But of all these investmentflows, business fixed investment is the largest; it is also the most important to therise and fall of any capitalist economy
Business fixed investment is the largest and most critical investment flow in a capitalist economy.
Governments also invest: in public infrastructureand capital associated with public enterprises (like utilities, hospitals, or schools).Meanwhile, individuals invest in their own homes
Governments invest in public infrastructure and public enterprises, while individuals invest in their homes.
The two major types of fixed capitalare structures (buildings, factories, offices, pipelines) and machinery andequipment (machines and tools of all kinds, computers, telecommunicationsequipment, transportation equipment).
Fixed capital primarily consists of structures and machinery/equipment.
Real investment comes in several different forms. The most common is privatebusiness investment in fixed capital.
Real investment includes various forms, with private business investment in fixed capital being the most common.
Business Investment
Beginning of a new chapter, and it's going to tell us about the business and investments
Unique technologies, production methods, and cost savings can also givea firm a unique ability to earn profits (over and above “normal” returns).
This notes that unique technologies, production methods, and cost savings can give a firm the ability to earn above-average profits.
hoseprofits are what lure the corporate leaders; the threat of economic extinctionmotivates the followers
This concludes that corporate leaders are motivated by profits, while the rest are driven by the fear of economic failure.
sometimes in utterly phony ways (such as the billions ofdollars spent on ads promoting the idea that one brand of jeans is sexier thanothers).
This points out that these unique features can be created through genuine technical innovations or through superficial means like advertising
Growing sales generate a double benefit for firms:higher revenues, along with lower average costs
This highlights that increasing sales provides firms with the dual advantage of higher revenues and lower average costs.
economies of scale when average production costs decline as the volume ofoutput grows. Economies of scale are strong in most industries. They explain whyenormous companies continue to emerge and dominate the market even in newindustries (think of giant technology companies like Google, Apple, and Amazon),despite the highly competitive nature of the economy
This suggests that economies of scale are prevalent and explain the emergence and dominance of large companies, even in competitive industries, as exemplified by companies like Google, Apple, and Amazon.
This powerful arithmetic also explains why small companies cannot compete inmost industries, and why all companies constantly try to boost sales to make moreefficient use of their fixed capacity.
This points out that the underlying economics explains why small companies struggle to compete and why all companies aim to increase sales to better utilize their fixed capacity.
Instead, it was designedto provide intellectual justification for a theory: Walras’ theory of generalequilibrium, which claims that free-market exchange is the best way to maximizehuman well-being
This explains that the concept was created to support Walras' theory of general equilibrium, which argues that free markets maximize human well-being.
Neoclassical economics relies heavily on a strange, idealized notion of competition,called perfect competition.
This sentence introduces the concept of "perfect competition" as a central, yet idealized, idea in neoclassical economics.
And they can’t focus solely on keeping their own workers inline, extracting maximum work effort for minimum cost, selling their output, andmaking sure their operations are efficient and profitable.
This highlights that companies can't only concentrate on internal operations like controlling workers, maximizing output, minimizing costs, and ensuring efficiency and profitability.
In the real world, however, there isn’t just one company. There are manythousands of them
This sentence emphasizes that the economic landscape consists of numerous companies, not just a single entity.
We discussed the main forms of work that occur in capitalism in Chapter 5. Thebiggest share of work is performed by workers in private firms in return for wagesand salaries
Highlights that owners and managers oversee the work, with a cheeky aside about whether they actually work themselves.
Don’t forget, though, that it is ultimatelywork that explains production, not money.
Points out that work, not just money, drives production, and poses the question of where this work happens.
.For completeness, we could also draw smaller flows of profits going to smallbusiness owners, and smaller flows for their own consumer spending andinvestment. This would make our diagram very complicated. For now, just keep inmind that small businesses play a subsidiary role in capitalism; they depend on thelarger flows of corporate investment and worker consumption that are shown inthis map. Imagine a stereotypical small business, like a small retail shop: it dependson larger companies both to produce the goods which it sells, and to employ theworkers who are its main customers. Like a small shop, most small business isjust a “go-between”: facilitating spending transactions and minor productionfunctions that ultimately depend on the larger and more powerful forces drivingthe whole system.Stanford EFE2 01 text.indd 131 08/04/2015 09:26Stanford, Jim. Economics for Everyone : A Short Guide to the Economics of Capitalism, Pluto Press, 2015. ProQuest EbookCentral, http://ebookcentral.proquest.com/lib/forsythtech-ebooks/detail.action?docID=3440440.Created from forsythtech-ebooks on 2025-08-12 18:08:29.
States the core idea: small businesses aren't the main players; they depend on the bigger economic forces.
Capitalists These people (and their families) make up only a couple ofpercent of the population of advanced capitalist economies. They ownthe clear majority of financial wealth (including most business wealth –via either direct ownership of companies, or large holdings of corporateshares). They also control the operation of large businesses, either directlyas owner-managers or indirectly through their appointment of professionalexecutives (who themselves own large stakes in the businesses they run).Hired employees do most of the work in these businesses. Capitalists do notneed to work to survive, since their ownership of financial wealth generatessufficient income to live very comfortably. However, many do work (includingas managers of their own firms), and that work is productive (unlike theirstatus as owners – which is not, in and of itself, productive
Capitalists are a small, wealthy group who own most of the financial and business wealth in advanced economies. They control large companies either directly or by hiring executives. While regular employees do most of the actual work, capitalists earn enough from their investments to live without working. Some do choose to work, often in managerial roles, which can be productive—but simply owning wealth isn’t productive on its own.
Closing the Little Circle
This is the title, giving us a background/explanation on what the chapter is going to be about.
Why do we work? We must survive, and hence we require the basic materialneeds of life: food, clothing, shelter, education, medical care. Beyond that, wewant to get the most out of our lives, and hence we aim for more than bare-bonessubsistence. We want a greater quantity, and a greater variety, of goods and services:for entertainment, for travel, for cultural and personal enrichment, for comfort,for meaning, for security. We may also work because we enjoy it. Perversely foreconomists (most of whom view work solely as a “disutility”), most people arehappier when they have work to do – thanks to the social interaction, financialwell-being, and self-esteem that good work provides.
The passage presents a multifaceted view of work, acknowledging its importance for survival and material well-being, while also highlighting its potential to provide psychological and social benefits. It challenges the purely economic view of work as simply a negative aspect of life.
Is there a school in your neighbourhood? A hospital? A library? Who pays forthose buildings? Who works there? How do those public facilities compare withthe private homes and businesses around them? Are they newer, or older? Nicer, orshabbier? Is there anywhere a person can go inside in your neighbourhood (otherthan their own home) without having to pay money or buy something?Are the streets clean? If so, who cleaned them? Is the air fresh or smoggy? Arethere any parks in your neighbourhood? Is there anywhere to play? Can people inyour neighbourhood safely drink the water from their taps? How much do theypay for that water? And to whom
The consists of a series of questions prompting the reader to observe and reflect on the presence, quality, and accessibility of public services and infrastructure in their neighborhood.
The Economics for Everyone websiteThe overarching goal of this book is to make economics accessible and evenentertaining for non-specialist readers. That’s why we’ve kept the book short, usedplain language, illustrated it with Tony Biddle’s awesome cartoons, and avoided(wherever possible) the use of academic-style citations and references.For those who want to continue their study of grass-roots economics, however,we have provided additional information and resources. These are posted, freeof charge, at a special Economics for Everyone website, generously hosted by theCanadian Centre for Policy Alternatives (Canada’s major progressive think tank,and the co-publisher of this book)
The text describes the approach and supplementary resources for a book aimed at making economics accessible to a general audience. and also the passage emphasizes the book's commitment to making economics understandable and engaging, while also offering additional resources for those interested in deeper study.
The Economy and EconomicsTake a walkThe economy must be a very complicated, volatile thing. At least that’s how it seemsin the business pages of the newspaper. Mind-boggling stock market tables. Chartsand graphs. GDP statistics. Foreign exchange rates. It’s little wonder the media turnto economists, the high priests of this mysterious world, to tell us what it means,and why it’s important. And we hear from them several times each day – usuallyvia monotonous “market updates” that interrupt the hourly news broadcasts.Company X’s shares are up two points; Company Y’s are down two points; theanalysts are “bullish”; the analysts are “bearish.
The passage introduces the perception of the economy as a complex and volatile entity, often portrayed as such by the media. and it sets a tone of skepticism towards the common media representation of the economy, suggesting it might be overcomplicated and repetitive.
Building an economic “map”The book describes an economy of gradually increasing complexity – starting withthe simplest relationships between employers and workers, shifting our focus to theinteraction between companies, and then considering the roles of the environment,the financial industry, government, and globalization.To portray these increasingly complex relationships, we provide a series ofeconomic “road maps,” illustrated by Tony Biddle. The maps use simple visualicons to identify the major players, and connect the dots between them. By thetime we’ve explained our “big circle” at the conclusion of Part Four, this map willbe a very handy tool for finding your way around capitalism. Like any map, it willhelp you figure out where you are, where you want to go – and how to get there.Stanford EFE2 01 text.indd 9 08/04/2015 09:26Stanford, Jim. Economics for Everyone : A Short Guide to the Economics of Capitalism, Pluto Press, 2015. ProQuest EbookCentral, http://ebookcentral.proquest.com/lib/forsythtech-ebooks/detail.action?docID=3440440.Created from forsythtech-ebooks on 2025-08-12 18:08:29.Copyright © 2015. Pluto Press. All rights reserved.
Essentially, this passage outlines the book's approach to explaining economics through visual aids that build in complexity, with the ultimate goal of providing readers with a useful understanding of capitalism.
The Basics of Capitalism This part of the book studies the core activities andrelationships that make up capitalism. First we discuss work. Broadly defined,work (or human effort) is the essential ingredient that drives everything in theeconomy. But we don’t work with our bare hands; we must work with tools. Wehave to make those tools, and (in capitalism, anyway) someone owns them.Most work in capitalism is undertaken by employees who are paid wages orsalaries for their efforts. But much work also occurs without any payment,inside households, as people care for themselves and their family members.We describe this basic economic “circle,” in which profit-seeking investmentStanford EFE2 01 text.indd 8 08/04/2015 09:26Stanford, Jim. Economics for Everyone : A Short Guide to the Economics of Capitalism, Pluto Press, 2015. ProQuest EbookCentral, http://ebookcentral.proquest.com/lib/forsythtech-ebooks/detail.action?docID=3440440.Created from forsythtech-ebooks on 2025-08-12 18:08:29.Copyright © 2015. Pluto Press. All rights reserved.
This part shows the fundamental activities and relationships that constitute capitalism. Work, or human effort, is identified as the driving force of the economy.
Preliminaries The first part of the book defines the economy, and identifiesthe unique features of a capitalist economy. It also provides some historicalbackground. We discuss how capitalism emerged and evolved, and also howthe study of economics emerged and evolved. In both cases, we highlight theconflicts and controversies encountered en route to the present day. I believethat studying economic history and the history of economic thought is aninherently subversive undertaking. It refutes the assumption that capitalism is“natural” and hence ever-lasting, and the related claim that economics is theneutral, technical study of that natural, ever-lasting system.
This section lays the groundwork by defining what an economy is and pinpointing the specific characteristics of a capitalist economy.
The economy and societyThe economy is a fundamentally social activity. Nobody does it all by themselves(unless you are a hermit). We rely on each other, and we interact with each other,in the course of our work.It is common to equate the economy with private or individual wealth, profit,and self-interest, and hence it may seem strange to describe it as something “social.”Indeed, free-market economists adopt the starting premise that human beings areinherently selfish (even though this assumption has been proven false by sociobi-ologists and anthropologists alike).In fact, the capitalist economy is not individualistic at all. It is social, and inmany ways it is cooperative. The richest billionaire in the world couldn’t haveearned a dollar without the supporting roles played by his or her workers,suppliers, and customers. There’s no such thing as a “self-made” millionaire orStanford EFE2 01 text.indd 19 08/04/2015 09:26Stanford, Jim. Economics for Everyone : A Short Guide to the Economics of Capitalism, Pluto Press, 2015. ProQuest EbookCentral, http://ebookcentral.proquest.com/lib/forsythtech-ebooks/detail.action?docID=3440440.Created from forsythtech-ebooks on 2025-08-12 18:08:29.Copyright © 2015. Pluto Press. All rights reserved.
Basically, the author's trying to convince us that the economy isn't just about individual greed and competition. It's about how we're all connected and rely on each other, even in a capitalist system. It's a way of saying that everyone contributes, and nobody's truly "self-made."
It seems bizarre, but conventional economists mostly ignore these central facts(with the partial exception of the third). They don’t even use the word “capitalism.”Instead, they call our system a “market economy.” The fact that a few people ownimmense wealth, while most people own almost nothing, is considered accidentalor even irrelevant. They claim, incredibly, that the economy would be exactly thesame whether capitalists hired workers, or workers hired capitalists.
The author's basically saying that economists tend to gloss over the big stuff about capitalism – like how some people have way more money and power than others. Instead of calling it capitalism, they call it a 'market economy,' which kind of sweeps the real problems under the rug."
Most people have to work for others, in return for a wage or salary
This describes a core feature of a capitalist economy.
Capitalism has particular features and forces that need to be identified, just tounderstand how it works. This is true regardless of how you feel about capitalism.Just to understand what’s happening in capitalism, we need to identify and studyits crucial facts
Emphasizes the need to understand capitalism's specific characteristics
“Capitalism” and “the economy” are not the same thing – even though manyeconomists pretend capitalism is a natural, permanent state of affairs, and hence theonly economy.
Challenges the idea that capitalism is the only or inevitable economic system.
That’s why we see economists on the television news every night. We almostnever see educators, social workers, nutritionists, or architects on the nightlynews. Perhaps we should hear more from those other professions, and less fromthe economists. Their advice might actually be more important to our long-termeconomic well-being than that of the economists.
economists are overrepresented in media discussions, and that other professions might offer more valuable insights.
But in reality, economics should be quite straightforward. Ultimately economicsis simply about how we work. What we produce. And how we distribute andultimately use what we’ve produced. Economics is about who does what, who getswhat, and what they do with it.
This IS a simplified view of economics, focusing on production, distribution, and consumption.
Never trust an economist with your job
This is a provocative statement, suggesting a distrust of economists' advice, especially concerning employment.