If you didn't read my previous post on Wednesday, 2/26/2014, maybe you should. This is part two of a comparison between Marxism and capitalism. We're going to take a look at how the new perpetual motion machine driven automobile would be marketed in a purely capitalistic system.
With a capitalistic economic system, the car will be priced according to its value relative to the alternative products. In the first place, the car will use about $13,200 less in gasoline in the first 100,000 miles. There are also a number of consumers that are environmentally conscious. Those consumers have historically been willing to pay quite a bit more for a hybrid, even when the improved gas mileage doesn't justify the price differential. With the small number of these vehicles available for sale initially, a consumer might pay $18,000 - $20,000 more than a traditional internal combustion engine powered car. In fact, if your first production line that was converted for the new engine can produce 30,000 engines, then the price should be set just low enough to entice 30,000 consumers to buy it. If the price is set lower, there will be shortages; consumers will go to the lot to buy one, but there won't be any on the lot. (Remember the laws of supply and demand. There is an ideal price that matches supply with demand. Setting the price too low will result in shortages because demand will be higher than the supply. A price that is too high causes the supply to exceed demand, and the lots will be filled with unwanted cars.) The automotive company will likely set the sticker price a little higher than the optimum price, and that allows them to use discounts to more precisely match supply with demand.
If the sell price is considerably higher than the manufacturing cost, as it would be in this case, the so-called excessive profits will result. Is that a bad thing? No. Liberals will tell you that the excessively high price prevents poor people from being able to buy this vehicle that would save them money. Fewer people will be able to afford a car that produces less pollution and greenhouse gas emissions. This is far from the truth. The production line can only produce 30,000 engines. That's all you're going to be able to sell unless another production line is converted for the new engine.
With the high profitability of the new product line, where will the automobile company invest their capital? That's right; they will convert another production line and double the production capability to capture more profits. Of course, to sell an extra 30,000 units annually, the price will need to be reduced slightly. This investment in new production equipment will continue as long as the company sees high enough profitability to provide the required return on investment. The percentage profit will drop as the price must be reduced to get more consumers to buy this new product.
The market will do a much better job of transitioning from the internal combustion engine to the new perpetual motion engine than the Marxist MessAPolitico would. The high profits generated by the new product will generate cash that can be used for purchasing the capital to convert the production machinery. The "excessive profits" will encourage the increase in production capability until minimum return on investment is reached. A new, alternative energy that is clean will be available without the need for government support. The high profits will generate tax revenues. The automotive company will increase its market share as consumers switch from other brands that don't have the new product. This will create good permanent jobs. In addition, this product that is very valuable to the American consumer will be very valuable to consumers around the world. The export business should grow drastically as well, creating more jobs.
There is another dynamic that will also happen. As more and more of these cars are on the road, the demand for gasoline will drop. That will tend to drop the price of gasoline for the folks still driving the traditional automobiles. The reduced cost of driving the old type cars will force the price of the new product down further.
I haven't written anything about the engineer that developed this new technology. This person could sell the patent to the highest bidder. That would undoubtedly bring a very high price, making the inventor independently wealthy. On the other hand, this inventor may decide to become an entrepreneur. If they have good business sense, the new company could start manufacturing the new product and selling it to all automakers worldwide. That would bring the entrepreneur massive profits, but there would be a lot of work and risk. A lot of capital would be needed to buy the production equipment, and a venture capitalist will be needed to make the business work. The venture capitalist will provide vital experience in addition to the capital, but they will demand a significant chunk of the stock. Unlike businesses funded by our tax dollars, this one would be funded with the venture capitalist's money. Venture capitalists won't throw their own money after a project unless it has a good chance of success.
I don't know how you feel about it, but this capitalistic system seems to make a lot more sense than Marxism. Capitalism worked very well in America for over 200 years. Marxism has been tried by numerous countries around the globe, and none have seen good results. The MessAPolitico might tell you that the rich are taking money from the poor and making them poor, but I would beg to differ. Marxism not only makes the rich poorer, but it makes the rest of us poorer too. When capital investment becomes less profitable, there will be less of it invested. Dry up the capital, and you won't have jobs. Does that sound familiar? The MessAPolitico thinks that they are smarter than the others that just didn't execute socialism or communism the "right" way. Use your common sense. How can Marxism ever work?
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