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In a mostly excellent book from Bill Bryson (At Home) we read the following:

Just at this time, sugar prices went into a depression and Beckford ended up uncomfortably exposed to the downside of capitalism (wintercow emphasis added).

Falling prices are a signal that the marginal value of a good (in this case sugar) is low. This important signal reflects the fact that consumers, given their current consumption levels and income levels, would not be willing to give much other stuff up to get more sugar. This important signal also reflects the fact that there is some producer, somewhere, that is able to deliver the sugar for this low price – in other words, not many resources are sacrificed in delivering the good to the consumers. It is also a signal to future producers that not a lot of profit opportunities remain in the sugar market and that perhaps their capital and ingenuity best be applied elsewhere (of course, this is no guarantee of being the right thing to do, profits and losses can only exist in an environment of uncertainty; in addition, the low prices of sugar may themselves stimulate profit hungry entrepreneurs to figure out ways to squeeze (pardon the pun) more efficiency from the production process – indeed we saw that happen as copper prices fell in the 1980s). Rather than being a downside of capitalism, falling prices of sugar are merely reflecting the operation of supply and demand. It is as much a downside of capitalism as the act of taking a temperature is the downside of the weather.

Furthermore, the undertone of the comment is irksome.*  So, falling prices are the way hapless and innocent folks get crushed by the capitalist machine … so there must clearly be some other system that does not expose people to anything like falling prices. And of course, if falling prices are the downside of capitalism, the rising prices must be great. I wonder if Mr. Bryson would celebrate the Irish potato famine for raising the price of another important carbohydrate in the mid-19th century? Indeed, he does not – as he spends some time on that lamentable incident elsewhere in the book.

Falling prices for a commodity are as much a downside of capitalism as falling votes for a candidate in an election represent the downside of democracy.

(*) No, I do not find this to be a simple misuse of words. The subtle anti-capitalism (as is his right to believe I suppose, it just seems odd to be an author capable of selling 6 million books on the open market to have such views) is throughout the book. For example, near the end he says (when discussing the advances in agricultural technology in the 19th century US): “Thanks to the McCormick reaper and other large, clattery implements, America’s prairies had become devastatingly productive.” Strange choice of adverbs, no?

Finally, he ends the book with four paragraphs on … climate change. This was a long book about the history of the interior of homes, but of course we still had to have the requisite threats that all of our current comforts of modern homes have threatened the planet and will inevitably cause too much damage for us to easily adapt to (including a loss of resources). His last words were, “The greatest possible irony would be if in our endless quest to fill our lives with comfort and happiness we created a world that had neither. But that of course would be another book.”

Fine, it would also be ironic if, you know, this view was incredibly short-sighted, or perhaps outright wrong. But that of course would be another blog post.

3 Responses to “The Downside of Capitalism?”

  1. sherlock says:

    I loved “A Walk in the Woods”. Now I don’t remember off the top of my head and I knew nothing about economics at the time, but what are the odds he criticized capitalism in that one?

  2. chuck martel says:

    I was aghast to find that the price of a dozen eggs at the local market had leaped from the already heady level of $1.25 to an inconceivable $1.79 in just a few days. Bryson must be pretty happy about that.

  3. Rod says:

    One of the most interesting stocks I used to follow was Alexander and Baldwin, a Hawaiian company that owned the Matson shipping lines, the Wailea resort in Maui and other huge amounts of land in Maui and Kauai. In the footnotes of their annual report, I discovered a discussion of the sugar business around the world, including the protected sugar business in the United States.

    Sugar is protected in all the countries that produce it, and the price you see in the Wall Street Journal is the spot price, which applies to a very small (less than five percent) of the sugar produced around the world. Now, I’m generally and nearly always opposed to protectionism, but I’m not in favor of being a sucker, either. As long as the United States has plenty of land on which to grow sugar beets, and, in the case of Hawaii, sugar cane, I say we let the price fluctuate according to supply and demand in this country and not subject our producers to dumping by foreign producers. At the very least, it is arguable that we trade with foreign countries that are willing to buy our products, including agricultural products.

    At any rate, the choice of sugar as an example of how capitalism works is an odd one.

    Indeed, the USDA has screwed with agricultural markets entirely too much. Minimum prices tend to morph into maximum prices as a result of a “cheap food” policy pursued by the USDA since the Thirties. Price supports and the farmer-owned grain reserve are aimed at stabilizing the price of agricultural commodities in lean and fat years, just like Joseph did in the Bible. The net result is that the price hovers around the cost of producing corn, wheat and soybeans in the midwest, including the high cost of machinery. It takes enough of the gamble out of the business so that farmers are encouraged to go into debt to make capital purchases and then to live off the depreciation of their machinery. I have friends in Franklin County who have hundreds of acres in apples and peaches. The government does not subsidize them at all. They take their lumps in good growing years, but they more than make up for it in poor growing years, when prices are high. Overall, they prosper in the farming business, as opposed to their many neighbors in the dairy farming business. I think their example is one to follow: abolish all farm programs and let the market set the price, as it does in the apple, asparagus, lettuce, artichoke and peach businesses. This could be a hardship on consumers in lean years, but overall the market would take the weather and other uncertainties into account and make farming a profitable enterprise.

    As for the McCormick Reaper being a bad thing, it was worse to have all those strident Soviet workers out there cutting wheat with scythes. Today, most planting is done with no-till methods, and harvesting is done with combine crews who harvest the crop at its peak. The Russians, unfortunately, had seventy years of bad weather and breakdowns of their Rube Goldberg combines.

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