On capitalism, people will talk about individual producing goods with $0.5 and selling it for $1, for example, thus earning a profit of $0.5 (some sort of wealth creation, or is it really?) and we all start assuming everyone is a winner.
If that's the general understanding, then let me give an example. Suppose India suddenly becomes so effective and efficient that it becomes a net producer, that 1 billion of the population each spend $0.5 and produce $1 worth of goods. Suppose the Indians spent $0.5 billion ($0.5 x 1 billion Indians) on Country A's human labor to produce the goods. Suppose the people of Country A, feeling grateful for the employment, spend all of their $0.5 billion worth of salary/wages on the Indians' finished goods of $1 billion. Now that the people of Country A only has $0.5 billion, so where should the other $0.5 billion comes from to buy the other half of the Indians' finished goods? Assume there's no other buyer from other countries other than the people of Country A, then the Indian economy will have 0% (zero) growth. Now we all know that the more money is introduce into the market, the higher will be the inflation rate. Since the global economy recorded net growth every year, where in the world does the extra surplus of $0.5 billion, in this case, comes from?
Note:
1. Assuming this extra $0.5 billion is net wealth after taking into consideration the inflation.
2. We all know in reality no country can be as effective and efficient as India in this simplified story-telling example, so the equation will be far more complex.
3. This country of India and Country A can be substituted with individuals, small companies, big corporates, government, etc.
2006-12-21
15:25:24
·
5 answers
·
asked by
Anonymous