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  • Reply to Schumer and Roberts
    Messrs Schumer and Roberts All we have to do is understand value as money income and riches as the goods and services that money income can buy Thus here we are with American software engineers and American radiologists being replaced by much lower paid Asian software engineers and radiologists What causes them to be replaced is that they are unwilling to accept wages as low as their Asian competitors The fact that they are replaced rather than accept the wage cuts needed to be competitive implies that they choose to move to alternative lines of work which while offering less money than the jobs they have lost do not require reductions as severe as those needed to be competitive in the jobs now filled by Asians The former software engineers take jobs that offer 100 000 or perhaps just 50 000 instead of the 150 000 that they had been earning The former radiologists leave radiology and enter other branches of medicine at lower but still considerable pay in the process increasing the supply of physicians and reducing their rates in those other lines a path to more affordable medical care it would seem To understand what is present all one need do is to generalize the situation Imagine that in case after case Americans are confronted with lower cost competitors which causes a decline in their money incomes But the decline in their money incomes is always less than the reduction in costs achieved by the competitors Now all one need do is realize that the cost reductions achieved by the competitors show up as price reductions in the things Americans buy And those price reductions founded on cost reductions greater than the decline in American incomes will also be greater than the decline in American incomes In other words American real incomes as opposed to their nominal incomes rise Ricardo s principles both of comparative advantage and the distinction between value and riches are at work Of course if one looks only at the situation of an isolated group such as software engineers or radiologists the decline in income is far more pronounced than any decline in the prices the members of these groups must pay But by the same token in every such isolated case the immense majority of Americans gets the benefit of some reduction in costs and prices with no reduction in income for example all the patients who earn their livings other than as software engineers or radiologists and who can now get their MRIs less expensively Despite everything I have said about falling wages and prices it should be realized that under a system of fiat money such as we have today it is practically impossible that the general level of money wages will actually fall in the United States For one thing practically all of the dollars that go abroad to purchase imports or now to pay wages come back to the United States to buy goods and services here Indeed in

    Original URL path: http://www.capitalism.net/articles/Reply%20to%20Schumer%20and%20Roberts.html (2016-02-12)
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  • Sins of Businessmen, Crimes of Politicians
    the government s apparatus of compulsion and coercion as Mises called it in one s own favor for example to gain government subsidies or to harm one s competitors by such means as instigating antitrust proceedings or other regulatory actions against them Thus a heavily interventionist economy necessarily seethes with corruption and immorality Now add credit expansion to this mix and an environment is created in which almost every business venture is given the appearance of prosperity while the underlying reality is one of the massive diversion of capital into malinvestments It should not be surprising that in many cases efforts are made to sustain the appearance of prosperity by means ranging from questionable to blatantly fraudulent and that such efforts are encouraged by the conviction that given only a little more time the apparent general prosperity will make those efforts good and permanently conceal their nature But even in this environment a vital distinction remains between businessmen on the one side and politicians and government officials on the other And that is that the activity of businessmen qua businessmen that is as producers of goods and services for sale in the market is inherently positive It is the creation of wealth that sustains and promotes human life and well being Indeed it is the saving and investment and profit motive and competition of businessmen that are responsible for practically all of the wonderful technological advances of the last two hundred years or more and for the ability of practically everyone in the capitalist countries to afford them Acts of dishonesty and fraud have no more essential connection to business activity than they do to the practice of medicine or the performance of music or to any of the arts or sciences Just as the existence of dishonest physicians musicians artists or scientists has no actual bearing on the nature of those activities as such so too the existence of dishonest businessmen has no actual bearing on the nature of business activity as such In sharpest contrast the activity of politicians and government officials is always inherently negative it is always destructive or threatens destruction This is because the foundation of all law and government activity is physical force or the threat of physical force This is expressed in the ancient Latin dictum nulla lege sine poena which means no law without punishment That is there is no such thing as a law administrative ruling edict decree or government order of any kind that is not backed by the threat to use physical force to compel obedience to it In the absence of the government s ability to use physical force to compel obedience its declarations would be without effect They could simply be disregarded at will The only legitimate use of this negative power is to negate the negative constituted by the private use of physical force that is to prohibit and punish such acts as murder assault robbery rape kidnapping and fraud To that strictly limited extent i

    Original URL path: http://www.capitalism.net/articles/Sins%20of%20Businessmen,%20Crimes%20of%20Politicians.html (2016-02-12)
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  • The Free Market and Job Safety
    includes a consideration of the costs of achieving greater degrees of safety Ironically the imposition of excessive costs of achieving a higher degree of safety in an individual instance can result in sharply lower degrees of safety elsewhere as the result of the lesser availability of means As an extreme example the cost of a computer radar controlled automatic braking system is probably still so high that if anyone who was not extremely wealthy had one installed today he would deprive himself of the means to preserve his very life in all other areas such as the purchase of food clothing and shelter The purchase of such a technologically advanced braking system in these circumstances could thus turn out to have positively deadly indirect consequences To whatever extent additional safety comes at a higher cost it restricts the ability to make provision for other needs and wants including safety in other areas of life And this remains true even when the higher costs of safety are initially imposed on business firms rather than directly on consumers This is because higher costs do not lastingly come out of profits but must be covered by higher prices of products or alternatively lower wage rates of workers The great run up in business costs over the last thirty years or so on account of so called safety and environmental legislation has played an enormous role in worsening economic conditions for large numbers of wage earners and ordinary people in general Those seeking an explanation of such things as the growing need for two breadwinners in a family need look no further In contrast to counter productive government intervention and bureaucratic bungling a free market achieves greater safety in the individual instance in a way that is consistent with the satisfaction of needs and wants in all other areas including overall safety This is because a free market operates on the basis of a proper consideration of costs In so doing it also makes due allowance for the differences among individuals in evaluating safety and danger Every improvement in workplace safety serves to reduce costs to some extent simply by reducing the loss and damage caused by accidents Wherever such reduction in cost outweighs the additional cost that must be incurred to install and maintain what is required to achieve the improvement in safety the improvement is installed and maintained by business firms in the same way and with the same enthusiasm as any other improvement in efficiency Very importantly a free market also serves to bring about improvements in safety even in cases in which they do not pay for themselves through improvements in efficiency that is even in cases in which they result in the incurrence of additional costs This is the case when the improvements in safety are desired by wage earners strongly enough to induce them to accept lower wage rates to an extent that exceeds what would otherwise be the cost of the improvements in safety When this is so the improvement in safety once again turns out to reduce costs and to be the profitable thing to do The underlying principle here was explained in part by Adam Smith who pointed out in The Wealth of Nations that other things being equal wage rates are higher in dangerous and unpleasant occupations and lower in occupations that are considered safe or pleasant Book I Chapter X In effect in order to attract workers to the former type of occupations a premium must be included in the wage rates a premium that comes about automatically as the result of the lack of workers willing to work in such occupations except on terms that compensate them for such disadvantages By the same token the comparative abundance of the supply of labor attracted to the preferred occupations serves to reduce wage rates in those occupations All that need be added to Smith s principle is that the relative status of occupations and the jobs in the various industries or with this or that specific employer and the relative wage rates that must accompany them changes as the result of the adoption of improvements in safety or indeed of improvements in working conditions of any kind It is only a question of whether or not the change in wage rates will be great enough to compensate for the extra cost otherwise imposed by the adoption of the improvement A major factor that determines how much of a comparative reduction in wage rates workers are willing to accept in order to achieve a given degree of improvement in their safety or comfort or convenience or any other such benefit is the height of their wage rates otherwise in effect the height of the base wage from which a reduction is to be made In the present day United States this base wage can perhaps be taken as something in the neighborhood of 30 000 per year With a level of wage rates this high workers can afford to satisfy a fairly wide range of their needs and wants to a considerable extent Just as they can afford along with automobiles and television sets such things as air conditioners and flush toilets in their homes they can also afford things of comparable benefit to them in their places of work such as once again air conditioners and flush toilets For even if as well may be the case such things as air conditioners and flush toilets in work places do not directly pay for themselves through improved efficiency on the part of the workers it is almost certainly true that the immense majority of workers in the present day United States is prepared to accept wage rates that are lower in establishments that offer such amenities by far more than the cost to employers of installing and maintaining such amenities or what is equivalent to demand wage rates in workplaces that do not offer such amenities that are higher by far more than the cost

    Original URL path: http://www.capitalism.net/articles/The%20Free%20Market%20and%20Job%20Safety.html (2016-02-12)
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  • News Report California's Blackouts Caused by Demons
    there is something of major significance about the very nature of shortages that has a vital bearing on the question of whether or not the power companies would deliberately withhold generating capacity that would have alleviated or prevented the power shortages This is the fact that in the conditions of a shortage increases in the amount of the supply offered for sale do not reduce the price of the good On the contrary they serve merely to reduce the severity of the shortage Not until the shortage is entirely eliminated does it become necessary to reduce the selling price of a good in order to increase the quantity of it that is demanded As illustration of this fact imagine that back in the days of the gasoline shortages the quantity of gasoline demanded in some city at the then prevailing government controlled price of gasoline was 1 million gallons per day while the supply available was 900 000 gallons per day There would have been a shortage of 100 000 gallons of gasoline per day Now imagine that the suppliers somehow managed to find an additional 50 000 gallons of gasoline per day Would they have had any difficulty in selling those additional gallons None at all The shortage of 100 000 gallons means that there are buyers ready willing and eager to buy 100 000 additional gallons at the prevailing controlled price that up to now have simply not been available They will certainly snap up the additional 50 000 gallons at that price Indeed they will snap up a full additional 100 000 gallons per day at that same price if they become available Only when enough gasoline becomes available to fully meet the quantity demanded at the controlled price i e only when the shortage is totally eliminated and a still further addition to the supply that sellers are able and willing to sell occurs does it become necessary for the sellers to reduce their price in order to increase the quantity of the good demanded In fact the question we are dealing with here is the same as asking what would have happened to the price of gasoline at an individual service station that up to now has had to turn away many drivers if somehow it was now in a position to sell a larger quantity of gasoline It would certainly not have to reduce its price in order to induce those whom it has had to turn away to buy its additional gasoline There is little that those drivers would rather do more than pay that price if only they can obtain the gasoline Only when all such drivers had been fully satisfied in obtaining the amount of gasoline they were seeking at the controlled price would any reduction in price become necessary as the means of increasing the quantity of gasoline demanded at that service station Until that point is reached absolutely no reduction in selling price is necessary in order to sell a larger supply Now then here are the companies generating electric power There is a prevailing price of the power they are selling At the moment they are operating at a some definite percentage of their capacity As the day wears on however the amount of power being drawn from the system as the result of such things as people turning on air conditioners electric lights machinery whatever progressively increases At some point the amount of power being drawn from the system starts to threaten to surpass the amount of power the companies are able to generate Once that happens first brownouts and then blackouts are imposed However what we have just been told by the bureaucrats the politicians and the press is that in almost all instances the power producing companies possessed additional generating capacity more than sufficient to meet the portion of the demand that they did not meet and which turned out to constitute the excess of demand over supply i e the shortage and its extent This demand we now know is a demand which they could have met without any reduction whatever in selling price if in fact they had had the ability to meet it This raises the question in what circumstances would a producer choose not to meet an additional demand for his product at his presently existing price A shortage represents such an additional demand that is not met Once we see question in this light the claims made in the press about the cause of the California blackouts appear truly astounding What we are being told is that the power producers were in a position to do extra business they allegedly had all the necessary generating capacity but simply refused to do it We are being told a story that if applied to restaurants or coffee shops say would claim that additional normal type well behaved customers were coming through their doors ready to order from their menus and that even though these food service establishments had the all the necessary means of filling the additional customers orders they simply refused to do so indeed that they refused to do so out of reasons of greed It should be obvious to everyone that this is the most utter nonsense It is never profitable and therefore never reasonable for a business to refuse to do business that is profitable for it to do To pretend that businessmen and their greed are nonetheless responsible for people not being supplied and for people therefore suffering deprivation and even death is to display an ignorance of elementary economic law surpassing the ignorance of physical law on the part of those who once claimed that broomsticks were means of flight Probably those who are spreading the nonsense about the power companies have in mind the idea that the power companies somehow conspired to reduce the supply of power in order to raise its price Even if such a conspiracy existed which has never been proved and

    Original URL path: http://www.capitalism.net/articles/News%20Report%20California%27s%20Blackouts%20Caused%20by%20Demons.html (2016-02-12)
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  • Profit Inflation by the US Government
    travels from hand to hand in repeated rounds of expenditure raising business sales revenues and prices and wages in the process It doesn t take an uncommonly great amount of inflation to succeed in doubling the sales revenues and operating costs of our hypothetical firm before 10 years have elapsed since its original purchase of its machine Imagine that this has occurred In this case our firm will now have sales revenues of 2 million per year and operating costs of 1 7 million per year This of course means that our firm s gross profit too will have doubled from 150 000 to 300 000 But what will have happened to its net profit It will have quadrupled going from 50 000 to 200 000 The reason of course is that so long as the original machine is still in service within the 10 year period the depreciation expense remains unchanged at 100 000 Thus our firm s total costs will be only 1 8 million while its sales revenues are 2 million leaving a net profit of 200 000 Everything now appears to be so very rosy Pretax profits as we ve just seen have quadrupled Of course taxes too at the unchanged 50 percent tax rate have also quadrupled The government and its puppets in the media would like us to believe that this last is all perfectly natural and of no consequence that all that the government is doing is merely taking its accustomed cut After all the firm will now have a net profit after taxes of 100 000 and that too of course is a quadrupling of the 25 000 after tax net profit that it used to have There is only one problem Along with the general rise in prices the replacement price of our firm s machine has doubled It now costs 2 million instead of just 1 million The firm s accumulated depreciation allowances which will not reach more than 1 million will therefore not be sufficient to make possible the purchase of a replacement machine In order to make adequate provision for replacement of its machine our firm would have to double its annual set aside for replacement from 100 000 to 200 000 Its entire 100 000 per year after tax profit is required to make this possible Nothing is left either for a dividend payment or for any kind of expansion Any dividend payment or attempt at expansion is at the expense of our firm s ability to replace its machine Thus the firm and its stockholders are actually much worse off in this situation than they were when their after tax profit was only 25 000 per year Because that profit represented funds available after full allowance for the machine s replacement had been made None of the current 100 000 of after tax profit is so available What the government has accomplished by means of its profit inflation is a substantial increase in its tax revenues

    Original URL path: http://www.capitalism.net/articles/Profit%20Inflation%20by%20the%20US%20Government.html (2016-02-12)
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  • Super-Weapon Economic Freedom
    demand for oil that leads to spikes in its price when its production is cut by just a few percent namely the so called inelasticity of the demand for oil This is the fact that to reduce the quantity of oil demanded by a relatively small amount or to increase it by a relatively small amount substantially larger changes in price are required Thus in the 1970s for example to reduce the quantity of oil demanded by a few percent a more than doubling of the price of oil was required In the 1980s the price of oil fell by about two thirds in response to relatively modest increases in the supply of oil Such a large decrease in price was required in order for the market to be able to absorb the additional supply of oil that then became available Today it is possible once again to bring about a dramatic fall in the price of oil indeed one even larger than occurred in the 1980s And it could begin right away All that is necessary is to abolish the U S government s restrictions on domestic energy production inspired by the environmentalist movement Consider the potential for increasing the supply of oil by opening up to the drilling for oil both the whole of the continental shelf of the United States and all of the vast so called wildlife preserves and wilderness areas in Alaska and in all of the rest of the country Certainly these sources could soon very easily increase the world s supply of oil by the few percent needed to make the price of oil plunge And to the extent that OPEC sought to prevent a fall in price by equivalently curtailing its own production it would be deprived of the full amount of the revenues it had earned on that production In addition any maintenance of the high price by OPEC would serve only to put revenues and profits that it had been earning into the pockets of its American competitors who would thereby have the financial means as well as the incentive for further expansion at OPEC s expense Abolishing our restrictions on coal and natural gas production and on atomic power would further compound OPEC s problems This is because any expansion in the supply of these competing sources of energy and fall in their price serves to reduce the quantity of oil demanded at any given price of oil The result is that in the face of a fall in the demand for oil any given production of oil can be sold only at a lower price than would otherwise be possible In other words the price of oil would fall not only because of an increase in its supply but also because of the decrease in the demand for oil resulting from the increase in the supply of coal natural gas and atomic power There would be a larger supply of energy in general and a fall in the

    Original URL path: http://www.capitalism.net/articles/Super-Weapon%20Economic%20Freedom.htm (2016-02-12)
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  • Greens versus Energy
    The Times repeatedly advances this same editorial theme in its alleged news reports For example in one such recent report it declared Administration officials seem eager to blunt charges from Democrats and environmentalists that their energy policy depends almost exclusively on new production rather than on conservation Critics have accused Mr Bush of using California s woes as a pretext to rally support for an energy policy that emphasizes measures long supported by oil gas and utility industries while largely playing down the potential impact of energy efficiency and conservation National Edition May 3 2001 pp 1 and 17 According to The Times and those who share its views additional energy is desired only by its producers merely for the sake of their selfish profit or sometimes one gets the impression for their equally cruel desire to be able to create smog acid rain and global warming and to kill off cuddly wildlife such as caribou and grizzly bears The activities of the evil energy producers allegedly have no relation to anyone else s needing or wanting the additional energy they are eager to produce Certainly mentioning any such relation is carefully avoided When consumers are considered it is never as customers of the energy producers who provide the demand for the latter s products The source of the profits of the energy producers and thus of their motive for desiring to produce more i e the demand of more than two hundred million consumers is simply ignored The consumers allegedly have no need of any additional energy production certainly not from conventional sources The fact that they would willingly indeed eagerly pay the producers very profitable prices for selling them the additional energy they allegedly do not need is as I say simply ignored Instead it is assumed that the consumers are or easily could be fully supplied by renewable energy sources namely wind and solar power and by conservation or consuming less energy In the interval between the arrival of sufficient additional solar and wind power and the achievement of sufficient conservation the consumers are apparently to rely on being supplied by magic When the inevitable consequences of not increasing the supply of energy appear namely sharply higher prices or shortages the blame is placed on anything but the actual causes Propositions based on the fact that electricity comes from power plants and to have more electricity more power plants are needed are ignored The lack of power plants of crude oil and oil refineries of natural gas and natural gas pipelines is considered irrelevant to high prices of power oil and gas and to shortages of these products when prices are not allowed to rise sufficiently Their lack allegedly makes no difference What explains the high prices and shortages according to the environmentalists is manipulation and price gouging by the very producers whose efforts to expand energy production if not frustrated by the environmentalists would have held prices down or actually reduced them and prevented shortages It

    Original URL path: http://www.capitalism.net/articles/Greens%20versus%20Energy.htm (2016-02-12)
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  • Avoid Blackouts Now
    In fact in such circumstances the price may far exceed the costs of the very highest cost producer able to be in the market If however the retail price of power were higher and thus the quantity of power demanded were lower the resulting smaller supply of power that would need to be generated would be generated at a sharply lower cost and thus at a sharply lower wholesale price At the same time in a free market the supply of power generated at relatively reasonable wholesale prices from power plants already in existence would be substantially larger than it now is In part this would happen precisely as the result of the retail price of power being higher This would give the power companies the means of paying various suppliers they have ceased to be able to pay because of retail price controls having served simultaneously to restrict their revenues while sharply increasing their costs and thus driving them toward insolvency Suppliers who now do not provide power out of fear of not being paid would once again supply power because they would be paid In addition a relaxation of environmental controls would also significantly increase the supply of power available from existing power plants At present there are plants that do not operate as often or to the extent they might and in some cases do not operate at all because of such controls Certainly all but the most misanthropic environmentalists should agree that there is major room for relaxing such controls at least for the duration of the looming summer power emergency The power crisis is not the result of deregulation No one can really believe that the power companies were deregulated and then chose to impose price controls on the power they sold while paying higher and higher prices for the power they bought The power crisis is the result of government controls most obviously its control over the retail price of power but also its protracted refusal to allow the construction of sufficient new power plants The crisis has been worsened by the government s refusal to allow retail power prices to rise immediately in conjunction with the rising wholesale price This has allowed the quantity of power demanded to go on rising and thus to cause the wholesale price of power to go on rising It has also driven electric utilities into bankruptcy or to the verge of bankruptcy and impaired the State of California s credit rating as the result of its stepping in to buy power in the wholesale market once the utilities ability to go on doing so had been exhausted The solution to the power crisis is not to expand the power of the government by having it take over the assets of the utilities it has almost destroyed but to establish for the first time a free market in power The process should begin with an immediate sharp increase in retail power rates and relaxation of environmental controls Because

    Original URL path: http://www.capitalism.net/articles/Avoid%20Blackouts%20Now.htm (2016-02-12)
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