Tuesday, January 29, 2013

Fighting The Word Greed

One of the biggest emotional arguments I hear when talking about true capitalism is the issue of greed. I call it an emotional argument because it is not one based on reason but off a reactionary knee jerk of failure to understand economics. What is missed is the fact that I use greed as a logical argument FOR capitalism. I believe greed is a necessary and important facet in the cogs of a free market. It is not because I believe greedy people hurt the poor it is because greedy people in fact help the poor.

I've heard it from those on the left and on the right that without a social safety net backed up by theft, I mean taxes, people will die on the streets. They will have no ability to have food, shelter, and other necessities. The greedy rich WOULD NOT just voluntarily help those in need, no they will allow them to fall to the floor and die. This argument is for one not backed by any historical data or true economic understanding.

Without going to deep into the causes of higher prices for many goods like health care and living expenses we need to look into the historical data before the introduction of the welfare state. I will leave it to you to look up the data of how people lived just fine without a social safety net. In the case of health care there were many "clubs" that people paid and donated to to be a part of. These clubs were completely financed by private efforts to take care of not only yourself but for those that could not pay on their own. These clubs were known as mutual aid fraternities and were common before the introduction of heavy regulations that were used to INHIBIT competition.1 Greed did not hurt the poor, the free market did not hurt the poor, the State with its regulations hurt the poor.

On the economic side without going into charities and the like greed is a very important attribute to helping the poor. This at first would seem to be the opposite case, but this is not so. Capitalists have money because they are good at investing into projects that hold value in the future, value that gives them more money than they would have in the present case. With their ever growing "greed" and continuous want to create profits for themselves they don't just stay idle with the money they have. Remember they are good at turning their present stock of monies into a greater stock of monies in the future. It should be obvious that they WANT to make more money in the future so it follows that they will want to continue to invest.

When they invest they allocate resources into their project for capital goods. These capital goods are bought because they increase the efficiency of how the products are made. With this efficiency caused by the investment into capital goods they are able to create more products for the same amount of inputs, lowering the cost to make each product. With the lower cost to produce their goods they are able to lower the price they charge for their products. They want to do this because they would attract MORE customers from other competitors charging higher prices for the same good.

Well what happens next? It should be obvious that now prices are lower so poor people can now afford these goods or afford more. But it doesn't stop there. Other greedy entrepreneurs and greedy capitalists in the same industry see that their is a chance to make money in this market. So they will invest ever more money into capital goods in an attempt to be able to produce cheaper products so they can also get a piece of the pie.

So you see greed in this case is actually good, this greed fuels competition among the capitalists. It is the greed that allows people to afford goods that at first could only be afforded by richer people. It is the greed that has allowed for the poor to afford cars, tv's, and cell phones as opposed when they could only be afforded by the richest of people.

Greed is not the problem, the State and its regulations to restrict competition is the problem.

1 http://mises.org/daily/5388

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