The Problem with Capitalism

John Hardy, liberal, offers a critique of the free market. Greg Carter, right winger, not-too-surprisingly disagrees!

For a background on John and Greg please click here.

As someone who many would call a ‘socialist’, it is also often assumed that I detest capitalism, and for some reason a subsequent assumption made by a minority is that all socialists are ultimately communists.

Here I will state exactly where I stand. Some goals of communism appear superficially attractive: a society that shares its rewards equally and amongst all of its members. This ideal is made all the more appealing when you see the grossly unfair world we inhibit as I do; a world where you can find the mansions and Ferraris enjoyed by the obesely rich just a few short miles from the extremes of poverty suffered by their fellow man.

Of course any fling with communism reaches an abrupt end as soon as you turn the page to reveal the brutal reality of communist society the history books tell us about. We disregard the lessons of history at our peril. The biggest problem I have with communism, however, is this very idea that everyone is rewarded equally. It is a fact of human nature that, in its bluntest terms, some people are lazy and others are hard working. I believe a fundamental requirement for society is that individuals should get out of society what they put into it, a society based on merit, a meritocracy.

Does capitalism allow for a meritocracy? Absolutely, and as far as I can see it is the greatest means we have to link contribution with reward.

Following the industrial revolution, Britain became THE global economic superpower. The greatest, most enterprising minds developed production methods and technologies which changed the world forever. This was thanks to capitalism; great innovation was being rewarded directly by a market developing products, technology and even brands at an incredible pace.

The reason this period was so prosperous is because these industries were new, there were no existing monopolies to choke the competition, competition being the essential ingredient to make capitalism a success. The growth period of the industrial revolution was the closest Britain has ever been to a meritocracy.

Take a step forward in time, to when the explosive growth of the revolution slowed. The strongest businesses had captured much of their market and the founders of these organisations deceased. In subsequent generations who benefits most from this wealth in society? The reality is that once a market is established, and after the initial tussle for market share, that’s pretty much it, game over. The relatives of those who were fortunate enough to be around and successful when the market was competitive are destined for unimaginable wealth that can stay in a family for centuries. True enterprise no longer exists; the greatest minds are hired by the wealthy establishment, they are used to generate yet more wealth which will in turn be inherited by the next heirs to the family fortune, a postmodern system of royalty. Every now and then a new market will emerge, and a new line of royalty will materialise, the king of the Internet age for example is Google.

With the new establishment, meritocracy has been replaced and aristocracy again reins supreme, where opportunities are instead determined by origin. The premise of the capitalism is compromised, equal opportunity does not exist, and the most enterprising and innovative minds may be suffocated by circumstances of their birth. Instead of being able to compete freely and realise their potential in the way a free market should allow, instead only the minds which have both ability and privilege can flourish. This means there is a smaller pool of talent being realised and this is to the detriment of the entire society.

Needless to say, Britain suffered and ceased to be a global superpower long ago. The closest America has come to a meritocracy was after the Second World War, when enterprise and industry flourished. It is during this period that the USA became the world’s current economic superpower.

Society supports the aristocracy because of this romantic notion that we all have the potential to be a part of it, and while in theory we do, in reality our prospects are bleak. The elite want to maintain the status quo, and by dangling this carrot, even those who suffer the most will fight to defend it.

It’s ironic that the very system which creates unprecedented prosperity and enterprise can, if left to its own devices, become corrupt, greedy and suffocate competition.

The USA has entered a new era, the aristocracy. Its days as economic superpower are numbered, the longer the free market goes unrestrained, and the more irreversible damage will be done. I support capitalism, but government intervention is essential to help find a balance, without intervention the corporations simply become too big and consequently the market becomes stagnant. The enterprising characteristics which made America great are suffocated.

History has a habit of repeating itself, and has shown us twice the conditions required to be an economic superpower. Britain and the USA have had their turn, next will be China.

As socialism fails to meet its desired outcome, socialists become more and more frustrated. Their superiority complex compels them to prove that they are correct in their beliefs and it’s only because people don’t understand how brilliant they are that the process fails. Socialists will take additional steps to enforce their brilliance and the process ends up being managed at the point of a gun.

Throughout the entire history of man it has been proven time and time again that without the reward due from effort, productivity ceases to exist; unless, of course, a person is forced into productivity in fear of their very life being taken from them.

Society cannot and should not ‘share’ its rewards equally. Individuals are rewarded based on their contribution to society, their ingenuity, their productivity and their ability to provide a good or service to others. Life is not ‘fair’ and there is no such thing as having too much money. Unless someone buries their money in a can in their yard, they do something productive with it. They spend it on other goods and services, they invest it in other businesses, or they can give it away to charity. The disparity of incomes among people will always be present regardless of the governing model under which people live. Someone will have….and someone will have not! Under the capitalistic system, anyone….anyone….can become an unparalleled success. How else can one explain how a high school graduate, who dropped out of college, could build the world’s preeminent computer company and become on of the world’s wealthiest people in his own lifetime?

One of the best examples of the failures of socialism lies in the story of the pilgrims who first immigrated to the new world. When the Mayflower finally arrived in America, the colony was established for the good of everyone and everyone shared equally in the fruits of productivity. They nearly died from starvation! Subsequently, they decided to change their process and allow for individuals to benefit directly from their own productivity and to trade with others within the colony. Those who chose to be productive were rewarded for their efforts because they were able to trade more goods and services. Those who chose to be less productive settled for a more meager existence. We define the productive efforts of those first settlers as the Protestant Work Ethic.

When people have the ability to build mansions and drive Ferrari’s they do so. In doing so, they employ people to build their mansions and manufacture their Ferrari’s. They also employ people to build boats, airplanes, motor homes, vacation homes, etc… They go out to eat at nice restaurants, shop in stores and travel. They spread their wealth around by doing things. By purchasing goods and services from others who in turn are seeking a better life.

There is no silver bullet to success. At the turn of the last century, prior to the advent of the automobile, people working in the horse trade were in fat city. Those who raised and sold horses, made saddles, buggy whips and wagons were often the ‘rich’ of the day. Their roles however, ended rather abruptly when the automobile came along and a new set of people were given the opportunity to be the ‘rich’ of the 20th century. Today, we see another change in place. During the 20th century, many newspaper operators were very wealthy and enjoyed the trappings of success. In the 21st century, they are finding that their business model is now a failure and they have been slow to adapt to the times. They have given way in large part to a new generation of computer related ‘rich’.

The primary point is that the markets are constantly moving and changing. There is no limit to the potential someone has to be successful and there should be no limit to the rewards they may reap from that success.

Generational wealth is difficult to maintain and I would submit that it only exists when propped up by Socialism, Communism, or official Aristocracy. Capitalism itself is a great equalizer. There are always people looking to ‘build a better mousetrap’ because they know they can be richly rewarded.

Take a close look at the business world and I’ll bet here is what you find in the life cycle of a family run business.
1. First generation: Someone had a great idea and the drive and determination to make it successful. They built a small business into a large business and they were passionate about their success.
2. Second generation: A founder’s child, but not all of their children, will become involved in the business. They are close to it as they grow up and they take an interest in its success. That interest however, is not as strong because the initial idea was not their passion. They see it as a good opportunity to make a good living. The other children not involved will pursue their own interests. Usually, at this stage, a successful business will become a publicly traded entity.
3. Third generation: In most cases, if the business is still privately run, failure is eminent. The third generation has lived a life benefitting from the efforts of their parents and grandparents. Also, due to the exponential nature of family growth, there are more people present at this level. If they are involved in the business, they are not nearly as committed as the prior two generations and are not nearly as interested in putting forth the required effort to make it successful.

During this time, competitors will take note and begin to generate their own business plans. They will introduce options to the marketplace and begin to build their own success.

Businesses that become public entities will continue on and are subject to the managerial skills of those in charge. They employ people, pay dividends to share holders, and spread the wealth around as a matter of course.

Capitalism is the only true way for enterprising and innovative minds to prosper and grow. Under capitalism and free enterprise, anyone can become successful. Are there frustrations? Sure! Are others seeking to protect what they’ve worked for? Of course. But there is no other societal structure that more rewards their effort, or makes it more possible than capitalism.

As highlighted previously, Socialism has a dampening effect on the human spirit.

· Why should I work any harder if I’m not going to benefit?
· Why should I push to be more successful if my home is going to be like everyone else’s?
· Why should I make more money if the government is going to take a greater percentage to give to those who don’t work as hard?

And yes, Socialism will eventually lead to Communism. I draw very little distinction between the two. In modern terms, the only difference between the two is the level to which socialism is enforced. Under totalitarian Communist regimes, you’re far more likely to be killed for not toeing the party line. Communists build walls to keep people in, not to keep them out. It’s insidious what it does to the human spirit and condition, and oh by the way….in all communists regimes, those with the power have the riches. They just don’t let anyone else have any chance at individual success. Socialism is just a softer step in the same direction.

At present socialist governments are breaking down all over the world. They are finding that their policies are bloated and unrealistic. “The problem with Socialism is that eventually you run out of other people’s money”, Margaret Thatcher. Socialism cannot survive without the productivity of those in society who still seek to outperform others. The problem is, eventually, people will grow weary. Too many people will become comfortable with their surroundings and productivity will wane.

The capitalist system has a tremendous cleansing mechanism for those who become corrupt, greedy and unscrupulous, it’s called bankruptcy. The free market (capitalism) will not support people who are corrupt and greedy for long. In fact, the only way they are allowed to exist at all is with some form of government intervention. In a true free market environment, corrupt individuals would be toast in no time. No business can control any market without some form of government assistance.

If capitalism has any downfall it’s that it allows people to become too complacent. To tolerate statements that begin with, “You know what we should do to help people…..”. We become willing to accept the intrusions of socialism into our society.

The United States of America faces only one obstacle to our continued success as the world’s economic, political and military superpower. That obstacle is the Federal Government of the United States. Over the past 60 years, and in fact for most of the past century, we have allowed socialism to creep into our society bit by bit. We have allowed people to become comfortable with the handouts from government. We have destroyed the family structure in many cases.

We have Regulated, Legislated and Mandated our way out of prosperity. It’s as simply as that. We have pushed companies out of our country through environmental policies, taxes, and employment regulations. We continue to hinder our growth even today as our government considers the ridiculous proposals under the ‘Cap and Trade’ legislation before it. ‘Cap’, as in ‘Don’t grow anymore’, and ‘Trade’, as in ‘other people are going to grow more’. And in between, government sanctioned people are going to make huge profits selling THIN AIR!

The United States has shown a resilient nature and an enterprising spirit throughout its existence. When enough people decide they’ve had enough of the nonsense, we will snap back into productivity. We have progressively moved to this point in our history. With the most recent general election here, we have seen this process come to a very quick head. Fortunately, our country has elections every two years. If enough Americans have had enough of the progressive/socialist/communist movement in this country, we will begin to turn ourselves around.

In sentiments loosely attributed to Admiral Yamamoto following the attack on Pearl Harbor in 1941 he is rumored to have said, “I fear all we have done is to awaken a sleeping giant and fill him with a terrible resolve.” Such are the feelings about the state of America’s productivity in the world under the current leadership of Barack Obama, Nancy Pelosi and Harry Reid, et. al. in Congress. We will find out soon enough, but we appear to be heading toward an awakening and the desire to be filled with resolve.

Britain was a dominant power when its empire encircled the globe. After they lost their territories and possessions, they failed to have the resources necessary for continued dominance. America does not face that prospect. We have the resources we need and can trade for ones we don’t possess. What we need is the resolve to do so.

America is the world’s greatest hope for freedom, free enterprise and capitalism. All we have to do is choose to lead again.

Greg, much of your response is focused on the benefits of capitalism, I fear I failed to express my point… I was supporting capitalism too! I agree entirely with your argument as to why capitalism is the best system we have and that it is our greatest way of achieving meritocracy. I also feel your attack on socialism totally disregarded the entire basis of my original argument, and wasn’t really a response to anything I have ever suggested, more a generic attack on communism, rather than what I would consider progressive socialism.

On a more light hearted note, I must admit to having found your interpretation on the pilgrims quite amusing. I’m English and we don’t celebrate thanksgiving, but even I know that to arrive in a new continent for the first time you’re going to struggle to survive without local knowledge! It’s incredibly creative, and hilarious, to suggest that their inability to produce enough food from this simple lack of knowledge was actually caused by a lack of productivity because of their wicked communist tendencies.

There is some merit on what you have to say on generational wealth, yes, often in say most family businesses wealth will dilute through the generations. I would however distinguish this from the super wealthy, David René de Rothschild is today worth over half a billion dollars, their family business started in the early 1800s! The Rockefellers and Rothschilds of this world are now in their approaching their 7th generation, with little sign that the family fortune is diminishing! If you think the USA is free from the aristocracy, think again! Not only does being born into these families guarantee you wealth, but along with extraordinary wealth also comes political influence, just look at how many of America’s super wealth go into politics. If you believe these people seek to represent anyone’s interests other than their own you are sadly mistaken.

I did suggest that generational wealth is a problem which leads to aristocracy, I’d like to clarify that I was not suggesting this is an issue which I believe we should rely on government intervention to solve. My overly optimistic dream is for society itself to value merit, to frown upon those who choose a life of indulgence, the fruits of their ancestor’s hard work. I believe the greatest gift any parent can give their child is not a lifetime of wealth, but a lifetime of worth. To provide their child with the skills, knowledge and attributes that should they die penniless, the child will still be able to realise their potential and go on to lead a fulfilling existence on their own merit. My admiration for the two richest men in the world, Bill Gates and Warren Buffett is immense; their fortunes will support philanthropic causes rather than make spoiled brats of their children.

I fear Greg that your views are too absolutist, you make clear there is no room for compromise, and I think it’s evident that on this point we will never agree. Simply I argue that without compromise, capitalism, while being the best hope for meritocracy we have, corrupts. The world is not fair, but without intervention, there will always those who have, and there will always be have not. Here I refer not to money, but to something much more important: opportunity. I dream of a world where a person’s accomplishments in life hold no connection to the circumstances into which they were born by chance, but to the accomplishments achieved through choice, through their own actions and on their own merit. Sure, every once in a while a high school dropout will become a millionaire, but this merely creates the illusion of opportunity and keeps the serf happy.

The story of the Pilgrim experience is found in the writings of William Bradford, the Colony’s first governor, and governor for the first 30 years. As they were coming to the new world, they adopted the Mayflower Compact. Being devout believers in God they looked to the ancient Israelites. They choose to follow a true commune under which to live. They lived for the ‘common wealth’. What they learned from the experience is that people who could work harder did not and those who wanted to could try to live of the productivity of others. Bradford quickly changed the process, giving everyone a plot of land and the ability to farm and trade for themselves. They thrived, paid off their debts to their merchant sponsors and began the Great Puritan Migration. Their experiment with socialism in its purest form failed and their switch to personal responsibility and capitalism saved them. They then gave thanks to God for their salvation.

I begrudge no one for the successes their family had no matter when it began, with the exception of monarchies which live off the productivity of the populace. Rothschild, Rockefeller, Getty, Kennedy, you name it….if their families amassed a fortune, and they’ve been able to maintain it, more power to them. There’s no doubt that money and politics lead to corruption but there’s no requirement that that money be generations old. Right now we see an immense amount of corruption without inherited wealth being involved.

I agree that it’s noble for Bill Gates and Warren Buffett to give away half of their fortunes. Both men came from humble beginnings and both amassed large fortunes. I guess it would be more noble for them to give away all of their fortunes and leave their families penniless correct? I mean if your fortune is a big pile of billions, and you give away half of your pile, don’t you still have a pile of billions? They can do as they please. They can suggest that others do so as well. With our death tax coming back into play on the first of 2011, I don’t think it’s going to matter anyway. The government will again take 55% of a person wealth.

John, I don’t think you acknowledge the link between ‘intervention’ and ‘corruption’! As intervention becomes more prevalent, corruption occurs; the more intervention, the more corruption. Those with the means will seek to influence those with the supposed control. Through payoffs, bribes, political contributions, etc…..viola…..corruption.

My views are a bit absolute. I trust business people far more than I trust government people. Those who work in government are parasites to the process. Those who are given power to control outcomes are truly frightening. The market place will always take care of weeding out abusive business practices unless those people are somehow protected by a government entity.

John Hardy

John Hardy

Web Developer living in Bristol, UK.
I enjoy politics and technology and have been a fan of Bitcoin since 2011.
John Hardy
Share this:

Published by

John Hardy

Web Developer living in Bristol, UK. I enjoy politics and technology and have been a fan of Bitcoin since 2011.