Four surprising differences | AIER

If my presence on this earth has any special purpose other than being a loving and responsible father to my son, then that purpose is to teach the basics of economics. Even after adjusting (as far as I can) for professional biases, I have no doubt that there is no body of knowledge more important for understanding society than economics, and few as important. And the most important part of the economy is the economy. principlespopularly known as “Economy 101. “Probably at least 90% of the many harmful government policies being implemented or proposed at any given moment would be stopped if the majority of the population were well versed in the basics of economics.

At the beginning of each semester, unlike most economics professors, I spend a couple of hours convincing my students (most of whom are still too young to buy adult drinks) how different the world they live in is. to know from the world what was known to most of their ancestors. I highlight four aspects in which the lives of those of us who live in today’s capitalist world are drastically different from the lives of almost all people just a few centuries ago.

Amazing prosperity

The most obvious difference between our lives today and those of our pre-capitalist ancestors is that we are fantastically richer. Ordinary people today sleep under hardtops and walk on hard floors in houses equipped with plumbing, electric lights, closets full of food, closets full of clothes, and garages or driveways full of cars. We are so rich that it is likely that our pets live better today than our human ancestors before the industrial age.

Although this truth about modern living is often spoken about, it should not be repeated too often. We are so accustomed to our impressive wealth that we take it for granted. And what is taken for granted is seldom appreciated and properly understood.

Trust in strangers

The second point in which our life is drastically different from that of almost all of our ancestors is that our survival, unlike our ancestors, depends almost exclusively on strangers. Prior to capitalism, Jones personally helped produce many of the goods he or she consumed. Jones probably had a hand in hunting directly, building the family hut, weaving cloth for the family’s clothing, or tending the crops and animals destined to be the family’s food. Most of the other goods and services consumed by Jones, but not directly produced from his or her labor, were produced by people personally known to Jones, such as the village blacksmith, shoemaker, cooper, butcher, tailor, tanner, carpenter, and wheelwright.

Today, in contrast, we in a capitalist economy not only do not personally help produce the goods we consume, but we also have no idea of ​​the identity of almost everyone who did have a hand in the production of the goods we consume. Nearly everything we consume is produced for us by people we don’t know—people we don’t know.

Think of a shirt on your back, boots on your feet, salami in the fridge, a light bulb over your head, a smartphone nearby, gasoline in your car, and the polio vaccine that still protects your body. Ask: Who made these things? You have no idea about their names, faces, religious beliefs, political affiliations, or physical locations. And none of these people know you. Yet these outsiders, who do not know you and therefore do not seem to care about you, have somehow been forced to work to produce valuable things for you.

Wow.

There are many strangers

The third point, in which our life today is categorically different from the life of all people who lived before the dawn of capitalism, is that the very number of people whose knowledge, skills and efforts are needed to produce the goods and services that we used to consume on a regular basis is astronomical. Not only is our survival today entirely dependent on strangers, the number of strangers we depend on is staggeringly high.

This reality is true even for seemingly simple goods like jeans, oranges, and window panes. But this reality is best seen when thinking about a more “modern” yet mundane commodity like a smartphone. The glass on the front of the phone is made from materials that some strangers found during research and then processed into glass by other strangers. Yet other strangers programmed the codes that make the phone work, while other strangers developed microprocessors—little wonders that were physically produced on machines made by other strangers and then taken to a factory to be assembled by other strangers. Each app is, of course, the product of the minds of other strangers.

I don’t know – and no one could have known – the exact number of people whose efforts went into making your smartphone and keeping it running. But I am sure that this number is much more than one million – in fact, it is probably several times more. When this number is added to the number of strangers whose efforts were directed towards creating your living room sofa, your HVAC system, the latest medicines you have ingested, your car, and the commercial flight on which you next go to visit your parents or conclude this business deal, the number of strangers who usually work for you is probably over a billion.

More wow.

No one knows how to make any modern product

The fourth categorical difference between our lives and those of our pre-capitalist ancestors is that almost everything we consume is something no one knows or can know how to make. This incredible statement deserves to be repeated: almost everything we consume is something no one knows or knows how to make.

The most famous explanation for this wondrous reality is Leonard Reed’s brilliant 1958 essay “i, pencil. “Making something as mundane, as inexpensive, and as seemingly simple as an ordinary pencil requires the knowledge and efforts of so many different people that no single person, and no committee of indefatigable geniuses, can possess such knowledge. This unimaginably vast amount of knowledge is dispersed in the minds of countless specialized manufacturers, almost all of whom are unfamiliar with each other, as well as with the end users of their products. And we have such an abundance of pencils that the average American worker today needs to work only 13 seconds earn enough income ten cents – buy a new pencil.

Consider this fact: the average (“non-supervisory”) American private sector worker today who earns about $27 per hourcan earn enough income in a matter of seconds to buy something whose production is so complex that no single person can hope to know fully everything related to its production, and hence it requires the knowledge and labor of millions of strangers. .

What is the cause of the great and enormously successful coordination around the world of the productive efforts of billions of strangers? And why is this coordination so silent and continuous that we take it for granted? We hardly notice it.

We hardly notice this vast phenomenon of global cooperation and coordination, that is, until our attention is drawn to it by a competent teacher of economics. The task of this teacher then becomes the task of uncovering the logic of how market prices, profits and losses, competition, and innovation drive the specialization and countless efforts that make our wonderful world a reality.

The learning adventure is great!

Donald J. Boudreau

Donald J. Boudreau

Donald J. Boudreau is Senior Fellow at the American Institute for Economic Research and the F. A. Hayek Advanced Study in Philosophy, Politics, and Economics Program at the Mercatus Center at George Mason University; board member of Mercatus Center; and professor of economics and former chair of the economics department at George Mason University. He is the author of books Essential Hayek, Globalization, Hypocrites and idiotsand his articles appear in publications such as Wall Street Journal, New York Times, US News and World Report as well as numerous scientific journals. He has a blog called Cafe Hayek and a regular column on economics for Pittsburgh Tribune Review. Boudreau received his Ph.D. in economics from Auburn University and his law degree from the University of Virginia.

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