Cheap Capitalism; A. Rogers

Human well-being is also enhanced by product differentiation, in which firms in the same industry produce different versions of the same product. This is another variability phenomenon that is omitted from the theory of perfect competition. Product differentia tion has at least three sources. The first is that the perfect information assumption of the model does not hold in the real world. Information is an economic good which is costly to obtain, not a free good. In partic ular, the optimal specification of esthetic and utilitarian properties of the product, which best satisfies consumer taste, is not known a priori or by divine revelation. It must be discovered, and the only available method is to try various specifications on the market. Hence firms do so, each competing to be first to find what consumers regard as the best form of the product. The second source of product variation is that consumer tastes vary. If consumer preferences were all the same, product vari ation would be transitory at best. Early in an industry's history firms might try different specifications, but unsuccessful versions would be eliminated from the market, sucTHE BENEFITS OF VARIATION 313 cessful versions would be copied, and prod uct variants would tend to converge over time on the single optimal specification. In reality, however, human tastes often vary widely with regard to the desirable charac teristics of a particular product, hence there frequentlyis no singleoptimalproductspecification. Different versions, satisfying var ious subsets of the product's consumers, will continually be produced. The third factor generating product variation is that consumer tastes change over time, so that experimentation in product specification is an ongoing necessity.

In this process as in others, participants in the market are continually responding to relative price changes and profit and loss signals in ways that shift scarce resources from the lower to the higher valued of diverse human ends. Here as in so many other ways, humans benefit from variation. The world really would not be a nicer place if all fast food chains produced identical hamburgers, and all cars were the same, as some economists seem to claim. As the Frenchman said, more wisely than he knew, "Vive la difference!" D CHEAP CAPITALISM by A. M. Rogers T he watchword of the '90s is said to be "frugality. " But during hard economic times, it is especially important to keep in mind that frugality Under capitalism means something very different from frugality un der other economic systems. To illustrate, meet a friend of mine named Max. Max considers himself the personifiA. M. Rogers is an attorney and physicist living in Florida.

cation of frugality. He takes great pride in just how much he can do without and, whenever we talk, he always slips in some tidbit on this aspect of his character. For example, he has told me how he puts card board in his shoes rather than purchase new ones. I know he owns just two pairs of pants and an equal number of shirts. He runs his shower water a trickle at a time and he keeps his heat down low even in the winter. In fact, he keeps his heat down so 314 THE FREEMAN • AUGUST 1993 low at his New York house that the gas company sent out men to replace his gas meter. The gas company just couldn't be lieve the meter was measuring the gas cor rectly, despite Max's proud assurances it was. Though Max may look and act like a pauper, he happens to be a man of profes sional standing who earns a decent income. Unlike Max, most people in his income bracket are flaunting their wealth by pur chasing boats, fancy automobiles, designer clothing and, at the least, brand new shoes.

Yet Max understands that, just as it is capitalism that allows these other people to display their success with a dazzling array of material goods, it is also capitalism that gives his reverse snobbery meaning. When Max tells his tales of meager living, he is fully aware of who is listening to him. He knows that part of the enjoyment he gets in telling his stories depends on the back ground of his audience. He wants to leave his listeners wondering and more than a little astonished. The one question he wants his stories to raise is "why?" Why does Max choose to live this way? Aha! A choice is involved. Imagine, instead, that Max is living in a country such as Russia or one of its neigh boring republics. Or imagine that Max lives in a Third WorId country. In these coun tries, an average professional, such as Max, may not have the choice to go out and buy new shoes when he needs them. The aver age person, in these countries, may not be able to take a shower even if it is just a trickle.

In materially and economically impover ished countries, a person cannot decide when, where, and how to be frugal. In these countries, the average person has no choice of what not to spend his money on. If there is no food, he does not eat. Or, if there is bread but no meat, he eats bread. Or, ifthere are shoes but no coats, he has shoes but not a coat. It is frugality by poverty in these countries, not frugality by choice. It is true, however, that unlike many peo ple these days, Max is unique in that he is not forced to be as frugalas he is. But he is likethe people who are forced to be frugal in that he has, as they have, a choice over what items and objects on which to economize. For example, Max lives in a nice house. Though it's not a mansion, it is a house inconsistent with someone who has card board in his shoes. Ironically, to Max, a nice house was just too essential to cut back on.

He sees food, clothing, shoes, and heat as luxuries. Consequently, it is on these that he economizes. And even poor people can occasionally splurge on the things they en joy most whether it be, for example, a movie or clothes or cigarettes. Being frugal under capitalism is a matter of individual choice and, for this reason, it is something different from being frugal under other economic systems. In America, most persons still can decide what they want to do without or on what they want to economize. Each person's strategy or tac tics in being frugal will be unique to him. It will depend on what he values, what he is indifferent to, what he can most afford and myriad other individual factors. Choosing what not to spend your money on requires that there be material goods around on which you can possibly spend your money. Freedom of frugality requires the enormous wealth of choices afforded by the capitalist system. Ironically, it takes a rich capitalist country to give cheapness real meaning. D THEFREEMAN IDEASON L1BERlY FOR YOUR OWN GOOD by Roger Clites D uring the last half century more and more experts have appointed them selves to make us do what is good for us or, as they usually say, "It is for your own good." Sometimes they try to force us to bend to their will by exerting social pres sure. Frequently they do it by obtaining the power of government to make us do their bidding.