I was surfing the blog in the past few hours putting in comments where my interest struck me and there seems to be quite a few posts regarding capitalism. Furthermore, I recall several times in class bringing up corporations and people having generally negative views towards corporations. It is time to make a case for the merits of capitalism. Here we go!
Let’s take a big ol’ step back to the feudal times of Europe, circa 1000 AD let’s say. Okay, (all hypothetical) you are a member of a family that farms wheat. Now, you work as hard as you possibly can and every year you produce some wheat. Some years you produce lots of wheat and other years where it is drier or the soil wasn’t tilled enough, you produced less wheat. Now, on the years where you produced more wheat, you hope to God that every single other farmer had a bad wheat yield because that way you stand to gain the most. Assuming wheat is wheat (let’s not factor in quality and just assume it is a 100% commodity resource), and assuming that the population of people stays the same and they eat the same amount of wheat products every year, the wheat is going to have a certain value. Let’s also assume you live in a town where there is another group of citizens that grow some other crop, that is who you sell to. Both parties want/need what the other has. If the town you sell the wheat in consumes X amount of wheat value every year, then you stand to make a chunk of that X every year. The worse everyone else does while you do better, the more of that X you can get. Okay we just assumed a lot of things right there though. We assumed the number of people never changes, the amount that people desire wheat never changes, the access to wheat is equal to all, the wheat doesn’t require any other means to use it (like a mill or ovens), the town doesn’t get wheat from anywhere else, there will never be a superior product to wheat, and that the wheat is sold at one time once a year – just to name a few.
Your wealth depends not only on how hard you work, it depends on the value of your wheat. If your wheat is worth any less your work is worth less, even though you work just as hard last year. This is bad, you want to make sure you can keep providing for your family but it is so unpredictable all the time. There are forces of supply and demand going on regarding wheat – your livelihood – but you have no way to standardize your trades. Depending on when you arrive to the market as compared to your competitors or other factors influencing demand is going to determine how much wealth you earn. What you need is a standard measurement of supply and demand so that the people purchasing the wheat have a supply of goods that they are exchanging for your supply of goods. While a bartering system could maybe work, there is still the fact that their goods are going to be susceptible to the same fluctuations as yours are. You need a currency.
If both the people you sell your wheat to and you use an object that represents the quantification of wealth, you can be sure that both parties are getting a fair deal. Instead of the market having several different measurements of wealth where each is dependent on a multitude of factors, you have one measurement that defines all of them. Let’s say the other group grows tomatoes and let’s simply call our currency gold.
If one farmer grows only a few tomatoes one year (he had a bad crop), he knows that the gold that he has to get him enough wheat to live. Sometimes he has enough gold to buy extra wheat to make cakes with, but not this year, and that is okay with him. Since the tomato farmer is going to get less gold for trading his tomatoes, the gold he gets is more valuable. This means that less gold is injected back into the economy of the town from the tomato farmer than usual because he is buying less wheat. The value of wheat collectively goes down since the price of the wheat being higher is dependent on there being more demand from the tomato farmer than there is this year. The price that people get for their tomatoes or wheat is the price that the market dictates. They as goods are sold at the value they are worth in gold, a universal measure that links the two goods.
The same dollars you use to measure how much that candy bar is worth is going to be of the same scale (since your using the same units) as Bill Gates might measure spending 10,000,000 of them on a new home. The dollars are worth the same. The technology of money allows for stable and consistent prices across the economy so that trading occurs fairly among different actors.