You don't understand Capitalism

Opinion/Economics

Updated 01/22/2023

The title of this article might be a bit presumptuous, but if you keep reading, I’m sure you’ll at least learn something new about the hotly debated economic system. Talk of wanting a more socialistic system has been on the rise in recent years, yet often times the reasons for a want of socialist policies derives from a lack of understanding capitalism. So, today, I thought we could go through the history of capitalism and breakdown some of the fundamentally flawed, yet oh so common reasons people give for wanting to move away from a capitalist society.

A Brief History of Capitalism

In 1776, Adam Smith published ‘The Wealth of Nations’, the book that would essentially be the Capitalist’s Bible, as it would lay out the theoretical and philosophical foundations of the free-market economic system as we know it today. Smith’s ideas rapidly caught fire and spread to different countries all over the world. This was not just an economic theory, but a blueprint for a powerful yet stable society.

After the rejection of the Hobbesian state, which called for an all-powerful, or absolute, state that could disregard the rights of individuals for the sake of social peace, the question of what would replace this became a conundrum. One influential answer was the education of benevolence and virtues—teaching people to be “good”.

One powerful plea for such idea came from French philosopher Montesquieu, who wrote ‘Persian Letters,’ published in 1721. In his work, he recounts the fictitious race of human called the Troglodytes. A society that descended into a war of everyone for themselves due to individuals looking “after his own interests exclusively, without considering those of others” until two wise individuals taught them that “the individual’s self-interest is always to be found in the common interest… and that justice to others is charity for ourselves.”

While this sounds nice, the problem is it isn’t how humans operate as it is natural for our self-interest to drive us despite it not always being what’s best for the common interest, and Smith understood this.

It was clear in the early eighteenth century that the expanding market economy was rapidly destroying traditional ways of doing things and customary relationships, impacting peasants and workers that struggled for things like land, livable wages, and food the most. However, Smith argued that commercial society was a good thing—constructive, despite his contemporaries fearing it being destructive. Smith argued that commercial society needed to be governed with a light hand, allowing absolute liberty to its citizens. Furthermore, Smith’s argument was more realistic to human nature. Instead of calling humans to be educated to be good, he understood that humans can be selfish and are not always benevolent, but are inherently self-interested.

“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest,” Smith wrote in ‘The Wealth of Nations’. “We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

In other words, the butcher, the brewer, the baker—they’re not doing what they’re doing just because they want to provide food for you. They have a self-interest for your money. We, as human beings, are not giving them money for simply existing as part of humanity, but rather, we deem that the work they are doing is worthy of our money and therefore we give it to them in exchange for their goods. It is thus that from their self-interest—the thing that makes them useful to society—that we interact with them.

Through Smith’s ideas of taking out government interference, Europe’s poor was able to afford bread at reasonable prices, India’s response to famines was reshaped, and British authorities ceased subsidies as they interfered with the much more efficient market.

Jumping forward in time, Russian-born American author and philosopher Ayn Rand, who came up with the philosophy of Objectivism, watched the start of the Bolshevik Revolution as a mere child. Her family escaped to the Crimea where she finished high school. Periods of near-starvation and the confiscation of her father’s pharmacy were results of the final Communist victory. In her last year of high school, she was introduced to American history and was immediately captivated by America’s model of what a nation of free men could be.

Rand came to the country in 1925 after obtaining a permission slip from the Soviet Union to visit family in the U.S. She rejected communism in favor of capitalism and viewed selfishness as a virtue in her philosophy. Opposed to the government control that became more and more prevalent in twentieth century America, she explained in an interview, “I am opposed to all forms of control. I am for an absolute, Laissez-Faire, free, unregulated economy. Let me put it briefly, I’m for separation of state and economics. Just as we had separation of state and church which led to peaceful coexistence among different religions after a period of religious wars, so the same applies to economics. If you separate the government from economics, if you do not regulate production and trade, you will have peaceful cooperation, and justice, and harmony among men.”   

More than 40 years after Rand’s death, her ideas have continued to enchant minds and bring people to a better understanding of what liberty, and a truly free-market economy, can actually look like. 

Fundamentally Flawed Arguments Against Capitalism

Unfettered Capitalism is destroying our country.

I have heard this argument so many times, and it genuinely shocks me at how popular of an argument it is when it is so far from reality. Unfettered capitalism does not exist and has not existed. Just like arguments about socialism and communism never having been truly tried, free-market capitalism hasn’t truly been tried either. The difference is that when a society works to implement capitalism it leads to more wealth and prosperity for all people, the opposite of socialism and communism.

“Unfettered” means unrestrained, yet go apply for a job anywhere and you will find, everywhere you look, from the minimum amount you are legally allowed to be paid, to the taxes taken out of your paycheck, to OSHA violations and licenses, the government restrains capitalism to a nauseating degree, making it harder for new businesses to start and grow to compete in the market with bigger companies that lobby for special privileges that would not be available under a truly free-market capitalist society.

Crony Capitalism proves that Capitalism doesn’t work.

I had a socialist try to use this argument on me once, so I had to school him. As you know from the very brief history lesson in this article, Capitalism has been an economic system that has been around for hundreds of years. The term “Crony Capitalism,” also known as “Cronyism,” did not come about until 1980 when the business editor for Time magazine George M. Tabor wrote the headline: “A Case for Crony Capitalism,” as he was a sucker for alliteration. The article that bore this headline was about the economic system in the Philippines and how their capitalist system had become so distorted that the free market benefited the few and kept the masses in poverty. This, however, is something that cannot happen without government intervention. Going back to the first argument, the more unfettered the free-market capitalist system is, the more the system benefits the masses.

Crony Capitalism is a system where big business and government politicians are in bed together to serve each other’s needs and it has developed and continues to develop more in the U.S. Tabor has said in an article that “crony capitalism wasn’t true capitalism in Philippines, and it is not in this country [U.S.] either.” Unfortunately, because the word capitalism is being used, it has confused people into believing that it is a type of capitalist system, even though it’s not, and should not be thought of as such.

Countries like Norway, Finland, Sweden, etc. are socialist paradises.

There are actually a lot of inaccuracies in this statement. For one, depending on how you define socialism, these aren’t socialist countries—at least not completely. These countries operate on free-market systems, which socialism does not. They do have high taxes to fund social programs including healthcare, schools, and job training. Not only this, but these implementations of government overreach in an economy are not doing the most good as what is so often touted by supporters of this type of system. Governments are really only good at doing four things: Killing animals, killing people, taking people’s property, and recklessly spending other people’s money. Those things are their bread and butter and anything else they try to achieve they tend to fail miserably at.

For one, we as U.S. citizens are oppressed by our government full stop, but people from “first world countries” outside the U.S. are horribly oppressed to a point that’s hard to imagine, even if they don’t realize it. You can think about it like this—back in the day of slavery in the U.S., there were slaves that hated their owners and would go so far as killing them for freedom. However, there were also slaves who loved their owners, so much so that they would actually take their owners’ last name for their own. The owner was good to them to the point that the slaves would feel like part of the family, but they were oppressed by the family because after all, they were still a slave to them.

A few small examples of government oppression in these countries include in Denmark you can’t fly another country’s flag without government permission. In the UK you need a license to watch or record television transmissions. And let’s not forget the atrocious lack of self-defense rights in all these so-called “first world” countries.

Despite the lack of freedoms, many in the U.S. that push for socialist policies claim that people from Nordic countries are the happiest in the world. They top the list of happy countries every year so this must be true, right? Actually, no. First off, these lists often look at things that are “supposed” to make people happy, rather than whether people are actually happy. The Guardian, a left-leaning news source, even published an article admitting that young people in Denmark, Finland, Norway, Sweden and Iceland are increasingly struggling with mental health issues and do not feel that life is that great. For people in these countries, starting a business, or even just starting a career, is far more challenging due to their labor laws. They also pay high taxes for healthcare just to wait weeks if not months, sometimes even years, to be seen by a care facility. Furthermore, due to the government taking their money away, people in these countries are not as charitable as people in the U.S. which, according to one study, has been shown to be the most charitable of 128 countries between 2009 and 2018. I would argue that this is because people aren’t taxed as much in the U.S. and this gives people the option to give their money to charity if they want to, rather than being forced to give it to the government to spend as it chooses.

Conclusion

The reality is that capitalism vs socialism is the difference between freedom and complete government control. At its most basic, socialism is the government taking the means of production whereas under capitalism it is the People deciding what is best for themselves without government involvement. So, whenever government gets involved, it becomes more socialist, and the instant rewards produced by government involvement often tricks people into believing socialism and social policies are a good thing. However, overtime,it becomes less and less sustainable until the system breaks down and the society collapses, which doesn’t happen under capitalism without society moving away from the economic system as what is currently being done to cause the problems that we are seeing in our economy today.

Unfortunately, the masses do not need complete freedom to be happy nor do they need safety to feel secure. What they need is an illusion of both to feel content with both. However, as Benjamin Franklin is so often quoted, “Those who would give up essential liberty to purchase a little temporary safety, deserve neither liberty nor safety.”