There are some people who hate capitalism and it’s very confusing to me. I mean, what’s not to love about free markets? What’s not to love about people competing to provide the best products at the cheapest price? And why do people who supposedly hate capitalism tweet about it from their iPhones?
I think in a lot of cases people just don’t know what free market capitalism means and what a capitalist system does for society. So first I thought I’d explain what capitalism is and then I’ll break down the myths as to why some say it’s “evil.”
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. This means we the people decide what products we want to produce and purchase rather than the state producing something and then telling us we have to buy it. If you are against capitalism, you are against anyone you know owning their own business and making money off of it. Capitalism on it’s own is not evil in the slightest. What is important is the word(s) you put in front of capitalism.
What I advocate for is “free market” capitalism. This is also referred to as laissez-faire capitalism. Free market capitalism refers to all voluntary exchanges that take place within an economy; and the word voluntary is an important one. A free market also refers to unobstructed competition. For example, in a free market it wouldn’t be illegal for a new garbage collection company to form and compete with the local provider for your business. In a free market, it’s easy for entrepreneurs to enter the market. In a truly free market, there are no regulations whatsoever. (Read more about the history of regulations here.) No fees preventing poorer people from entering the market. There is also no government intervention in a free market. When a business fails, it fails, and no one is there to bail them out.
So anyone who wants to try their hand at selling a product or providing a service can do so and consumers decide who stays in business. We vote for which business we want to stick around every time we spend money. If a business doesn’t get enough votes, they “lose,” or rather, they go under. We the people hold the power and business are subject to what we decide is good, bad, acceptable, etc. Now no system is perfect, but the reasons people oppose free market capitalism are all much more flawed than the system itself.
1) Capitalism Leads to Monopolies
A natural monopoly is defined as occurring when factors such as high fixed costs (costs that don’t depend on how much product you’re making such as rent) make it difficult for new companies to break into an industry but cause long-run average total costs to decline as output expands. So let’s say for example, all tater tot companies have to purchase a machine to make the tots that costs $10,000. Company A has been in business for a while, they make 1,000,000 tots per year so that machine costs them .01 dollars per tot, which allows them to make money off each tot sold. Company B just got started and they don’t have a ton of buyers yet so they only produce 10,000 tots per year. The cost of the machine to them is $1 per tot. So to make any money off the tots, Company B has to sell their tots for over $1 a tot, and that’s just when you account for the cost of the tot machine. I love tots but I ain’t payin’ that much. Essentially someone in the tot business would most likely have to incur net loses in it’s early days making it fairly difficult to get going in the tot business.
This is the argument some give against capitalism, that costs such as machinery rent, etc. create natural monopolies which would lead to no competition, hence higher costs to you, the consumer.
But the fact is, there has never been a sustainable monopoly in a free market in the history of the world. Some companies like Campbell’s Soup, Sears and Chapstick had their run, but every market was eventually disrupted. Permanent monopolies are never created without the intervention of the government. In fact, even oligopolies are created with the help of government intervention. Airlines, insurance companies, and of course, local utilities all have opoly power because of government law and regulation.
2) Capitalism is Immoral
Some say capitalism is all about a gross hunger for money; capitalism helps the rich and hurts the poor. That’s half true. Capitalism helps the rich, but it also helps the poor. That’s the beautiful thing about free market capitalism, it doesn’t care what gender, ethnicity or social status you are. If you provide a quality good or service the people want, at a low price, you will thrive. Many people can admit the economic superiority of free market capitalism but they get bogged down thinking it is morally inferior.
The first reason this is wrong is because free market capitalism is all voluntary. No one is forced into buying a product or service and no one is forced to work under conditions they didn’t agree to. Free market capitalism is anti-slavery and pro-women’s rights.
Secondly, capitalism motivates us to serve our fellow humans. Every dollar you earn is proof you provided some kind of service. A teenage girl provides the service of watching your children so you pay her $20. She then goes to the local Ross to buy a new pair of jeans. Now she honors the labor that went into making those jeans by paying the store $20. This is a positive sum game. You feel good because a date night was worth more than the $20 you paid the babysitter, the babysitter feels good because spending time with your kids cost her less than the $20 she was paid and Ross feels good because to them, the jeans were worth less than the $20 the girl paid. Capitalism motivates people to constantly seek new ways to serve their fellow man.
3) Capitalism Leads to Income Inequality
Even conservatives believe some wealth should be redistributed to fund basic government functions and provide a social safety net. That being said, how do you define fairness? Do you define it as redistributing wealth so we all have the same amount of money in our bank accounts? Or is it rewarding hard work, merit and skill? The latter is what free markets do.
As long as people are allowed to freely provide goods and services according to their interest and talents there will always be some who earn more and some who earn less. Some people get pleasure out of high earning challenges such as brain surgery while others prefer the challenge of child rearing. Neither is less noble, but one did take over 18 years of schooling while the other takes 18 years of unfathomable patience. Until we are a planet of robots, income equality will never exist, and that’s fair in a society where we all control the choices we make and the careers we pursue. Capitalism doesn’t lead to income inequality, being human does.
4) Capitalism is Bad for the Worker
Back to the voluntary transaction point. In a free market society, no one can be forced to work for a price they don’t agree on. The adoption of free enterprise around the world is what lowered the percentage of the world’s population living on less than a dollar a day by more than 80% between 1970 and now. This wasn’t because richer companies dumped aid money into poorer countries. It was because of free trade and foreign investment.
There is no economic state better at raising the poor out of poverty than capitalism. If you think socialism is better for the poor, read up on what’s happening in Venezuela right now.
5) Capitalism Leads to Corporations Controlling Us
In a free market this would never happen because the consumer is always in control. Consumers decide whether a corporation, no matter the size, stays in business or not. We buy more of their product or service if it’s doing things we like such as producing high quality products and giving back to its community. We buy less of their product or service if it’s doing things we don’t like such as producing a defective product or treating their employees horribly. The power of the consumer is taken away when the government gets involved. This is where you get the crony capitalism so many rightfully complain about, myself included.
To quickly give an example (this would need its own post to fully explain) let’s look at what happened in 2008; The infamous housing market crash and proceeding bailouts. The housing market was on the fritz. Why? For many reasons but to put it simply, banks were giving out loans to people who would not be able to pay them back. Why did banks do this? Because they weren’t accountable for what would happen if things went bad. Banks had become used to the government bailing them out. The shoddy loans and re-bundling of mortgages lead to Lehman Brothers filing for bankruptcy. The financial industry expected the federal government to bail them out but they didn’t. This set off a chain of events that included the Dow Jones plummeting and the creation of TARP.
Think about the spending decisions of college kids who know their parents will always be there to financially support them vs the kid who has no parents to bail him/her out. Same concept with the housing market and government intervention generally. The promise of Daddy America always being there to bail them out leads to reckless decision making in the financial world.
When you say you are against capitalism you are saying you’re against competition, individual choice and opportunity for the poor. Do I believe in absolutely no government regulation? Of course not. Is crony capitalism a problem? Of course it is. But the solutions are not more government. The solution is always more freedom and less government intervention. Just look at all of the countries around the world, the freer their markets, the freer their people.
So next time you hear someone give an example of free markets failing, ask yourself if they’re referring to a truly free market. The housing market certainly wasn’t. As a rule of thumb, if something is being run inefficiently, you can almost always trace back to government involvement.
*Feature image taken from contractingbusiness.com
Very interesting I suppose the problem comes down to how do you define “free market”. All markets need to be regulated – child labor is regulated, immigration is regulated, the minimum wage is regulated. Therefore it’s clear government regulation is required to make a market “free” in a substantive sense rather than “free” simply meaning no government oversight.
When people complain that taxes which fund infrastructure, education and climate change prevention are “socialist communists trying to destroy the free market” it’s actually the opposite, regulation preserves the market, democracy and the middle class.