Capitalism has been immensely successful, on many criteria. It ushered in theindustrial era, and the prosperity (for some people, but not everyone) that camewith it. It ruthlessly undermines old-fashioned restrictions and taboos, and probesendlessly to find new ways of generating private profit (some of which are sociallyuseful, some of which are not). It harnesses immense energy, creativity, anddiscipline from many of its participants

Most people think economics is a technical, confusing, and even mysterioussubject. It’s a field best left to the experts: namely, the economists.

Remember, a 10 percent improvement in productivityis just as good for employers as a 10 percent reduction in compensation.

Some receive noincome at all: like the growing army of “interns” who now work for free, in hopes ofeventually landing a paying job.

The ratio of labour costs to productivityis called unit labour cost. It represents the amount that employers must paytheir workers for each unit of output they produce.Employers strive to minimize unit labour cost, and they do this by addressingboth parts of the equation: reducing wages and boosting productivity. The followingsimple formula is a convenient way to summarize the various interactions betweenworkers and employers – often conflictual, and occasionally harmonious.Unit labour cost = Compensation = CompensationProductivity Intensity * EfficiencyTo reduce unit labour costs, employers can try to cut compensation (wages andbenefits) on the top of the equation, or they can try to increase productivity onthe bottom of the equation.

One defining feature of capitalism is that most production is undertaken togenerate private profit. (The other defining feature of capitalism is that most of thework required for production is performed in the form of wage labour.) In orderto generate and collect that profit, a specialized institutional form has emerged:the private company. Today private firms dominate the economy: their decisionsabout investment, production, and employment are the most important factorsdetermining whether and how the economy evolves, and how people work. Theactions of private companies are far more important on a day-to-day basis thanthings that governments do. This makes it incredibly ironic to hear governmentofficials claim credit for “good economic management,” or opposition leadersberate the party in power for “bad economic management.” These political debatesare mostly beside the point – since in reality it is businesses, not government, thatsit in the economic driver’s seat.

technology refers to a techniqueof production, not to a particular piece of equipment or machinery. The termis often misused to refer to equipment itself (“Wow, dude, you have someawesome technology in here!”). In its correct use, though, “technology”refers to knowledge about how to produce something – not the physical toolswe use to produce it. A new technology can be highly productive; but a toolor machine, in and of itself, is not.

economic growth is usually measured by the expansion of real GDP.Economic growth usually consists of two components: an increase in the amountof work that is performed, and improvements in efficiency or productivity(that is, increases in the amount of output produced by each hour of that work)

Profit represented anew, more subtle form of exploitation: an indirect, effective way of capturingeconomic surplus from those (the workers) who truly do the work. Marx tried(unsuccessfully) to explain how money prices in capitalism (which include thepayment of profit) could still be based on the true underlying “labour values” ofdifferent commodities. And he predicted the ultimate breakdown of capitalism,in the face of both economic instability (the ongoing boom-and-bust cycle) andpolitical revolution. Marx’s ideas were very influential in the later development oflabour and socialist movements around the world.

But much work also occurs without any payment,inside households, as people care for themselves and their family members

Urbanization accompanies specialization. People in cit-ies need to trade for food, meaning that the urban dwell-ers must provide goods and services useful for farmers.Urbanization promotes complexity. The more denselypeople are packed, the greater the degree of special-ization that can be accomplished. The historical trendis toward more specialization, more trade, and moreurbanization

At times, intermediaries may enjoymore trust than they deserve, enabling them to finance anunsustainable boom. Once the fragility of the intermediariesis exposed, the level of trust falls, and there can be significantadverse consequences for economic activity

Entrepreneurs constantly test new typesof specialization, leading to what Joseph Schumpeter calledcreative destruction, meaning new enterprises that drive oldfirms out of business. Modern production processes involvemany layers and many steps, making the patterns of specializa-tion highly complex.

But if they had allwrought separately and independently, and withoutany of them having been educated to this peculiarbusiness, they certainly could not each of them havemade twenty, perhaps not one pin in a day; that is,certainly, not the two hundred and fortieth, perhapsnot the four thousand eight hundredth part of whatthey are at present capable of performing, in conse-quence of a proper division and combination of theirdifferent operations.

Start at the front door of your own household. How many people live there?What generations? Who works outside the household, and how much do theyearn? How long have they been working there? How long do they plan to keepworking, and how will they support themselves when they retire? What kind ofwork goes on inside the household? How many hours? Is it paid or unpaid, andwho does it? Who does which chores? Are there any children? Who cares forthem? Does anyone else in your home require care? Do you own your house orapartment, or do you rent it? If you rent it, from whom? If you own it, how did youpay for it? What shape is it in?Now walk through your neighbourhood, and the next neighbourhood. Are thehomes or apartments all roughly the same, or different? Does everyone have ahome? Are the homes well-cared-for, or falling apart? Do most people have jobs?What sorts of jobs? Are they well off? Can they comfortably pay for the things theyand their families need?Watch your neighbours going off to work, school, or other destinations. Howare they travelling? In their own cars? On public transport? Walking? How muchmoney, time, and physical space is devoted in your neighbourhood to “gettingaround”?Stanford EFE2 01 text.indd 15 08/04/2015 09:26Stanford, Jim. Economics for Everyone : A Short Guide to the Economics of Capitalism, Pluto Press, 2015. ProQuest EbookCentral, http://ebookcentral.proquest.com/lib/forsythtech-ebooks/detail.action?docID=3440440.Created from forsythtech-ebooks on 2025-08-12 18:08:29.Copyright © 2015. Pluto Press. All rights reserved.

And the arrogance of economists is not neutral. Outside the academic world, thevast majority of professional economists work for organizations with a deep vestedinterest in the status quo: banks, brokerages, corporations, industry associations,and governments. Inside academia, too, the ideological influence of business andwealth is increasingly apparent over curriculum and research in economics –enforced partly through corporate and major donor funding of economics andbusiness schools. Whether in universities or in the real world, therefore, mosteconomists accept that competition, inequality, and the accumulation of privatewealth are inevitable, natural, and even desirable features of a vibrant, efficienteconomy. This value system infuses their analysis and their recommendations.