I saw a poll the other day, and it showed that an alarming number of Americans today don't know that our economic system is capitalism. I guess some folks would say that we lean more toward socialism today than capitalism. There is certainly some truth to that. I believe that the respondents to the poll weren't trying to express that though. It is more likely that the American education system doesn't clearly explain the difference. Also, communism and socialism were nearly unanimously vilified by our leaders during the cold war. Now that our global adversaries are Islamic terrorists rather than the communists, we just don't focus on the contrast between capitalism and socialism.
In the days when America was known as a beacon of freedom and capitalism around the world, our most successful business leaders and entrepreneurs were heroes . The most successful ones made the most profits and grew their businesses into large, multi-national corporations. Today, the Democrat politicians and the media love to tell us about how some corporation made record profits, while their workers only earned $X/hour on average. Another refrain is that the products the company is selling must be over-priced, and that's why they are making record profits.
I am going to write a fictional story today that illustrates the fallacy of this liberal/socialist thinking. For years, entrepreneurs have been trying to develop a perpetual motion machine. There was an inventor, Joseph Newman, that had a patent application in 1979 for a perpetual motion machine, but the United States Patent Office denied the application. A perpetual motion machine is able to produce as much or more energy than it consumes, and this would allow it to be started and kept running forever (perpetually) without injecting any additional energy. To do this, the perpetual motion machine must be greater than or equal to 100% efficiency. The US Patent Office said the application was denied because Newman's machine wasn't greater than 100% efficient. They said his output power calculations were flawed. However, there was a lot of discussion about this machine and others up through the early 1980's in technical journals and magazines.
Imagine that some engineer came up with an actual working perpetual motion machine. With this machine in an automobile, the driver could simply start the engine rotating with a battery and starter, and it would just keep running. There would be no need to purchase gasoline or electricity or anything else to power this car. Also, the engine produces no pollution or greenhouse gases whatsoever. Just to make this really compelling, the cost of producing this engine happens to be less than the equivalent horsepower gasoline powered internal combustion engine, and it will fit right into the same engine compartment.
With this background, how much should the automobile company charge for their new vehicle with this engine? Karl Marx would tell us that the new vehicle should cost less than the ones with a gasoline engine. After all, Marxism says that products and services should be sold at a low fixed mark-up above production costs. If the automotive company said that they have a large investment in new equipment and tooling to make the new engine, Karl Marx would say that it doesn't matter. Getting a high return on investment shouldn't be necessary. Marxism dictates that your return on investment is what it is based on making that small profit on each unit of production.
It's not hard to imagine that initially, the company that bought rights to use this engine doesn't have a very high production capability for this new design. In year one, they can build about 10% of their cars with this engine. The company has a 20% market share in the United States, therefore about 2% of the cars sold in the USA will have this new design. What do you think will happen when these automobiles are sold at a lower cost than the ones with gasoline engines?
The folks with cars that require gasoline will not only pay more for the car, they will also spend money on gasoline. If the average car gets 25 miles/gallon, they will use 4000 gallons in 100,000 miles. At $3.30/gallon, that will cost $13,200. Why will anyone want to buy a gasoline powered automobile? Everyone will want the new design, but very few will find any at the car lot for sale. The waiting time for ordering one will be years.
The gasoline engine cars will not sell. The only buyers that purchase one will be the folks who got their car wrecked or have one that is totally worn out. They won't be able to wait years for the new vehicle. How much will that used car be worth compared to a new one that doesn't require the expense of buying gasoline? Your trade-in won't be worth much either. Will the Marxists make the dealer give you more for the trade-in since it cost more to manufacture? Not likely.
Will the company making this new product have a huge incentive to build more of these cars? Maybe I should ask if this company will ever make any of these cars. The fact is that selling the same number of cars this year with the lower cost engine will result in lower sales dollars and less profits than last year. Marx would say that it shouldn't matter. Maybe a communist or socialist country that owns all of the businesses will be the place to do this, because they won't care about or even want a profit. A private company will buy the patent and put the new design away where it will never be found; they don't want to reduce their sales and profits. Come to think of it, why would the engineer bother to invent this new machine? They will be expected to sell the patent at their cost plus a small mark-up. What is their incentive to invent anything?
Friday, I will present a capitalist's way of introducing the new product. You can compare and contrast the two approaches and decide for yourself. Which is better for everyone? The MessAPolitico will never tell you that they are pushing Marxism, but that's what they are doing. The MessAPolitico will say that they definitely aren't socialist or communist if asked. The MessAPolitico is betting that your public education and college indoctrination won't provide you with the critical thinking skills required to understand which is best for you. Hopefully the readers of this blog will know better.
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