Capitalism and the Magic of Deflation

Capitalism has been a force for good since its inception. It has led to the development of what is known as the modern world, it has created products that we would have otherwise never known we needed (iPhone), and has paved the way for the strongest nation to have ever existed. While our current generation tries to cry out against capitalism, protesting in the streets while destroying the hard work of others and refusing to give to a common cause. They cry out because they have been taught the great lie of American shame, and have never been introduced to the greatness that comes with capitalistic competition.

One of the great phenomena that comes with capitalism is deflation. Deflation is defined as a general decrease in prices in an economy. Deflation is also used to describe how the dollar can purchase more products than it used to. For example, the Ford Model T costed more when it was first introduced than many cars do now; computers from the 80’s and 90’s costed more and performed worse than modern computers today. Deflation can hurt an economy in certain times, but as we have seen throughout history, it can also help an economy.

Deflation is constant in a capitalistic society, and this is due to two reasons. The first reason has to do with technological advancement; products become cheaper to produce and vendors are able to produce more of it at a time, driving the costs of production down, making the final price go down over time. The second reason is competition between businesses in the free market; businesses have to constantly compete with one another for customers, and must always offer their best price to the consumer. Costs of production could go down, but without competition there is nothing driving businesses to lower their prices.

Deflation is a powerful tool that can lead to the betterment of a society and a higher standard of living. In the early 20th century, agriculture was still very primitive. Even though tractors were introduced in the 1800’s, many farmers still used mules, farmhands, and spent all day harvesting crops. As a result, products such as flour, bread, corn, and other agricultural commodities were relatively expensive. It wasn’t that farmers were greedy or keeping their prices high on purpose; even as competition in the agriculture market was as healthy as ever, prices were high because of underdeveloped farming techniques. We compare the situation of the early 1900’s to now, and we see vastly cheaper agricultural commodities because of technological advancements and an even healthier competitive market, with more businesses entering the market to make a share of the profits in the food market.

The advancement of computers since the 1980’s, or even the early 2000’s, shows how powerful a tool capitalism can be for increasing the standards of living in an area that accepts its principles. From the MacIntosh to the iPhone to the modern supercomputer, the progression of microchips in computers have become exponentially more powerful in the last twenty years. Even an off-the-shelf Dell Inspiron from Office Max is more powerful than a top-of-the-line supercomputer from the 2000’s. The same can be said for laptops, and the same can definitely be said for smartphones. Current products are more efficient, more powerful, and cheaper than those of 10 or 20 years ago.

Deflation can be bad, but it can also be wonderful for a society. Deflation can show how healthy a market is, how much it has progressed, and how many more people are able to get their hands on previously unattainable products. If it weren’t for capitalism, deflation would not exist. But because there is an always-increasing efficiency of production and capitalistic competition between vendors, products are inevitably going to become cheaper over time, allowing more and more people to enjoy them who otherwise could not. Capitalism is said by academia to be the enemy of societal progression; the truth is that capitalism is the only reason society is able to progress, and deflation is simply a side-effect.

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