Category Archives: Economics

Ancient Civilizations in the Americas

Ancient Civilizations in the Americas

The oldest civilization recognized by mainstream archeologists is the Norte Chico circa 3,500 to 1,800 B.C. or about 1,700 years. https://en.wikipedia.org/wiki/Norte_Chico_civilization

The longest civilization was the Mayan circa 2,600 B.C. to about 900 C.A. or about 3,500 years, almost 1,000 years longer than Ancient Egypt. I am puzzled by this civilization that achieved so much in the areas of science, medicine, astronomy, and many other areas but totally missed out on the wheel.

The Olmecs thrived from 1,650 B.C.A. to 350 B.C.A. or about 1,300 years.

The Aztecs from 1,345 – 1,521 or about 176 years.   

And then finally the Incas from 1,400 – 1,532 or about 132 years.  

I am puzzled that the Incas, in such a short time, were able to have the ability to move over 20,000 massive stones (some weighing as much as 300 tons) five miles from a quarry site, across a river, and over 1,000 feet up the side of a mountain. Once there they were able to carve them so that they all fit together so close (without the use of mortar) that even a razor cannot penetrate the joints.  https://en.wikipedia.org/wiki/Sacsayhuaman

Aldi

Aldi

Recently while at coffee with our local coffee club a friend asked why Aldi’s prices are so low. He was puzzled why a German Company could enter the US market and be successful at their prices. Since I do the majority of my grocery shopping at Aldi, I shared my observations.

In general, their business model is similar to Dollar Generals. They use the very old business management 80/20 formula. They only permanently stock the 20% of the items that make up 80% of the typical shoppers’ dollar volume. This concept allows them to operate a high volume with a small format store requiring a smaller initial capital investment. This small format is more convenient for shoppers. By concentrating their volume on a relatively small number of items they increase their purchasing power on these items. The small format also reduces the store labor required as well as the parking requirement.

Aldi moves ahead with Long Island expansion | Supermarket News

However, this is just the beginning.

  • All of their employees are cross-trained for all labor tasks.
  • Most stores are under 10,000 sq ft very easy and quick to shop
  • Their front-end system is state of the art. Their scanners are ultra-fast and accurate. Their card terminals are also incredibly fast. My observation is that their checker throughput is at least double what I observe at Walmart and likely 3x faster.
  • Occasionally, there will be no one to check out so, like DG, the checker is off stocking or performing some other task.
  • 90% of their stocked items are their own label, but they maintain high-quality standards.
  • All of their restockings is with full cases (no individual units), but they still are sold individually.
  • At our local store, they operate most shifts with no more than five persons. Their labor to gross margin ratio is extremely low.

Everyone who shops there is aware that they do not bag groceries and incentivize the return of the carts, but in reality, these are very minor cost savings factors.

The result is that until someone else catches on they will always have the best prices by far on most items. It would be interesting to know their weekly gross margin per square foot and compare it to Walmart.

Interestingly Aldi does have a direct competitor in Europe. That company is Lidl and they use essentially the same business model except they stock more “branded” items. ALDI is actually two companies (they split when brothers disagreed). Aldi NORD owns Trader Joes in the USA, while Aldi SUD owns and operates Aldi in the USA.

Capitalism and Adam Smith

Adam Smith is considered by many to be the father of Capitalism. His “The Wealth of Nations,” is a seminal book that represents the birth of free-market economics, but it’s not without faults. It lacks proper explanations for pricing, or a theory of value and Smith failed to see the importance of the entrepreneur in breaking up inefficiencies and creating new markets.

The basic definition of Capitalism is: “an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.”

History of Free Market Capitalism

Capitalism came about following feudalism, which took place during medieval Europe. Feudalism was a European system where military service is traded for land. This was the primary economic system in Europe in the 16th and 17th centuries.

Then came about the Dutch East India Company, which was founded in 1602. This was the first public company and marked a shift toward capitalism. The major economists that developed theories surrounding capitalism include Adam Smith and Karl Marx.

Adam Smith theorizes that capitalism is part of natural human behavior that is aligned in trade and commerce. Marxism says that capitalism is an unusual system that could be replaced with a superior system. Marx believes that capitalism is essentially powerful people taking control.

Is Free Market the Same as Capitalism?

A capitalist system and a free market system are both economic environments that are based on the law of supply and demand.

They both are involved in determining the price and production of goods and services. On one hand, capitalism is focused on the creation of wealth and ownership of capital and factors of production, whereas a free market system is focused on the exchange of wealth, or goods and services.

Some key features of capitalism include the competition between companies and owners, private ownership and motivation to generate a profit. In a capitalistic society, the production and pricing of goods and services are determined by the free market, or supply and demand, however, some government regulation may occur. On the other hand, a private owner in a capitalist system can have a monopoly on the market and prevent free competition.

A free-market system is an economic system based solely on demand and supply, and there is little or no government regulation. In a free market system, a buyer and a seller transact freely and only when they voluntarily agree on the price of a good or service.

For example, suppose a seller wants to sell a toy for $5, and a buyer wants to buy that toy for $3. A transaction will occur when the buyer and the seller agree on a price. Because a free-market system is based solely on supply and demand, it leads to free competition in the economy, without any intervention from outside forces.

The problem, as I see it, is the polarization that occurs between the proponents of Capitalism and Socialism. What is see are advantages and disadvantages of both economic systems. Communism has failed since it devolves into authoritarianism and creates the abuse of by the elite which is rails against. Some Socialist leaning countries have successfully provided and excellent standard of living for their citizens. Capitalism has served our country well in many regards, despite the recent decline in purchasing power by our middle class.

My preference is what I have termed “Participative Capitalism” where the vast majority of our citizens participate and benefit from the system. For more detail on this concept please refer you to my Book: