markets for surplus goods and also
provided some commodities from abroad at a lower cost than at home. With that,
Smith launched a succession of free-trade economists and paved the way for
David Ricardo’s and John Stuart Mill’s theories of comparative advantage a
generation later.
Potential of economic
system.
Now, this is when I explain why you a citizen of the
greatest country on Earth have the most opportunity to succeed ever in human
history. This doesn’t mean you can’t fail, no matter if you are the son of Bill
Gates or the son of a truck driver you can die dirt poor. This might sound bad
but, it also means everyone can live a good life and capitalism presents its
economic opportunity through problem solving or improving of what is present
during your time on the Earth. Capitalism is so much riskier than the ideas of
Karl Marx but, that’s how humanity has always pushed the envelope.
Variations of Capitalism.
There doesn’t have to be
a strict unitary form of capitalism, this is seen in every country with its own
unique ways of correlating with protectionism or no regulations. For example,
the United States and its public industries are equivalent to 1% of its Gross
Domestic Product, whereas Taiwan’s state run industries are equivalent to 22% of
its GDP. Another example of multiple forms of capitalism is seen with the Gini
coefficient (the measure of wealth inequality in a country with a scale of 0
meaning the state has equal distribution of wealth to everyone to 1 meaning
only a few of the elites have all the money) of South Korea and The United
States. South Korea with its intense restructuring of its markets with
regulations of how much executives can take as bonuses it has a Gini
coefficient of 0.31 and the United States has a Gini coefficient of 0.41. The
gross domestic product growth of the United States is twice as high as South
Korea’s 1.5% GDP growth with a 3% growth annually.
Capitalism and all its
problems of homelessness, inequality, and the constant juggling of the market
between booms and busts can be helped with regulations and counties being aware
of these issues but it can also be a solution to future problems and escalating
our place in the universe. I am not being hyperbolic when I say that capitalism
can skyrocket us to a place of grandeur, with the rewarding of luxury to those
who advance technology and take advantage of the opportunities present we can
be a civilization among many solar systems and eventually galaxies. Eventually,
our predecessors will gain the ability to mine resources out of asteroids,
exploit the most intense gas giants, and harness all the energy of the stars.
With this comes infinite possibilities to make money from space. From the
transportation systems moving the resources to the machines taking it out of
the inhabitable planets we can reach.
Sources:
2d installment already?
ReplyDelete"infinite possibilites to make money from space" - this is such a depressing phrase, reminds me of the Ferengi.