Capitalism Simplified

John Brown was a tailor. He had been apprenticed at the age of thirteen years and had worked hard at his craft all of his life until, by the time he was forty, he owned his own shop and was making a modest living for his family and for the three journeyman tailors who worked for him. Then Elias Howe invented the sewing machine.

John Brown was not a Luddite. Rather than resist innovation, he borrowed a hundred pounds from a money lender and used it to purchase three of the new machines. He then hired three girls from the village to operate the machines and, in six months, John Brown was turning out five times as much clothing as he had before, enabling him to easily pay off the hundred pound loan with interest. Furthermore, since every seam was lock stitched, the product was far superior to anything that he and his three journeyman tailors had ever been able to produce by hand.
And what of those three journeyman tailors? Harry Black, William Green, and George White, following John Brown's lead, each borrowed a hundred pounds and bought three sewing machines of their own, each hiring three village girls as operators. The competition forced John Brown to lower his prices, in turn forcing Black, Green, and White to lower theirs. Thus twelve village girls had more money with which to buy better clothes at a lower cost.

Harry Black was not a meticulous man, and he failed to train his operators properly, resulting in many mistakes. His product, therefore was inferior to that of Brown, Green, and White, and his scrap cost was higher. As his sales and his revenue dropped, he tried to compensate by purchasing cheaper, inferior cloth from the weaver, thus further reducing the quality of his product. Competition from Brown, Green, and White prevented him from raising his prices to cover his losses, and at the end of the first year, Harry Black went out of business. His three operators found ready employment with Brown, Green, and White, who added a sewing machine apiece to compensate for the loss of Harry Black's contribution to the market.

The pressures of competition induced William Green to look for ways to increase the productivity of his four operators. He noticed that they spent almost half their time cutting patterns, a task that could be handled by someone less skilled than a sewing machine operator. Green therefore hired eight pattern makers to feed precut patterns to his sewing machine operators, thus doubling his output and easily paying for the increased payroll. When faced with Green's competitive edge, Brown and White were forced to follow suit, thereby adding twenty-four more villagers who had the means to buy the increased output of clothing.

George White was a man with an inventive turn of mind, and he found an even more profitable way of meeting his competition. Elias Howe's sewing machine was powered by a hand crank, allowing the operator only one hand to guide the cloth into the needle. George White hired the local blacksmith to fashion a long crank arm attached to a foot treadle, enabling the operator to power the machine with her foot and use both hands to position the work piece as she sewed. The result was a phenomenal increase in operator output. George White patented his idea and he and the blacksmith borrowed money and founded the White Sewing Machine Company, which manufactured foot powered sewing machines and sold them to Brown and Green and to tailoring shops all over the world. thereby reducing the cost of clothing for everyone

Capitalism is an awesome machine. The process of borrowing money and using it in the pursuit of personal profit inevitably results in increased wealth for the public at large. Moreover, Capitalism creates competition, which improves quality by automatically culling inferior producers from the marketplace. Furthermore, Capitalistic competition automatically generates innovation and invention, which not only increases the wealth available to the public but lowers the cost.

Three hundred years ago, wealth consisted of land and gold. The Industrial Revolution spawned a flurry of intellectual and economic activity that relegated that world to the trash heap of history. In the twenty-first century, wealth is defined as the product of Capitalism.

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