Prosperity Time Machine (2 of 2)

People have become tremendously more prosperous over the past two centuries, at least those who live in countries that practiced something like free-market capitalism for a sustained period.

In my last post, we looked at how incomes have grown in different parts of the world. In this post, the time machine will take us back to look at how our lives have been enriched by products and innovation.

England in 1725

Lorna Weatherill published a study of consumer goods in England for the years 1675-1725. According to probate inventory records for 1725, only 22% of people owned books, only 34% owned clocks, and only 40% owned a mirror. No mention of automobiles or iPads. Clearly, people in developed economies today have many more material possessions than people of three centuries ago.

USA in 1901

In 2006, the US Bureau of Labor Statistics published a study called 100 Years of U.S. Consumer Spending. It shows that households a century ago had to spend a larger percentage of their total spending on necessities like food and clothing, leaving them with less money to spend on non-essentials and luxuries. The graph below summarizes:

1901 pct household spending

In 1901, 80% of household spending went to food, clothing, and housing, leaving only 20% for non-essentials. By 2003, only 50% of spending was needed to cover the basics, so families could afford to spend the other half on non-essentials. i.e., spending on non-essentials grew from 20% to 50%.

What does this mean? The average person in 1901 had to focus more on survival and meeting the basics. The average person today can afford more entertainment, vacations, etc.

Life-changing products

Now let’s look at the dramatic increase in some life-changing products.

Washing machine: Doing laundry used to be a tiring chore that involved hours of work. Pump the water, carry the water, boil the water, scrub laundry on the scrub board, wring out excess water, hang laundry to dry, throw out the dirty water. Much more work, for less cleanliness! The first electric washer came along in 1908, and the automatic washer in the late 1930s. Today, 85% of Americans own one.

Vacuum cleaner: Cleaning rugs was also quite a chore in yesteryear. Rugs and small carpets were taken outside, hung up, and dust and dirt beaten out of them. Larger carpets were left in place and simply brushed. Again, more work for less hygiene. The modern type of cleaner with vacuum and a collection filter came along about 1900. In 1938, only 27% of US homes with electricity had a vacuum cleaner. Today, 98% do.

Refrigerator: During the second half of the 1800s, people started using iceboxes to refrigerate food. An icebox was basically a cooler: an insulated wood or metal box that held large blocks of ice. But you had to have ice delivered to your house, and the process was messy. Electric refrigerators came along in the 1920s. Today, more than 99% of US homes have a refrigerator.

Telephone: A telephone usable by consumers did not exist until about 1880. By 1920, one third of US households had a phone. But most were party lines, so roughly two to four households shared the same line! By 1960, 78% of households had a phone. Today, over 98% of people have phones, and many are portable but powerful smartphones capable of an amazing array of tasks.

Television: Less than 1% of Americans owned a TV in 1948. And they were black and white, since color did not come along until the 1960s. Today, more than 98% own a color TV, and most have much larger screens than in the past. Furthermore, anyone over 50 can confirm that we have many more channels today, and a much clearer picture!

Vehicles: In 1925, Americans owned about 0.5 vehicles per household. Today, it’s about 1.9 vehicles. Mobility is nice. And today’s cars are much better than in 1925.

Housing: In 1900, a typical new home contained 700 to 1,200 square feet of living space, with zero or one bathroom. By 2000, the typical new home had grown to 2,000 or more square feet, with 2.5 bathrooms. Household crowding (more than one person per room) was 20% in 1940, versus only 6% in 2000. Almost half (45%) of all homes lacked indoor plumbing in 1940, versus only 1% in 1990.

We’ve only scratched the surface, but that’s enough. Clearly, growth and innovation over the past couple centuries have allowed the free people of the world to achieve miraculous levels of prosperity and leisure compared to the back-breaking labor and struggle for survival that characterized most of human existence.

Not just for tycoons

Some people think that capitalism benefits only business tycoons, but they are very wrong. Capitalism certainly benefits the middle class, and poor people as well.

As just one indicator, ownership of the life-enhancing products mentioned above is widespread, even among poor households. Census Bureau data show that 98% of US households below the poverty line have refrigerators, 96% have televisions, 83% have air conditioning, 81% have cellphones, 68% have clothing washers, and 45% have dishwashers. Also, 80% of households with income below $25,000 own one or more vehicles.

No matter how bleak poverty is, it would be worse without capitalism.

Thank you, capitalism

We should thank free-market capitalism for prosperity. Capitalism has enabled innovation and mass production of automobiles, air conditioning, televisions, dishwashers, and all the rest. Capitalism has also enabled higher incomes. Capitalism boosts entrepreneurialism, productivity, and innovation.

As mentioned in my prior post, prosperity improvements are not accidental. Countries that achieve the highest prosperity tend to possess A) economic freedom, B) necessary but limited government structure, and C) a culture that respects and values commerce and innovation.

Capitalism follows a marvelous pattern:

  1. Before Product X is invented, it is unavailable to anyone, even kings and queens.
  2. Then Product X is invented, but at first, it’s often a high-cost luxury that only the wealthier can afford.
  3. Then free-market competition drives down the price, and capitalist productivity drives up incomes, and Product X becomes mass-produced and affordable to many people.
  4. Then Product X’s features and quality are improved as time passes.
  5. Eventually, average and even poor people are able to own a superior Product X that was once beyond the reach of kings.

It is no exaggeration to say that capitalism is the only economic system that has provided luxury to all levels of society, from high to low. Think about that. It is amazing.

Life is incomparably better than just a century or two ago. And not just for tycoons, but for all of us. Thank you, capitalism.

Globally, too

A similar pattern occurs on a global basis. When telephones and antibiotics are invented in rich free countries, they might at first benefit only the rich free people of the world. But sooner or later people in poor non-free countries are able to obtain the phones and antibiotics.

In other words, people in poor non-free countries raise their own standard of living by ‘borrowing’ from the achievements of capitalism. Capitalism should get credit for this as well.

I encourage you to enter comments or questions below. Two rules: 1) be reasonably polite, 2) address the issue and avoid personal attacks.


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