Out of Control Policy Blog

The Power of the Market

The power if the market is best illustrated by the personal computer.

By now you may have seen this 1982 article by James Fallows in The Atlantic on computer technology. The article is making the rounds of the blogosphere. Fallows is writing about the awesome computer he purchased in 1979 for $4,000 and still used at the time he wrote the article.

The article is hilarious for its amazement at the power of what we now think of as truly primitive technology.

But the real power of the article is that it gives us the clearest example of how a generally free market has made us "wealthier" by producing better products, more cheaply, and more efficiently. Consider that $4,000 in 1979 dollars is the equivalent of roughly $8,500 in today's dollars. For that high price, Fallows got a computer with a green-and-black screen, a cassette tape drive (to save his documents) and 48k of memory. The each tape held 100k of documents.

Today's American consumer can purchase a personal computer for $1,000, or about 1/8th the price of a 1979 computer. According to W. Michael Cox, senior vice president at the Dallas Fed, 1 MIPS (1 million instructions per second) of computing power in 1980 cost just over 41 weeks of labor time to purchase. By 1997, 1 MIPS of computing power could be purchased with the equivalent of 9 minutes of work.

The power of the market is its ability not just to increase wages, but to dramatically increase the choices and purchasing power of those wages.


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