“Next to the right of liberty, the right of property is the most important individual right guaranteed by the Constitution and the one which, united with that of personal liberty, has contributed more to the growth of civilization than any other institution established by the human race.”
William Howard Taft, 27th President of the United States
Capitalism is an economic and social system in which private individuals and privately owned businesses produce all or most of the country’s wealth. Most economic decisions and the exchange of goods and services are voluntarily made through a network of markets. Private property is an essential principle of capitalism. Capitalism is based on competition and supply versus demand.
Since the 1960s, large scale government involvement in the market place and huge social welfare spending as caused many economists to label the US economy a “mixed economy.”
The theory of Capitalism - Why Capitalism works
Capitalism was invented because all previous economic systems were found wanting. The brilliance of Capitalism is that it uses the innate desire of a person to better their life in a constructive manner, based on the rule of law in a free society. Capitalism and freedom go hand in hand. Capitalism is unsurpassed in promoting creativity and ingenuity in people. New ideas rapidly produces new businesses with new jobs. Anyone, regardless of where you started from can succeed in capitalism. There are countless true stories in America of ordinary people making it big in our capitalistic society.
Capitalism works best when regulations create an even playing field for business and controls excesses. A strong moral code is extremely important to the proper workings of capitalism. Capitalism has a lot of problems when a large number of people are unethical. Socialism is better suited for societies that are more lawless and less moral. There is far less freedom and far more government control of society under socialism.
Accomplishments of Capitalism
Almost all the advancements that have made our lives so much easier and healthier are the result of capitalism in either the US or Britain. Capitalism eliminated mass starvation from the planet and ended poverty for the common man. Adequate nutrition and healthcare has resulted in a tremendous increase in life expectancy, and this is directly attributable to Capitalism. The dramatic reduction in infant mortality is the result of capitalism. Education for the masses and available free time are all the results of capitalism. Capitalism accomplished more in 150 years than socialism and every other economic system ever developed in history.
Ironically, capitalism even saved communism in Russia after the revolution of 1917. After the civil war that took place from 1918 to 1920, the economy was in ruins. In 1921, the Bolsheviks were forced to make drastic changes in economic policy, adopting what was called the “New Economic Policy,” which lasted until 1928. State ownership of production was abandoned. Foreign capitalists were encouraged to invest in Russia and private business was allowed in trade, services, and industry. Peasants farmers were left free to work their newly-won lands as they wished, selling their produce in the market place.
The experiment in limited capitalism worked so well that by 1927-28, the economy had recovered from the civil war and World War One. Joseph Stalin, who gained control of the Communist government by 1929, feared private ownership and the personal initiative it produced. This was a threat to communism he would not allow. Stalin set off on a brutal campaign to eliminate all private business and the collectivization by force of all agriculture - a total of 125 million peasant farmers.
The results of the elimination of private property by Stalin? The famine of 1932-33 in which MILLIONS died of starvation and disease.
In America, about 20 percent of the population create the potential for wealth through inventions, new ideas and businessmen and women who have the organizational skills to create jobs by starting companies. These people are the engine of capitalism. They should be well off financially and they should be respected and honored for their achievements. If exceptional people are not rewarded for being exceptional, they probably will not have the desire to excel and society as a whole will lose. The other 75% or so make everything happen. These are the employees and management teams. This 75% should be the middle class or working to enter the middle class. The other 5 to 10% or so are the parasites of society. They are the takers. These people think they are too good to work and suck the life blood out of the taxpayer. These people need to be cut loose. No safety net for them.
How can you get a piece of the American Dream? Get an education, find a job with growth potential, show up for work and do your job.
Is it Capitalism’s fault?
Capitalism gets blamed for things that socialism does not. For instance, Cuba has extreme poverty, yet critics won’t criticize socialism, but if Cuba was capitalistic, it would be held up as an example of the failure of capitalism. The Soviet Union had food shortages since Stalin’s brutal purges of the 1930s, yet liberals never criticized communism.
Some criticisms of Capitalism:
• Unequal distribution of wealth. First, lets set the record straight. There has never been an economic system that didn’t have unequal distribution of wealth. Under Communism/socialism, the ruling class and people connected to the ruling class lived very well. Everyone else got the crumbs and lots of empty promises.
Throughout history, small numbers of people voluntarily joined together in small communes where “greed” would be forever banished and everyone would be equal. They always fell apart. Why? Because of human nature. Some people worked hard while some hardly worked at all, yet everyone got the same. Eventually, the people who worked hard realized they were being taken advantage of and stoped working hard.
In a free society under capitalism, there will always be unequal distribution of wealth. This is NOT unfair. There NEEDS to be unequal distribution of wealth. Otherwise, lazy people would get the same as people who work hard. (This is socialism. This is also how many unions operate.) Would you be happy if you work hard all day and got the same pay as someone who spent the day goofing off? Very unlikely. Capitalism is designed to reward work and creativity. People with brains and ambition need to be rewarded for their gifts. These gifts benefit everyone. You cannot - and should not - have equality in a free market. Freedom and equality are opposed to each other. Despite constant cries of inequality in distribution of wealth, America was the first society to have a large middle class. Unequal distribution of wealth under capitalism is a much fairer way of distributing wealth, because it is not based on class or politics, rather achievement.
It has been said that if America started over again by giving everyone the same amount of money, it would only be a matter of time before inequality set in. Those who were poor before would be poor again and those who where rich would be rich again. If we decided to prevent people from becoming rich, then all the businesses, jobs, inventions, etc., these people make would not happen. Then we would all be poor.
We must remember - Liberty and economic equality are diametrically opposed to each other. You CAN’T have both.
• Cutthroat competition. Capitalism has been criticized for being too competitive and stressful. This implies that only capitalistic societies are stressful. The truth is, life is competitive no matter what political system you live under. Cave men had a lot of stress in their lives - no health insurance or social security and if they didn’t club an animal to death, they would starve. That is stress. American capitalism is not nearly as competitive as it used to be. Today we have unemployment, disability and social security along with many other social welfare programs. The truth is, our desire for less competition is to avoid the rigors of competition - but only for us.
Although we may complain about cutthroat competition, when we shop, we all look for the best deal. Manufacturers know we want the best deal, so they are always looking for ways to cut costs. Sometimes, they do it cutting labor costs. This is why some manufacturers use illegals - it keeps their labor costs down. They don’t pay for health insurance, vacation, pensions, etc.
Competition is attacked as always being bad. The truth is THERE IS NO SUBSTITUTE FOR COMPETITION. Competition makes us excel. Competition makes us better then we could ever be. As an example, if you are an experienced journeyman at your job, and some new employee thinks he is better and smarter than you, what will your response be? You will put out and show him who is boss. If you are a sports fan, would you like the outcome of a game to be decided ahead of time so the players aren’t stressed out, or would you want to see who makes the great plays that determines the winner? Attempts to have kid sporting events played where no scores are kept have no appeal, especially among the kids playing the games. Someone keeps score anyway. Do people daydream about being a failure, or doing something great? If you abolish the competitive economy, you have nothing left but a planned economy with no way for people to motivate themselves. There REALLY is no alternative to competition. This has been proven repeatedly by socialism/communism.
"The price which society pays for the law of competition...is great; but the advantages of this law are also greater still than its cost - for it is to this law that we owe our wonderful material development, which brings improved conditions in its train." (Andrew Carnegie, The Gospel of Wealth, 1889.)
Far from making our lives more stressful, capitalism has made our lives less stressful. Food is cheap and plentiful. Clothing is cheap. A lot of stress people have today in American society is self imposed. If you still believe capitalism is stressful and want to go back to a simpler life, go to a third world country that has never had capitalism, and you will see what living was like 200 years ago in most of the world. Or you can move to western Europe and live in their welfare state with their high tax rates. Oddly, there are STILL people immigrating to the US from western Europe. Wonder why? Or better yet, save your money and live like your grandparents did. Cancel your cell phone, telephones, cable, dish, internet and sit on the porch and talk to neighbors and play cards or board games.
• Promotes greed. Capitalism does not produce greed. To believe that greed would disappear under socialism or communism is nonsense. Greed is a human condition that will always be with us regardless of the economic system. Liberals confuse the desire to get ahead and own things with greed. When you acquire possessions ethically, there is nothing wrong with it. When you acquire wealth unethically, or steal, this is greed. Some examples of greedy people in America are: Drug dealers, counterfeiters, thieves, welfare cheats, civil rights leaders who intimidate businesses into making them rich, etc. Capitalism is the best economic system ever designed to deal with the condition of greed but we still need law enforcement to deal with greedy people.
• Anyone who is rich got there by trampling over others. The “robber barons” of the early days of the Industrial Revolution are held up as examples of consummate greed. It is certainly true that some business tycoons paid workers less than a fair wage. It is also true that these businessmen created thousands of jobs and made America an industrial powerhouse. We cannot conclude that workers were little more than slaves of big business. History tells us that this is an exaggeration. If workers were so abused since the industrial revolution began, there should have been a huge workers revolt. There wasn’t. The fact is people revolt when they have nothing to lose and have no hope. That has never been the case in America. For instance, in 1900, The United States had one of highest standards of living in the world and 46.5% of the people owned their own home. (see homeownership rate)
While some business owners are more ethical than others, to paint all business owners as greedy robber barons is not accurate. Most business owners are ethical and care about their employees. The few who don’t make the headlines.
• Capitalism has been routinely criticized for pollution as if it is only a problem in Capitalistic economies. Pollution is a problem in socialist and especially communist countries. Today the biggest polluter is China - a communist government. Not only is China a huge polluter, but their quality control is virtually non-existant. The old Soviet Union was infamous for industrial accidents, the Chernobyl nuclear accident and many gigantic toxic waste dumps. The truth is that business owners in capitalistic economies are far more sensitive to pollution concerns since they want the consumer to like them. In addition, voters can demand environmental legislation to control pollution. Capitalistic economies have been world leaders in protecting the environment.
• Economic decisions are based on the profit motive rather than what’s best for people. So what criteria should be used to make economic decisions that put people before profits? Who would make the decisions? Politicians would make the decisions and they would keep unprofitable business open to save jobs, but these jobs would become dependent on the taxpayer. Eventually we would have a economy run by politicians. This is socialism and it would ruin the economy and reduce our standard of living.
• Capitalism invented the assembly line - a brain-numbing experience. But the communist Soviet Union and socialist Europe could not afford to do without assembly lines, either. As capitalism has advanced due to automation, these types of jobs are dwindling in number. Socialism has lagged behind capitalism in this advancement, and in reality, is merely copying capitalism in this advancement.
• The stock market crash of 1929 and the depression. The depression was not a failure of capitalism, it was caused by the monetary policy of the Federal Reserve. How the money supply affects the economy was not well understood at that time.
Legitimate Criticisms of Capitalism
While Capitalism is superior to socialism, it is not a perfect system. Free enterprise does many things exceptionally well, but doesn’t do everything well. The government needs to have laws in place so all businesses operate under the same ground rules. We need to understand the areas where capitalism excels and the areas were government should intervene.
• Before collective bargaining and worker protection laws, there was a financial incentive for a company to maximize the return on expensive machinery by having employees work long hours. Many workers put in twelve hours days, six days a week.
Henry Ford was a strong believer in shorter work hours, which he introduced unilaterally in his own auto factories. Ford believed that workers (who were also the main consumers of products) needed adequate leisure time to consume products and thus have a need to purchase them. This promoted growth in consumer markets, prompting new businesses and jobs to open in support of a growing consumer society.
The Fair Labor Standards Act of 1937 set the standards for modern capitalistic society. It defined a work week as 40 hours with overtime pay being time and a half over 40 hours. It established a national minimum wage and prohibited most employment of minors in "oppressive child labor," a term that is defined in the statute.
• When does morally necessary inequality turn into immoral and exploitive inequality? When there is too much income inequality, capitalism is not functioning properly and this puts capitalism into mortal peril. This extreme inequality will breed class warfare - with dire consequences for everyone. The solution to this huge gap traditionally has been government redistribution of wealth. Redistribution of income can be beneficial if done properly. Otherwise, this “solution” has serious long term shortcomings.
• Business monopolies within capitalism are not necessarily bad, although they need monitored in case they become predatory. If a business becomes dominant in a sector of the economy by more efficient business methods, there is nothing wrong as long as the business does not begin to artificially raise prices on their products due to lack of competition. When this happens, you begin to investigate to see if anti-trust laws are being violated. Predatory monopolies reduce or eliminates competition. When this happens, the government must step in.
It is human nature that once you achieve your goals, you want to insulate yourself from competition. One example is the super rich of American society - business tycoons and sports figures making outrageous salaries at fans expense. This actually is a distortions of capitalism, in that competition that would hold them in line is eliminated through a de facto monopoly.
• A concentration of control, power and wealth in Big Business-Big Government partnerships is an issue that is very dangerous to economic freedom and competition. The bigger government gets, the more problems you have with unethical business-government relationships. When corporate executives give large sums of money to political candidates in order to gain influence and favors, this creates many ethical issues and distorts competition. First, this money is nothing more then protection money. This money should go to the workers instead of politicians. Company executives that don’t give are harassed by the government - getting audited and politically motivated investigations. This is an issue that needs to be monitored by making public financial contributions of executives.
Morality of Capitalism
Capitalism is “the most moral and most productive system man has ever devised. Capitalism is relatively new in human history. Prior to capitalism, the way people amassed great wealth was by looting, plundering and enslaving their fellow man. Capitalism made it possible to become wealthy by serving your fellow man."(3)
The idea of socialism is very enticing. We all believe in fairness and equality. Yet socialism is unfair to the achiever, rewards the underachiever and the lazy, produces mediocrity and does NOT produce equality. If you look past all the hype about socialism, you can clearly see that it is unfair and corrupt. Capitalism is a more moral economic system, despite some inherent flaws.
There is no substitute for Capitalism. It needs fine tuned - not replaced. Capitalism is the best system by far, but needs monitored. The key to successful capitalism is to share the wealth in a manner that rewards work and discourages laziness. A perfect running capitalistic system produces wealth for all who work and has a large middle class. We need to maintain proper business laws to keep competition fair and keep capitalism working properly. The government needs to have laws in place so all businesses operate under the same ground rules.
The Big Question is this: Can government bureaucrats run an industry - or an economy - better then business people and the free market? The answer - historically - is NO. History shows us that the longer government bureaucrats run the economy, the more corrupt, politicized and inefficient it is run. There is no requirement for innovation, just fill out the proper bureaucratic paperwork.
1. Popular Government: Its Essence, Its Permanence and Its Perils, chapter 3 (1913)
2. Russia’s path from Gorbachev to Putin, by David Michael Kotz, Fred Weir, Published by Routledge, 2007