In Jacobin’s series “The ABCs of Capitalism,” which I was browsing this morning after just receiving them in the mail, I came across this statement:

If a capitalist doesn’t produce at the lowest price, she knows that she will lose customers, if that continues, her firm will start bleeding money.

This is almost striking in its ignorance of the real world. The series purports to explain as simply as possible “how the system works” so that socialism can therefore be seen as the alternative. But in the real world, in the system as it exists, consumers weigh hundreds of factors in their patronage of businesses. Price is definitely one of them. But if the lowest price was the only standard, we wouldn’t have Whole Foods, Apple, Nordstrom, mansions, Bulletproof coffee, Hardback books, First Class flying, Mercedes, etc.

People buy things, not because they are the lowest cost, but because various other factors have added into the equation including quality, customers service, durability, name recognition, social status, price, style, accessibility, unique features, and on and on.

The capitalist profits to the extent that he arranges resources in a way that satisfies consumers, not merely in the potential price differential between costs and whatever the sales price is. This shows a shocking lack of understanding of how prices are formed across time and backward through the stages of production.

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