Would you give up the internet for 1 million dollars?
An important task for communicating ideas is to ask the right questions. And this question, asked by The Fund for American Studies, is particularly effective and thought-provoking. Almost anyone who uses the internet would turn down the money and agree that it the ability to go online is a priceless commodity.
In this new video Dr. Michael Cox uses this question as a valuable teaching platform to explain the “built in welfare transfer system” of capitalism.
When a new product comes out we all get in line for it. The wealthiest people are in the front of the line and they pay the highest price for the worst version of a product. Real-life Gordon Gekkos buy the products when they’re expensive, and that lets the rest of us enjoy the cheaper, better versions.
Think, for example, of the iphone.
The first generation iPhone was introduced in the summer of 2007 starting at $499. Two years later, in anticipation of the iPhone 3G S release, a market survey showed that over 40 percent of then iPhone owners had household income of over $100K. This figure is twice as much as the remainder of the cell phone market and contributed to the elite vibe of the iPhone.
But today, over 108,624,000 units have been sold. And, as Cox points out, an iPhone 3G could be picked up for $39 (with a two year contract, of course).
As this graph shows, a lot more of us now own iPhones. And only five years after the original version was made available! This does not even account for the resale of early generation phone when current users upgrade.
This cycle of continued societal advancement is described well in the video.
New technology lets us keep up with loved ones across the globe. It improves lives and saves lives in countless ways.
“And that was brought to you by the private sector.”
Cox says it starts with millions of Americans just going to work each day – trying to make things better for themselves and their families.
“Things get better because in order for me to succeed, I have to pay attention to your needs and wants. I have to create a product that you will voluntarily buy. So I cannot make myself better off apart from making you better off as well.”
While the internet and iPhones are relatively new, this market reality is not. First articulated as the “invisible hand” of the market by the philosopher and economist Adam Smith around the time of the revolutionary war, this lesson was absorbed into the American work ethic from the beginning. It is unfortunate that today people have forgotten (or are willfully ignorant of) this lesson.
He intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. (Adam Smith, The Wealth of Nations par. IV.2.9)
Dr. Cox and The Fund for American Studies do an excellent job of making this lesson again relevant to our high-tech society. The note of positivity and optimism is also refreshing.
As the video concludes, if we possess so much that we have so highly valued – internet, smart phones, etc – are we not wealthier than we before imagined? That is truly a million dollar question.