4.2.4 Production and Consumption

4.2.4 Production and Consumption

What are the origins of contemporary economic globalization?

Producers and retailers of goods want to make money, and consumers want to save money. Producers can sell more goods, increase the amount of profit they make on each sale, and invent new and better products that will appeal to consumers. Consumers want the best product at the lowest possible price. New and improved products also lead to increased production on a national and international scale. The invisible hand comes into play again.

Consider the example of transportation. People have always needed some way to get around. Once upon a time, they walked everywhere on land. As time went on, they harnessed the power of the animal to help them move from place to place, from horses to camels to elephants.

In the early 1900s, Albertans depended on the horse or the horse or train for transportation.


Few adults walk or take a horse and buggy now. Why did such a drastic change occur? The profit motive combined with technology led to inventors plus investors developing a new product to benefit mankind and make money the Invisible Hand!

By combining the internal combustion engine with a horse buggy, a wonderful contraption was invented. The 1885 Benz Tri-Car Motorwagen was invented by Karl Benz, and it is considered to be the very first first automobile.

The Tri—Car Motorwagen on the far right was a bit awkward, as you can see from the photo-awkward to build and awkward to drive. From the study of the invisible hand, you know that as various entrepreneurs (people who take risks to start their own businesses) began to compete in the automobile trade. They needed to make better products and streamline the manufacturing process. They needed to make lots of cars at low cost so their sales and their profits would be high.

Lowering the cost of production: Henry Ford introduced the idea of an assembly line for making the Model T, the first affordable automobile designed for the average American family.

• The assembly line increased production and standardized the product.
  
  
• When each worker had a specific job, he could become highly skilled and efficient.
  
  
• Because this decreased the amount of time needed to produce a car, many vehicles became available.
  
  
• As supply exceeded demand, Mr. Ford increased the wages of his workers so they could afford the car they were helping to assemble.
  

Production, Consumption, and the Invisible Hand

• Producers try to sell as many vehicles as possible at the cheapest possible prices.
  
  
• Producers try to build cars at the lowest possible costs of production.
  
  
• Producers compete to make better and more interesting vehicles, with more interesting shapes, colours, and gadgets, with better motors, better safety records, and improved fuel efficiency because consumers want and demand better and newer vehicles every year.
  

What about today?

The invisible hand is working in our globalizing world. When producers want to make cars for the lowest possible price so they can make more money, they can move their manufacturing plants to places where workers are paid less.

For example, General Motors moved one of its largest automobile factories from Flint, Michigan, USA, to Silao, Mexico.

• By using Mexican workers, General Motors paid less money in wages.
  
• Shareholders made money.
  
• People in Silao made money.
  
• Costs stayed low for car buyers.
  
• American GM workers lost their jobs.
  
• The economies of entire communities collapsed.
  

Digging Deeper

Roger and Me by Michael Moore is a documentary that shows the effect of globalization on the city of Flint, Michigan, that lost its car manufacturing factories to Mexico.