Eric Palmieri: Luxury into Necessity: Capitalism and the Standard of Living

engaged-citizen-avatar

There has been no economic system in the history of the world that has increased the standard of living more than capitalism.  Products that are born into the marketplace as luxuries of the few, eventually become the necessities of the many.  Think of all the products that the vast majority of Americans use that were once symbols of opulence enjoyed by a very small minority of wealthy individuals.  From refrigerators, automobiles, washers, dryers, and cell phones to air conditioning, Internet access, and television, capitalism has turned the indulgences of the rich into items that are accessible to the vast majority of people in America.

When a person buys his or her first air conditioner or car or dishwasher or cell phone, the acquisition is instantly life changing.  No more sweltering through the oppressive heat of summer, no more walking to work or taking the bus, and no more scrubbing, all while enjoying the ability to communicate with anyone at anytime and at the push of a button.  These items represent a substantial increase in the standard of living for the masses, and their availability at affordable prices is the result of capital accumulation and mass production, two of the most fundamental characteristics of capitalism.  When the government impedes capital accumulation through taxation, it slows down production, which in turn slows down the process by which people can increase their standard of living.

Now, critics of capitalism often claim that it was free market capitalism that created things like child labor and that it was government that eradicated the practice.  The truth of the matter is that child labor had existed for the entirety of human history until the advent of capitalism.  It was industrialization, big business, and mass production that finally generated enough wealth for families to stop sending their children to work.  Child labor rates dropped significantly during the period of industrialization and the government only stepped in when the practice was already near extinction.

It’s important to remember that the only reason children worked in the first place was the fact that families could not survive without their incomes, a fact that had been the case for millennia.  Let’s take a look at how child labor rates changed during the late 19th and early 20th centuries. The figures below give trends in child labor from 1880 to 1930.

Labor Participation Rate for Children 10 to 15 Years Old (%)
1880 1900 1930
Males 32.5 26.1 6.4
Females 12.2 6.4 2.9

The data above were gathered from U.S. Census and researched by Robert Whaples of Wake Forest University for the Economic History Association (EH.net).  As you can see, child labor dropped significantly over the 50-year period between 1880 and 1930.  The federal government did not pass the first child labor laws until the Fair Labor Standards Act of 1938, when the practice of child labor had already been all but completely wiped out.  It was capitalism, not government, that was responsible for ending child labor for the first time in human history.

In case you’re thinking, “it was welfare for poor families that caused the reduction of child labor,” think again.  The U.S. government didn’t create the national welfare system until 1935.  So, as the masses’ standards of living began to rise, the cost of living began to fall.  The availability of cheap goods and services meant that children no longer needed to supplement their families’ incomes by working on farms or in factories.  The quality of life increased steadily and consistently until the early 1930s and the advent of the Great Depression.  Interestingly, and contrary to popular belief, it wasn’t capitalism that caused the collapse of the national economy; it was the central banking practices of the Federal Reserve (and other government interventions) that caused the crisis.

If we want to increase the standard of living for all people, especially the poor, the best thing we can do is to allow business to flourish unimpeded by government intrusion into the marketplace.  What people today might view as a “cushy” lifestyle will become the norm in decades to come, until enough generations have passed that the reality of what life used to be like has been wiped from the national consciousness.

The standard of living will rise, the cost of living will fall, and people will be able to pull themselves out of poverty.  Actually, in many ways, one could argue that people will eventually be carried out of poverty by the kind of wealth that can only be generated by innovation, capital accumulation, investment, and mass production.  In other words: free market capitalism.

 

Eric Palmieri is a Libertarian activist for free societies and free markets studying Austrian Economics through the Mises Institute’s independent study program.  He writes for various online publications and manages his own blog, ericpalmieri.com.  He lives in North Providence, Rhode Island, and can be reached by email via contact@ericpalmieri.com or @libertyquaker on Twitter.

 



  • Joe Smith

    It was capitalism, not government, that was responsible for ending child labor for the first time in human history

    The great depression with its massive unemployment drove wages down to where adults would work for what before would only be accepted by children – employers thus opted to take an adult (generally more productive) over a child at the prevailing wage – then add compulsory education and finally FSLA.

    If you want to say that’s capitalism, no issue, but it wasn’t the growth of “family incomes”, it was the changing mix to industrialization combined with mass unemployment.

    On your larger point about capital accumulation and the subsequent growth of mass production – let’s not sugarcoat the history here as if “free market” capitalism was behind this.

    There was capital accumulation, usually centralized into a monopoly/oligopoly situations where crony capitalism was rampant and fostered such concentration (look at the Erie War, Tammany Hall, etc.), One could argue though that corrupted centralization was actually necessary to push industrialization and the migration from agricultural to manufacturing and then a more “free market” type of capitalism could spring forth.

    I’m not necessarily disagreeing with the point about government taxation (and subsidization) distorting economic growth, but please don’t hold out the past as periods where capitalism was free of government intervention, it was just manifested in different forms.

Quantcast