Thursday, April 24, 2008

Do Systems Make a Difference?

While a discussion like this usually takes place when discussing economic systems, it can also fit in at the end of the semester when you discuss international economics and globalization. When the issue of economic development arises, one must address the system and how it affects development.

In that light, I have two articles to recommend. The first article was on Cafe Hayek a couple days ago, posted by Don Boudreaux. It was his counter to Earth Day and discussed the many plusses we have because of the capitalist system. One can certainly debate whether many of things would have come about anyway, but I think one can make the argument that they wouldn't have arrived as quickly, or spread so far or evolved to the present level without the spur of market competition. But your students may feel that this is fine for the "big things"; but ask how capitalism has changed some of the more "important" aspects of their lives.

I point you now to yesterday's post on Carpe Diem by Mark Perry. Scroll a ways down and you'll see a table comparing features on automobiles in 1985 vs. 2007. Specifically, what features were deemed "essential" and by what percentage of buyers. Much of the difference was generated demand - someone saw it and said "me too." But much was also generated by producers seeking to differentiate themselves in a competitive market or market niche. Provide a bit more for the customer to make your product stand out from the competition. And as more was produced, the technology allowed the marginal price to fall - making what was "optional" become a "standard."

It reminds me of something I read about the genius of the capitalist system not being that it provided silk stockings for the queen, but that it put those stockings in the reach of the working girl who made them.

I look forward to your comments.

**Update**
The economist who made the comment about stockings for the queen (Queen Elizabeth to be exact) was Joseph Schumpeter. I actually suspected it was Schumpeter, but I was having trouble tracking down the quote.

1 comment:

Bob said...

Hi Tim,
Just a quick, non-hostile question: Could someone out there please explain to me why clean, air, clean water, and conservation might be considered antithetical to capitalism?
Keep up the good work,
Bob