Third—Freedom to Buy
Now, of course, if the inventor of some new product is to enjoy the freedom to sell, then the public must certainly enjoy the freedom to buy. One of the most fatal restrictions on a dynamic capitalistic economy is rationing or governmental control of commerce so that the people are told what they can buy, in what quantity, where and at what price. These artificial devices so completely sabotage capitalism that prices get out of phase, black markets develop and many human needs are neglected. This is why the United States moved so quickly after World War II to eliminate price controls and rationing. Both are inimical to a healthy capitalist economy. France and England failed to follow suit but Western Germany did. As a result, the recovery of Western Germany was one of the sensations of the post-war period, while the recovery of France and England was extremely slow and painful.
Fourth—Freedom to Fail
Last of all, we come to the freedom which harbors in its bosom the golden secret of all successful capitalist economies. This is the freedom to fail. Under free enterprise Capitalism every businessman who wishes to survive must do a lot of long term research as well as make a continuous study of his current operation. Services must be continually improved, waste must be eliminated, and efficiency in operations must be constantly pushed. And all of this is simply to keep the individual or company from failing. Occasionally we find a businessman, whose neck may be new to the yoke, refusing to extend himself in order to meet the competition of others who are more alert, more aggressive, and more anxious to serve and more accommodating. This newcomer has a lesson to learn. Perhaps, without quite realizing it, he is exercising his freedom to fail.
In some planned economies a well-established business is not allowed to fail because it is described as “essential” to the economy. Therefore, if the product of that company will not sell at a profit, it is subsidized from taxes to make up the difference. The company thereby receives a bonus for its inefficiency. No lesson is learned. The expressed choice to fail is not allowed to result in failure. Other companions soon follow. Almost immediately inertia replaces energy. Progress is slowed to a snail’s pace and human needs are no longer adequately satisfied.
In a dynamic capitalist economy the fact that a person or company will be allowed to fail is the very thing which spurs the individual or company to succeed. Of course, those who do fail are cushioned in their fall so that they do not starve nor do they lose their opportunity to try again. Nevertheless, the cushion is neither a dole nor a stipend which would be so comfortable that the person would want to relax and stay down. Capitalist cushions are thin—by design.
How Capitalism Makes Things Plentiful and Cheap
“It was Marx’s dream to produce everything in such overwhelming abundance and distribute goods so freely that no one would need to buy and therefore no one would be able to sell. Unfortunately for Marx, his economic dream was doomed from the start because instead of producing goods in overwhelming abundance, Socialism and Communism were found to stymie production and smother invention. Therefore, it has remained the task of free enterprise Capitalism to push mankind toward the economic millennium of a fully abundant material life.
An excellent example of how this is being accomplished is taken from a personal observation of Dr. George S. Benson of Harding College. He says: “In China I burned kerosene carried a hundred miles on the shoulders of a coolie. He owned his means of transportation, he owned a bamboo pole and a scrap of rope on each end of it, and he’d tie a five gallon tin of kerosene to either end of the pole and trot along back into the interior. He traveled over a little, single-file trail that nobody kept up, that wound its way between the rice fields in the valleys and then over the hills. He could make about ten miles a day with that burden.
“How much was he paid? Suppose he had been paid $5.00 a day. In ten days he’d have earned $50.00. But what would he have accomplished? He’d have transported ten gallons of kerosene a hundred miles, he’d have increased the price of kerosene $5.00 per gallon. Of course in China nobody could afford to pay such a price so he was paid what the traffic would bear; he was paid ten cents a day and then he added ten cents a gallon to the price of kerosene when carried a hundred miles—he doubled the price of it.
“A miserable wage, wasn’t it? But he could do no better with what he had to work with.
“Now observe how we move kerosene in America where there is an investment of $25,000 in cash for every job created—the roadbed, the steel rails, the great locomotives, the tank cars, the terminals, the loading facilities and so on. We move kerosene at less than one cent per gallon per hundred miles, less than a tenth of the cost in China. What do we pay our workmen? Seventy times what the Chinese coolie gets—and still give to the purchaser a freight rate of less than a tenth of that of a coolie. What’s the difference? Simply the investment and management—nothing else—the result of our American way of life.”
Here Dr. Benson has pinpointed another of the great secrets of Capitalism’s success: to put expensive tools and vast quantities of power at the disposal of the worker. But since the worker cannot afford to provide these tools for himself, who does? The answer is simple: frugal fellow citizens.
These frugal fellow citizens are called capitalists. They are often ordinary people who are willing to scrimp and save and store up goods and money instead of consuming or spending them. Therefore, anyone who has savings, stocks, bonds, investments, insurance or property is a capitalist. In America this includes a remarkably high percentage of all the people, No doubt it would come as a great surprise to Marx if he knew that instead of developing a capitalist class as Marx expected, America is becoming a nation of capitalists.
Each capitalist decides what venture he will sponsor with his money. He often risks his money in places where a government agency would never risk a cent. As a result, new oil is found, new inventions are promoted, new industries are started, “impossible things” are made possible and fantastic constantly accrue to humanity.
Of course, investing money which people have been painstakingly saving through a lifetime requires that the project be successful so people will continue backing it with their savings. This puts management under a great deal of pressure to cut expenses and get the product out at a price that will make it sell “in quantity.” Management therefore constantly demands more efficient machines which in turn permit the worker to spend fewer hours on the job. The little book called The Miracle of America points out that this free enterprise system has:
1. Increased the real wages of American workers (wages in relation to prices) to three and one-half times what they were in 1850.
2. Reduced hours of work from an average of about 70 hours a week in 1850 to around 40 today.
3. Increased the worker’s share of the national income paid out in wages and salaries from 38 percent in 1850 to about 70 percent today.
4. Increased the number of jobs faster than the growth of population, so that America has come closer to “full employment” than any nation in the world.
All of this is made possible because the American worker is furnished expensive equipment to do the job faster and cheaper, and this equipment is purchased with the savings of the workers business partner. He is the frugal fellow citizen called “the Capitalist.”
The Law of Supply and Demand Sets the Price
Capitalism works best in a free market where the “value” of goods is fixed at that point where the graph line of “supply” intersects with the graph line of “demand.” For example, if there is an abundant supply of potatoes people lose their anxiety to secure potatoes and the “demand” sinks to a low level. Even so, however, there is a level at which demand will establish itself and that is what “fixes” the price.