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  • Case Against the Inheritance Tax
    their wealth in producing the products I buy and in employing the labor I sell I want to be surrounded by giant firms like General Motors and Exxon with tens of billions of dollars of capital invested in producing amazing products like automobiles and gasoline by the most modern efficient methods so that almost everyone myself included can afford to own and drive such a wonderful machine as the automobile I want comparable sums of capital invested in everything I buy so that I can afford to buy it and have money left over for all kinds of luxuries I want all these giant firms to be out in the market competing for labor so that the wages or salary I and everyone else can earn will be that much higher Repealing the inheritance tax means that substantial sums that would otherwise disappear into government spending programs will instead be used to make capital investments Heirs will be able to keep their estates rather than have to sell off major portions to raise the money to pay estate taxes As a result the people who would have bought the estates will have to invest in new and additional capital rather than in the purchase of estates from which their funds are passed on to the Treasury That additional investment is what will serve my self interest as a wage or salary earner For it will be added to the capital that produces the goods I buy and that underlies the demand for the labor I sell I don t benefit from government spending to pay people not to work or produce for interfering with their ability to work and produce for failed educational systems or a botched medical care system or for ill conceived military ventures all over the world But I do benefit from additional capital investment that will give me better and lower priced goods and a higher wage or salary It may be true as some have argued that repealing the inheritance tax will open up new tax loopholes that enable wealthy individuals to reduce their income tax payments If that is the case then the result will be so much the better from the standpoint of my and every other wage or salary earner s actual self interest because the additional taxes avoided will also be used mainly to add to capital investment and thus increase the supply of goods and the demand for labor Consequently I say vive the loopholes and their enlargement It may also be true that the effect of repealing the inheritance tax will be to reduce support for various private charities If so loss of support for such valuable institutions as hospitals schools libraries and opera companies could easily be prevented by donors deciding to continue support for them unabated and reduce their funding only of organizations that work to undermine or destroy the capitalist economic system Indeed in the spirit of self sacrifice that they champion the leaders of such

    Original URL path: http://www.capitalism.net/articles/Inhertax.html (2016-02-12)
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  • Government Blows
    the power system to supply i e a power shortage It cannot be stressed too strongly that a shortage is an excess of quantity demanded over supply available And that it is caused by a government price control which prevents price from rising high enough to reduce quantity demanded to the supply available which would eliminate the shortage Of course the more the government holds down the supply of electric power the higher is the price that is required to prevent a shortage of power When the government refuses to allow a price that is high enough to keep the quantity of power demanded within the limit of the supply of power available brownouts and blackouts are the result It should be understood that when taken in conjunction with price controls on electric power the government s inflation of the money supply also contributes to power shortages This is because inflation contributes both to the increase in the demand for power and to the restriction of its supply The former results largely from the rise in money incomes that the spending of the additional quantity of money brings about and which gives people the financial means to afford larger quantities of any given good at any given price The latter results from the fact that inflation drives up the costs of constructing and operating power plants and thus correspondingly reduces their profitability in the face of controlled selling prices The process does not have to go very far before it no longer pays to construct power plants assuming of course that the environmentalists did not prevent their construction in the first place All this is the basic context of the fiasco now existing in California and which on the basis of a combination of ignorance and deceit is being blamed on of all things a free market in electric power The so called free market in electric power in California consists of the fact that last summer price controls were removed from the power supplies of San Diego County and the southern portion of adjacent Orange County while remaining in force throughout the rest of the state The power supplies of this relatively small part of California were suddenly opened up to the competition of power companies throughout the rest of the state and in surrounding states who were desperate for additional power to avoid the brownouts and blackouts caused by government price controls in their operating territories Starting last summer by offering a higher wholesale price these power companies could bid away power generated in this area from use by the area s local residents and businesses Locally generated power could be retained for use in the area only at a wholesale price that matched the price generated by this competition It should be understood that the power companies are in a position in which any customer can turn on additional power using devices and they are obliged to supply the additional power needed to meet that additional demand Price controls and the government s restrictions described above preventing the construction of new power generating capacity now repeatedly compel the utilities to operate close to the limit of their existing power generating capacity To avoid overloading and thereby crashing their systems and causing wide spread blackouts they must either find the necessary additional power or induce other customers typically large ones to cut back on their power consumption by such means as the offer of substantial rate concessions Finding additional power wherever it is available can serve to avoid expensive rate concessions and worse a system crash This is the desperate situation for which the limited power supplies of San Diego County and the southern portion of adjacent Orange County were put in the position of having to provide a remedy Anyone familiar with economic theory could easily have predicted that the result would be a skyrocketing of power prices in the area For the limited power supplies of this small area were being made to bear the burden of coping with the statewide and indeed Western states regionwide power shortages caused by destructionist government policies Now the truth is that an immediate partial solution to the sharp rise in power prices in this limited area is the immediate decontrol of power prices throughout the rest of California and indeed throughout the whole Western states region which shares a more or less integrated power grid The effect of such decontrol would be an immediate substantial increase in the supply of electric power available for the decontrolled market and thus probably within days if not hours a sharp drop in the price of electric power in the decontrolled market This increase in supply it must be stressed would not come from an increase in production though very soon there would be such an increase and thus a further increase in supply and reduction in price in the decontrolled market No it would come from the more or less substantial portion of the already existing production of electric power that is presently consumed by submarginal buyers i e by buyers unable or unwilling to pay the potential free market price which of course would be higher than the controlled price still in force over the far greater part of the state When the price control is removed this substantial part of the supply presently not available for the decontrolled market is made available for the decontrolled market where its effect is to enlarge the supply and thus correspondingly reduce the price Lifting price controls in the remainder of Orange County and in Los Angeles County for example would add supplies from these areas to the supplies presently available only from San Diego County and the southern portion of Orange County to meet urgent needs for power throughout the state and the Western states region in general The rise in price in these additional areas would serve to reduce the quantity of power demanded in these areas The supply of power previously used to meet this portion of the demand would be available for the now larger decontrolled market The effect of this larger supply in the larger decontrolled market would be to reduce the price of power in the decontrolled market Decontrol throughout the state and in surrounding states would still much more substantially enlarge the supply available in the decontrolled market and drive down the price there Indeed at the same time that larger supplies were being made available to meet urgent needs for power decontrol would serve greatly to diminish the urgency of those needs This is because the rise in power prices throughout the state would serve everywhere to reduce the quantity of power demanded and thus serve to reduce the amount of power needed from outside sources to prevent brownouts or blackouts It should be clear that decontrol limited to the territory of just one or two counties is decontrol in a very high pressure pressure cooker so to speak It is decontrol in which all the pressure of the shortages of the whole rest of the state and surrounding states come to bear on the very limited supplies of power available just in this relatively small area Decontrol over the whole state and region would serve to eliminate all of this pumping up of the pressure that has propelled prices so high in San Diego County and south Orange County A further increase in supply and reduction in price that would result from state wide and region wide decontrol would come from existing power capacity that is presently forced off the market by price control coming back on to the market That there is such capacity is confirmed by the following statement in a recent newspaper report Natural gas prices traded at record levels Friday December 8 2000 hitting 60 per million British thermal units That prompted some gas fueled generating plants to shut down because they couldn t make a profit under the ISO s Independent System Operator s a state official wholesale cap of 250 a megawatt hour The Orange County Register December 10 2000 News Section 1 p 12 Italics added The elimination of price control would bring such producers back into the market increase the market supply and reduce the market price As matters stand the forced withdrawal of such producers serves to further increase the pressure on the very limited supplies of the small area that is free of controls and to further drive up their price For buyers who might have been supplied by those producers and now are not must turn instead to the supplies of that small area The preceding makes clear that the price of a good in a fully decontrolled market is substantially less than the price of a good in an only partially decontrolled market and is virtually certain to be very substantially less in comparison to the price in a partially decontrolled market as small as the one in California has been Full decontrol in California would mean lower power prices both for this reason and because of the return to the market of output from existing producers that the controls had driven away by making its production unprofitable The following hypothetical example will serve to drive home the principle that the elimination of price control on the full supply of a good available results in a lower decontrolled price than when only a portion of the supply of a good is free of price control Thus imagine that the full available supply of a good is 100 units and that at a fully uncontrolled free market price of 120 the quantity of the good demanded is also 100 units In this case the free market price is 120 that is the price at which quantity demanded and supply available of the good are equal and consequently neither a shortage nor an unsaleable surplus of the good exists Now imagine that the government imposes a price control on this good of 100 per unit At this lower price the quantity of the good demanded becomes greater than the 100 units of supply available This is because now the good can be afforded by everyone who values a unit of it above the price of 100 whereas before only those who valued a unit of the good above the market price of 120 could afford it At the free market price all buyers not prepared to pay at least 120 per unit would have been rendered submarginal They would have been excluded from the market by the 120 price Now however as the result of the price control a more or less substantial number of submarginal buyers become admitted to the market They can cross the lower bar of the 100 price while they could not have crossed the higher bar of the free market price of 120 Assume that as a result of the lower controlled price buyers are now prepared to attempt to buy 130 units of the good Since only 100 units of the good are available would be buyers of 30 units must go away empty handed The efforts of these would be buyers to buy 30 units that do not exist is the measure of the shortage that the price control has created When there is a price control and shortage the distribution of the supply is made largely random and chaotic That is it becomes an essentially accidental matter which of the buyers seeking 130 units will be supplied and to what extent It is entirely possible in this situation that a full 30 units of the supply could fall into the hands of buyers who at the free market price of 120 would have been submarginal that is into the hands of buyers who value these units below the free market price of 120 who value them merely above the 100 controlled price We do not need to make such an extreme assumption however Assume that the effect of the price control and resulting shortage is merely to enable 10 units of the supply to fall into the hands of such submarginal buyers Since there are only 100 units of supply available the diversion of 10 units into the hands of submarginal buyers means that only 90 units of the supply remain available for buyers able and willing to pay 120 or more per unit Thus buyers of 10 units who value them all above 120 are excluded from the market It is against the law i e the price control for them to outbid the submarginal buyers as they would do in a free market The result is that unless they are lucky which in this case they are not they will have to go away empty handed It is entirely possible and we will assume it to be the case that among this group of excluded buyers are buyers who value a unit of the good far above the free market price of 120 who would be prepared to pay as much as 1 000 for a unit of it or even as much as 2 000 Under price controls and shortages even buyers with the most vital and urgent need for a good as these buyers can be assumed to be may have to go away empty handed because the units they seek are obtained instead by buyers who in a free market would have been submarginal and excluded from the market by the free market price Now finally imagine that into this situation comes the government of California with its blind faith in markets as The New York Times has so audaciously called it It decontrols the price of one unit of the hundred What happens The price of this unit is determined by the competition between the most desperate and second most desperate buyer of an additional unit who have up to now been excluded from the market by the price control and resulting shortage In the present example it is determined at a point between the 2 000 maximum potential bid of the most desperate of these buyers and the 1 000 maximum potential bid of the second most desperate of these buyers Thus the resulting price is say 1 500 It should be obvious that if instead of timidly freeing just one unit of the supply from price control the entire supply of 100 units were freed the resulting price would be far lower it would be the 120 free market price Now although as the above example confirms the free market price would be very much lower than the price prevailing in the very narrow decontrolled market of just one and a half counties it would still be more or less substantially higher than the previously controlled price Whatever it turned out to be its immediate effect would be to end the shortage of electric power and thus brownouts and blackouts This would be to the advantage of all consumers of power poor consumers no less than rich ones The establishment of a free market price for power means that poorer consumers are enabled to bid more for the power they need to run their one and only refrigerator say than many wealthier higher income buyers are willing to pay for the power needed to operate a second or third refrigerator It means that they are enabled to bid more for the electric power that provides the light they need in which to read than many wealthier higher income buyers are able and willing to pay for power to run their pool lights or other outside lights Retention of price control in contrast means that the wealthier higher income buyer has no economic reason not to go on using power for a second or third refrigerator and for his pool lights which serves to deprive the poorer consumer of the power for his one refrigerator or the light in which to read A free market price guarantees the availability of electric power for the truly urgent purposes of virtually everyone who has a job When faced with the need to restrict consumption a free market does so by eliminating the least important of the uses to which a good was previously devoted i e its previously marginal uses In the present case such uses will probably turn out in large part to be power intensive industrial uses in the production of products that are unable to bear substantially higher power costs To the extent that the resulting free market price were higher than the previously controlled price it would operate to increase the profits of power producers and thereby provide both the incentive and the means the latter through reinvestment of the profits to increase investment in and thus production of power This of course is part of the more complete longer run solution to California s power fiasco Obviously it requires the removal of obstacles to the construction of new and additional power plants i e the environmentalists must get out of the way The freedom to construct power plants fueled by atomic energy and by coal must be restored The effect of stepped up investment in and production of power would be a reduction in the price of power and in the profitability of producing it The rate of profit in power production would fall from a more or less sharply above average rate toward the average rate The price of electric power would gravitate toward its cost of production plus only as much profit as required to provide the average rate of profit i e only enough profit to make the power industry competitive with the rest of the economic system for capital investment While the high profits of the power industry following the removal of price controls would be temporary what would endure is a larger sized power industry Thereafter in order for any power producer to earn a premium rate of profit he would have

    Original URL path: http://www.capitalism.net/GovernmentBlows.htm (2016-02-12)
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  • Soaring Electric Rates
    to halt the extension of rate decontrol to other areas in the state I cannot claim to be familiar with all of the important details of the situation My only source of information apart my own sharply higher electric bills is news reports by people who appear to have no understanding of any kind of the principles governing a free market On the basis of my knowledge of those principles in conjunction with knowledge of the fact that rate decontrol has thus far come to just this one area I am prepared to advance the following explanation The freeing of one part of a market while the rest remains controlled subjects that one part to the full pressure of a competition among buyers that properly should extend over the entire market The situation is analogous to water in a garden hose the nozzle of which has been tightly blocked and then is opened just slightly Naturally water escaping from just one small part of the nozzle will escape with great force But as soon as the entire nozzle is unblocked the water pressure will be greatly reduced The freeing of the very limited market of San Diego and south Orange Counties means that the power supplies of that relatively small area are subjected to the competition of buyers of electric power throughout the state and in surrounding states The solution is the freeing of the power supplies of the whole state and of surrounding states to meet that competition Then the price pressure will be greatly reduced The further solution is the removal of obstacles to the construction of new and additional power plants so that the overall supply of electric power can be increased This would serve to bring about a progressive reduction in the real cost and price of electric power It would enable businessmen in the industry to be free to earn high profits on the foundation of lower costs Free competition would then serve to eliminate such premium profits by driving prices down toward the lower level of costs just as happens in the computer industry Further high profits would have to be earned by further reductions in cost and so on and on with an ever falling real price of electric power Of course to make this possible the environmentalists would have to get out of the way This is the overwhelming thrust of the free market ever lower not higher prices To be sure this result is not very obvious when prices are expressed in terms of fiat paper money which is comparable in its cost of production to paper clips or pins and which gets cheaper faster than businessmen can make most goods and services cheaper with the result that prices expressed in paper money almost always rise But it is very obvious when prices are expressed in terms of how many hours or minutes of labor the average worker must put in at a job in order to earn the price of

    Original URL path: http://www.capitalism.net/articles/Electric%20Rates%20Soaring.html (2016-02-12)
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  • CPICheat2
    creating from the ground up namely Windows or in an area which he has been responsible for advancing beyond what other suppliers had achieved for example word processing and spreadsheet software Thus in the name of freedom of competition and the combating of monopoly Gates s freedom of competition is to be blatantly violated and one or the other of the two branches of software is to be monopolized against him i e it is to become an industry or part of an industry reserved by means of the government s initiation of physical force to the exclusive possession of others All branches of software production are to be open to everyone except to Gates and also as The Times reports his two most important associates Steven Ballmer the current president of Microsoft and Paul Allen its co founder The result is that freedom of competition in software is to apply to everyone except to those with the ability to revolutionize software It is though the automobile industry were to be legally open to everyone except to Henry Ford Or the electric power industry were to be legally open to everyone except to Thomas Edison What underlies such an incredible outcome is the utterly mistaken belief that overwhelming competitive success to the point that one man or one company dominates an entire industry constitutes monopoly This of course is the kind of success that Gates and Microsoft have enjoyed The fact is that such an outcome of free competition is not monopoly But it is monopoly when those capable of bringing about such an outcome are forcibly excluded from an industry or any part of an industry The accompanying forcible reservation of an industry or part of an industry even to a mass of less capable producers is the real monopoly as much as if the industry had been forcibly reserved to the possession of one man or one company The essential element in monopoly is forcible exclusion and forcible reservation not the number of producers The destructive nature of the government s proposed breakup of Microsoft is further indicated by one of the major reasons for advancing it Namely what The Times article describes as A requirement that Microsoft share with other companies any technical information about Windows including software interfaces that the system engineers are sharing with other people at Microsoft What this refers to is the fact that an important reason that Microsoft s application software is so often better than that of others is that Microsoft as the creator and proprietor of Windows has greater access to and knowledge of Windows than its competitors This gives Microsoft an important competitive advantage when it comes to producing applications that run under Windows because it knows better how to integrate them with Windows What the government does not see and what Microsoft s unsuccessful competitors apparently to do not care to realize is that this competitive advantage that Microsoft enjoys in application software was a major reason for

    Original URL path: http://www.capitalism.net/articles/Microsoft%20Breakup.html (2016-02-12)
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  • Oil Policy
    and has acted further to restrict oil company profits and thus oil industry investment by punitively increasing their rate of taxation through first reducing and then totally abolishing the old depletion allowance on crude oil In addition the U S government has been responsible for an enormous artificial increase in the demand for oil over and above the increase caused by its policy of inflation It has caused this artificial increase in demand mainly by holding down the supply of substitutes for oil such as atomic power and coal In these ways it forced and continues to force the demand for fuel to rely more heavily than necessary on oil supplies Like reductions in the supply of oil these measures also increase the scarcity of oil In sum the government and the ecology movement have done everything in their power to raise the demand for and restrict the supply of oil It should be realized that it was only these actions of the U S government that has made possible the dramatic rise in the price of oil in the 1970s and again today The U S government bears a far greater responsibility than the Arab cartel It is the party that has made it possible for the cartel to succeed All that the cartel did in the 1970s and is once again doing now is to take advantage of the artificial increase in demand and reduction of supply brought about by the U S government Had the U S government not restricted the expansion of the domestic petroleum industry and forced up the demand for oil the supply reductions carried out by the cartel would not have had such a significant effect on the price Because in that case such supply reductions would have been at the expense of far less important wants than actually turned out to be the case With the larger domestic supply of oil and competing fuels that a free market would have produced the importance of any given amount of oil would have been far less The loss of any given amount of oil by virtue of the supply reductions carried out by the cartel would therefore have been much less serious An analogy would be the difference between someone having to give up a scoop of ice cream when he has three or four scoops compared with when he has only two scoops As a result the cartel would not have been able to raise the price nearly as much by virtue of any given amount of supply reduction In such circumstances in order to establish a price of crude oil as high as existed back in the 1970s or as high as exists today the cartel members would have had to reduce their production far more than they actually did reduce it They would have had to reduce their production by an additional amount equal to the sum of the reduced supply and increased demand for oil caused by the policies of

    Original URL path: http://www.capitalism.net/articles/oil_pol.htm (2016-02-12)
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  • A Brief for Microsoft Part Two
    system debarred from producing the software applications that run under Windows It is certainly true that the Windows operating system has the overwhelming bulk of the market for personal computer operating systems However it is equally true that the market for such operating systems is legally open to everyone IBM does offer its OS2 operating system albeit not very successfully Similarly Apple Computer offers a unique personal computer which comes with its own operating system Unix and its widely lauded variant Linux are also operating systems available to personal computer users The actual nature of Microsoft s position can best be understood by asking what would be required for IBM and the others to make significant headway against it The answer to that question is that they would have to offer applications such as word processing spreadsheet and other programs some perhaps not yet even thought of by anyone else that depended on their operating systems and which turned in markedly superior performance to what can be accomplished with applications running under Windows If they could do that they would gain substantial acceptance of their operating systems and software developers would be eager to write compatible versions of practically all programs The problem of Microsoft s competitors is that they do not have anything significantly superior to offer very many of Microsoft s customers or at least despite often substantial advertising budgets anything of whose value they can persuade very many of Microsoft s customers In other words they are unable to compete against Microsoft not because Microsoft is stopping them from offering something better but because they simply aren t offering anything better In the judgment of the immense majority of computer users what Microsoft offers is better than what IBM and the others are offering To say the

    Original URL path: http://www.capitalism.net/BriefMS2.htm (2016-02-12)
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  • Brief for Microsoft Part One
    finding has been taken as one of great importance and as signifying a major defeat for Microsoft It may well be that in the topsy turvey world of antitrust this finding will in fact play a major role in the imposition of penalties against Microsoft and perhaps in the very destruction of the company Nevertheless in the judgment of this writer the finding is of no more philosophical significance than would be the very similar finding that rear view mirrors and automobiles are separate distinct products At one time rear view mirrors did not come as a standard feature of new automobiles but were sold and installed in an aftermarket To any computer user it should be obvious that Microsoft s web browser represents the addition of a degree of functionality to its Windows operating system comparable to that accompanying the addition of a rear view mirror to an automobile and that Microsoft is as logical a provider of web browsers as automobile companies are of rear view mirrors Furthermore as soon as one sees matters in this light it also becomes obvious that whatever questionable tactics Microsoft may have employed with respect to other companies such as America On Line and Compaq Computer in its quest to gain prominence for its browser such tactics were utterly unnecessary and were irrelevant to the ultimate outcome Fundamentally the situation was the same as when the automobile companies decided to manufacture their cars with rear view mirrors already attached Just as it was not necessary for the automobile companies to twist anyone s arm to facilitate the sale of cars with rear view mirrors attached so it was not necessary for Microsoft to twist anyone s arm to facilitate the sale of its operating system with a web browser attached All that

    Original URL path: http://www.capitalism.net/articles/BriefMS1.htm (2016-02-12)
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  • Government Cheating in the Consumer Price Index
    are increased every year to allow for the rise in prices as is the interest paid on some government bond issues In recent years the income threshold at which taxpayers cross into higher brackets has also come to be adjusted according to changes in the consumer price index Not surprisingly as the party that bears the greatest cost of adjusting payments to reflect the rise in the consumer price index the U S government has developed a vested interest in keeping the reported rise in prices as low as possible For several years it has complained that the price index overstates the rise in prices and in the last few years it has openly taken steps to modify the price index in ways that significantly reduce the reported rise in prices and of course its the government s associated costs According to The New York Times More than three years after concluding that the Consumer Price Index overstated inflation by 1 1 percentage points a year a group of prominent economists says changes made to the index since then have narrowed the overstatement to about eight tenths of a percentage point a year In its original report the Boskin commission said that the overstatement of inflation in the price index stemmed from a variety of problems One was the inability of the index to fully capture decisions by consumers to switch from one variety of a product to another when prices rise from Red Delicious to Granny Smith apples for example Another was the difficulty of accounting for choices by consumers to avoid rising prices by switching from one type of product to another renting a video for example rather than going out to see a movie 1 Apparently these sources of alleged overstatements in the consumer price index have now been taken care of at least to a greater extent than they were already being taken care of But as I think about how these alleged problems in the price index appear to have been solved I cannot avoid coming to the conclusion that what the government and its Boskin commission have done is use people s efforts to minimize the harm they suffer from rising prices to conceal the existence of those rising prices That is the only interpretation I can place on the references to people shifting from one product or one variety of product to another in order to cope with the rise in prices and to the government s efforts to capture those decisions I can best explain what seems to be going on in terms of the following example Let us imagine that I live on just two goods say steak and potatoes which I consume in equal quantities pound for pound Steak we will assume costs 10 per pound potatoes only 1 per pound If we wanted to construct a price index for these two goods we would have to count the price of steak 10 times as heavily as the price of

    Original URL path: http://www.capitalism.net/articles/cpicheat2.htm (2016-02-12)
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