With a proper understanding that we need actual wealth to satisfy our needs and wants [read “Our Need for Wealth” on OCR], an obvious question arises that must be thoroughly answered before we can even discuss proper government policy–including Ohio’s economic policies. How do we create wealth? We know that planet Earth has provided us with a certain amount of resources, from water to land, from minerals to animals and plants, from wood to iron, and so on. Our task in life is to convert those various limited resources into actual wealth.
The necessary task of wealth creation is completed by our most limited resource: ourselves. For most of history, humans spent their time providing for all of their needs, from food and shelter to the fulfillment of desires. This process was largely done on family farms or in tribes. In a normal day, an individual or family would be responsible for growing their own food, making their clothes and household appliances, and otherwise providing for themselves.
In roughly the eighteenth century, however, the economic process began to change. An individual started focusing his efforts on producing one or a few items, and he would depend on the production of others to produce the vast majority of other things necessary to satisfy his needs and wants. In other words, rather than each individual working to produce all his needs and wants, each individual produced one thing that satisfied the needs and wants of others. For example, one person would stop focusing on his own food production and spend all his time making shoes. Another individual would end efforts to make his own shoes and use his newly acquired free time for additional hunting. The significance of this process is that the labor needed to create all the wealth necessary to support human life was divided among individuals. This type of process is known as a division of labor economy.
The benefits of this kind of economic system are numerous. Such a system allows individuals to specialize in a specific profession and thereby continually increase the amount of knowledge and skill in that particular profession. In addition, such a system allows individuals to concentrate on the kind of work that best suits their abilities, talents, and available resources. These benefits result in the overall increase in production of goods and services. Accordingly, such division of labor permits mankind to be more efficient in the creation of wealth. America’s economy is based on this division of labor system.
The next obvious question is why did such an economic system develop? The answer is not random circumstances. A division of labor economy arose out of the free market’s development of several factors, including property rights, savings and capital, money, prices and profits, and economic competition. The existence of all these factors is necessary for a division of labor system to function.
Understanding the essential roles of these various factors in a division of labor economy is indispensable to evaluating Ohio’s–or any government’s–economic policies. Once these roles are understood, it will become obvious that a division of labor economy flourishes where the government respects the existence of these various factors. On the other hand, a division of labor economy struggles or even results in financial crashes like that of 2008 when the government does not respect the existence of such factors.
Therefore, in the coming weeks, Ohio Conservative Review will feature a number of articles exploring these factors and their roles in a division of labor economy. Before long we will turn to how these factors have impacted our economic problems at the national and Ohio levels. As we will see, our economy is struggling because our governments actively attack the factors essential for our division of labor economy to thrive. The consequence is that many in our economy are devoid of labor; much less are they producing wealth.
John Langenderfer is a practicing attorney with a focus in consumer and commercial law. He can also be reached on his Facebook page..