A Funny Little Love Story

Devlin Bronte Rachele

Bedford, Pennsylvania

Tuesday, March 30, 2021

Dear Evan,

Capitalists in this country benefit from border security, a Coast Guard, a highly trained standing military. There are various research and data collection agencies which provide information including demographics and solutions. There is a highly developed interstate highway and state roads which help with the transportation of supplies and raw materials to the Capitalist’s company and the transportation to the market. There are regulations so communications flow without jamming. There are federal, state, and local law and code enforcement agencies which recognize and protect private property. We have offices which keep and protect various records including proof of ownership. We have an aviation agency which keeps our airways organized and safe. We have agencies which work to ensure our food and drugs are safe. It should be noted that before the FDA came on the scene Meat Packing Companies had no problem packing what might have been meat in formaldehyde just to name one minor thing the FDA changed. There are public schools to educate the labor force not only to do math and be of a certain level of literacy but also to take care of themselves and help to maintain their health and ability to work. This education also helps to condition the labor force into accepting the reality presented by those on top. There are agencies and regulations to reduce the amount of accidents in home, at work, and on the road which besides saving lives and limbs, help to save capitalists billions. We have protectionist laws to give our capitalists an edge over foreigners who wish to sell their products within our borders. We have a judiciary to help with disagreements and determine culpability and remedies of infractions. We have institutions for criminals and those needing special assistance. We have standardized weights and measures and regulations which help to make banking safe and encourage deposits. There is a system of accreditation so people can expect a certain level of professionalism in fields where it is needed. There are environmental agencies which protect our environment which aids in maintaining our own health and wellbeing as well as giving renewable resources a chance to replenish themselves so they are available for future harvests and profit potentials. All of this and so much more are Socialist Programs. If they didn’t exist we would have to do all of this and so much more ourselves.

In the animated movie “Heavy Metal” (1981) there is a wonderful part near the beginning. A taxi driver runs into this young lady whose father had been murdered over this item called the Lochnar. With the young woman passed out and draped over his shoulder he seeks help from the police but walks away in disgust when the officer starts to explain the price structure.

In the Roman Republic Gnaeus Pompeius Magnus or Pompey the Great (106 BCE-48 BCE), who was a very good friend of Gaius Julius Caesar (100 BCE-44 BCE) until wealth and power got in the way. Pompey opened a fire company for fire plagued Rome. But his fire company actually differed from what we know today. If your home caught on fire Pompey’s firemen would respond but do absolutely nothing. Pompey would make an offer on your house. If you agreed he would set his men to work putting out the fire. Pompey then owned your home. If not he would continue to make offers which were reduced greatly as your home burned and you refused. Of course as time went on and people learned how he operated. His victims, I mean clients would more likely take his first offer. He had managed to acquire a lot of property for incredibly low prices this way. From which he was able to finance his own political machinations.

Just imagine having to pay every time you used a road, having to pay out of pocket for the military, for the police, for rescue services. In the early 1800’s many companies did offer a host of programs to their employees such as company housing, doctors and clinic, day care and schools to maintain their workforce but this put a burden on the profit margins. By adopting Socialist Programs the Federal, State, and Local Governments have made things far less complicated. People can live their lives and businesses can focus on their business expanding those bottom lines.

Capitalism has a strange little love affair with Socialism for the above reasons but its affection goes beyond this. Besides creating an environment which is highly conducive to the stability which Capitalists crave there are millions, billions to be made through supplying and gaining contracts for these and many other socialist programs. This is an opportunity for long term income. Any good businessperson understands the value of a lucrative government contract to produce goods and services for these programs. Just ask Cornelius Vanderbilt (1794-1877). Many vast American Fortunes owe their existence to government contracts. Many found their start in profiteering from the American Civil War. In fact when I was in the military there was a book about government contracts where a nut for a bolt cost $400. A lot of these situations occurred because when the contract was made it was at a time when the item was needed and projected to be needed for the life of the contract. However, something happened which changed the government’s needs and the item was now obsolete. But realizing the impact of the change economically for the regions and businesses which created the product, production was continued. Or the contract was fulfilled through buying it out. But what we are going to discuss in this letter is a closer look at a more intimate part of this love affair.

Before we continue we should review some basic economic laws. This is an attempt to clarify some complex ideas. Law of Diminishing Returns is akin to too many cooks spoil the broth. Imagine you own a housing development. Your cost includes materials and labor. Material cost is pretty much fixed as what you need to build each house is the same. Labor cost on the other hand is variable. The quicker you can build these homes the more you save on labor. It is the quicker you can sell the home and start recouping your costs and making a profit. With one carpenter the job will be slow and there are accidents raising the cost of replacement material. When you add another carpenter the work begins to move smoother and faster with fewer accidents and you will be able to realize a sale faster. You decide to add even more carpenters and as expected the rate and accuracy of completing the homes increases. You continue to add carpenters and eventually you reach a point where they are slowing the process down. They are actually in the way and also their added salaries are eroding whatever profit margin you might have with nothing more in return. Another aspect of this law is overall production. Let’s say the market is primed for thirty additional homes but you continue to build more than this number. You will have too many for what demand there is. You may have to reduce your profit margin to sell the remaining homes which were produced over the optimum level of thirty.

This law also helps to explain why the line representing the Law of Supply is curved. For a refresher the Law of Supply is understood as it is necessary for the price to increase to encourage a supplier to produce more. Reason for this is to maintain the profit margin as the cost of increased capacity to produce more is to be absorbed. If increased production was going to reduce the profit margin as stated in the Law of Diminishing Returns then the producer would be a fool to do so. So, it is essential for the price to increase to maintain a profit margin which will induce the producer to supply more products. A curve is created as the price must increase ever more to pay for extra workers, storage, and production space and other factors of production. . Even if it is just a temporary situation the profit margin must be attractive enough for the producer to endure the additional cost associated with increased output.

Another law is the Law of Diminishing Marginal Utility. A good way of understanding this is imagine you have been abandoned on a desert island with very little resources. One day you are rescued. You are hungry and thirsty. You stop at my restaurant to get something to eat. Well to sell you the first hamburger, fries, and soda takes little effort and you gladly pay whatever. But since you are my only customer I want you to buy another meal. However, you have been satisfied but are still a bit hungry. I am able to sell you another burger, fries, and a soda but to do so I had to offer a discount. Now as you are fuller and more satisfied you have very little desire to buy another burger. Your desire has lost the pull it had which led to the purchase of the first burger meal you ate. So, to entice you to buy another burger I need to give a very deep discount which is eating ever more into my profit margin. I am almost at cost. Basically, once your desire has been sated you have little use for more of the same.

This goes along with helping to explain why a line depicting demand is curved. In the Law of Demand buyers will demand more as the price is reduced than what they will demand when the price is high. It is curved because as stated in the description of the Law of Marginal Utility in order to convince the market to buy more of something you will have to offer ever increasing discounts because the market is perceiving increasingly less utility with each additional item.

Okay, you say. This sounds pretty straight forward. When demand goes up so does the price which produces the revenue to expand production and meet demand. Then as the rise in demand sated the price is reduced to encourage additional sales. But it really isn’t just that simple. As production increases yes, it is good because you have expanded your capacity and increased the payroll which does allow for even more economic stimulation but this all means nothing when demand has been sated. You have assets which have fallen into disuse and now lay idle and there is a cost to these assets lying idle not just to the capitalist but to the community as well. With the reduction of production you have less money (or the ability to make other purchases) meaning that the economy begins to slow.

There is another major factor to consider in all of this. I like to refer to this factor as Meaningful Demand. As mentioned in an earlier letter entitled “Schism of Isms” supply and demand are incredibly important to an economy based on material wealth. The less you have of something and the more of a demand for it, the more valuable it will be. Want is incredibly important in a Capitalist Economy. Without Want you will have little ability to make a living off of the resource you control. This also applies to money. If everyone has all the money they can handle then the money will have far less demand and not needed. If everyone could produce all they need you will have little chance of selling them something. You must have Want and you must have Want for money in order for it to be of value. So needless to say there must be a limited supply and massive demand. This is further complicated when you consider that in a society where money is seen not only as a simple medium of exchange but as a goal you will have hoarding. In order to have huge amount of wealth others must do with far less. This all means that there is only a portion of the population which is able to purchase the item at a price which is beneficial for the capitalist. This is what I call a Meaningful demand. Although many may demand it, only a portion is able to pay the price which is sufficient to maintain the capitalist.

All of these Laws of Marginal Utility, Diminishing Marginal Returns, Supply and Demand, Maintaining Want, Meaningful Want, and others factors, comes together to say there are limitations on the size of a business. If you desire to create a long term income from the resources you control you must limit the amount of production. This in turn limits your income per year. There is another side to this sword. If your item has such a strong demand but you are limited to only producing it at a price most are not able to afford there will be demands for Reasonable Substitutes which the others who cannot afford your price are able to afford eroding the demand for your product and possibly threatening your income and influence.

But here’s the thing if you were able to reach more of those who demand your product you could increase your capacity and realize a savings through Economies of Scale which would help to maintain your profit margin. You would be able to employ more people injecting more money into the economy which could make it easier for many others to purchase your product eliminating or reducing the threat of Reasonable Substitutes and maintaining demand for your product maintaining your source of income and influence. Also with larger cash flows you may be able to finance research and development to maintain that edge over Reasonable Substitutes. But this is a Catch 22. How do you reach a level of the market which enables you to grow to a size which allows you to reach this level of the market?

Henry Ford (1863-1947) understood this. He could raise capital to create his business but in order for him to make a continuing profit from his automobiles he needed to do what he could to expand the market’s Meaningful Demand. He understood that if he could create this then he would have a fertile market to sell his cars and be able to stay in operation. He did it by increasing the money supply among the working class through paying his employees an unheard of $25 a week when the average worker was making only a dollar a day. Problem is when material wealth is seen as the answer it is hoarded and invested only in the best interests of those who command the hoards. This may not help the market to develop a Meaningful Demand for your product. When Ford paid his employees this much instead of the wealth being surgically applied it was spread out amongst the workers or the bulk of the consumers giving them the ability to buy automobiles. This in turn created a Meaningful Demand which allowed Ford to produce at a level which allowed him to take full advantage of the Economies of Scale. Which in simple terms meant he was able to order resources in such great quantities that it allowed him to enjoy price breaks. At the same time he was able to expand production to a level which allowed him to keep his prices low enough to maintain demand. It should also be noted that his demand of raw materials helped to feed the economic well being of other companies as well. Another note is that the development of consumer credit also helped to redirect hoarded wealth to expand the buying power of more consumers. Again, this all helps to create more of a demand but not just a demand but a demand which can afford the price you require. Thing to note here is that Ford was producing a durable product which required spare parts to maintain. It was the production and sales of spare parts which created a major income stream for Ford to be able to afford these wages as well.

Now not every producer or seller has this ability. Not every producer is creating something which has secondary markets of spare parts to help keep them afloat. Even if they did have the ability it erodes their profitability and does put a pressure to raise prices which could reduce demand significantly. Without any outside help there will only ever be a certain amount of the population which can afford the products it demands. This restrains the economy and creates resentment by those who have a demand but not the ability to pay. Enter Social Programs to the rescue; government programs redistribute wealth to those who had to do without in order for a few to be wealthy. Instead of Henry Ford having to make the sacrifice of his profit margin for the expansion of meaningful demand the burden is shared by all and it benefits most. This influx of money to more people enables the meaningful demand to expand which allows the producers to increase sales without lowering prices and erode their profit margin. This increase in meaningful demand allows the companies to expand and hire more people. The expansion of production allows more companies to take advantage of Economies of Scale. At the same time the increase of buying power enables those who had not been able to enjoy the benefits of their community to now purchase goods and services. There is a demand for production and a demand for expansion of capacity meaning larger plants which means more development and construction, more supplies, more employment and more tax revenues.

So basically not only are businesses able to profit from lucrative government contracts but the economy is able to expand through the increase in Meaningful Demand without requiring the sacrifice which Henry Ford had to make. Socialism also helps to stabilize and protect the market. It helps to create an educated and healthy workforce. It helps to maintain prices which produce the margin which allows the owners to maximize their profit margins and enjoy the living standards they desire. These programs provide valuable intelligence to owners. They also help to defuse situations of those having to deal with less so others can live in the lap of luxury.

One final benefit of Social Programs is it helps to create scapegoats for those on top and ambitious politicians. We aren’t able to produce and offer full employment because we have to pay taxes. It is a sordid little love affair but a love affair all the same. Socialism and Capitalism do go hand in hand very well. Without Socialism Capitalists would be like the Medieval Lords in having to take care of everything in their territory limiting their wealth. Capitalists need Social Programs to distract blame from their greed limiting what is available to others. Capitalists love the benefits of Social Programs; they just don’t like paying for them.