Since the economic down turn began, I have heard countless politicians, media pundits, and average Joes smear, besmirch, and out right lie about Capitalism. These people are either ignorant or liars. I prefer ignorant, so we can still assume the best of our fellow man.
In order to prevent further spreading of this ignorance, I have decided to outline some of the arguments against Capitalism and the truth that is evident as logic presents itself. Over the next few blogs, I will present the reasoning and logic of Capitalism. First let me apologize to my liberal friends. I will not use my feelings to present my argument. As we all know, feelings can be easily manipulated, which is why you don’t base policy on feelings, well, shouldn’t anyways.
So, let’s start with the most rampant accusation against Capitalism. The socialist mantra goes “Capitalism equals greed”, “Capitalism is based on greed”, or “Capitalism is inherently greedy”. Now, where did this belief come from? Capitalism has been a defined economic system since 1776, when Adam Smith published “The Wealth of Nations”. In the book, Adam Smith puts forth that in the pursuit of our own self-interest, we build a much more prosperous society. Even though that isn’t our intent, that is what takes place.
It wasn’t until Karl Marx began the Communist revolution that Capitalism became tarred and feathered. Karl Marx invented the term Capitalism as a smear. Now, how do you convince someone to go against their own self interest, which is what Capitalism is by definition. Well, you need to play on peoples emotions, distort the truth, and play on their morals. More recently, the movie “Wall Street” used a ruthless character named Gordon Gekko that said “Greed is Good”. For some reason, this is what people associate with Capitalism.
Let’s walk through this piece by piece. First, greed has to do with morality. Capitalism has nothing to do with morality. You can be an altruistic capitalist, you can be a greedy capitalist, or you can be a regular capitalist. Notice, that you could just as easily substitute the word person with capitalist. That is because greed is an adjective to describe an object, in this case capitalist. The adjective isn’t the object.
Still a system based on everyone pursuing their self interest sounds really selfish. That is only if you are assuming that everyone’s self interest is the same, and that self interest is detrimental to the well being of others.
First, not all our self interest is the same. If everyone’s self interest was becoming rich and famous, we’d have no stay-at-home moms, school teachers, soldiers, etc. Everyone pursues their best interest by going after their dreams or what makes them happy. If you think money will make you happy, you may pursue wealth. You may also decide to stay at home with your kids and give up financial wealth for the emotional wealth of raising your family. As you can see, self interest is not interchangeable with money, wealth, or greed.
The second part of this selfish stigma has to do with people assuming that Capitalism is a zero-sum game, in which one person gains while the other loses. This couldn’t be further from the truth. This is actually what takes place in other economic systems, such as Socialism or Communism. Now, I know you aren’t going to let me off that easy, so let’s walk through an example.
Under Capitalism, I have a need. Let’s say I have the need for a coffee. This is what I currently want to make me happy (self interest). Now, the local Starbucks, by pursuing their self interest of building wealth, has decided to serve coffee. I walk into the local Starbucks, and we exchange my cash (hopefully not credit for a coffee) for their product, coffee. Now, as you can see, this was not a zero-sum transaction. I got what I wanted, and the Starbucks got what it wanted. We both valued the transaction at the exact same value without any outside force.
Ok, ok, that was a simple, but what about Scrooge. He was greedy. Scrooge was greedy, but by pursuing his greed, he creates jobs, innovates new products or services, and … hold on get this… he serves his fellow man. I know. That doesn’t sound selfish. Let me say (well type) this very loudly.
YOU CANNOT CREATE WEALTH AND BECOME RICH WITHOUT SERVING YOUR FELLOW MAN.
It is by this service that we build a better society. “Hold up”, you say. “What about Bernie Madoff, Enron, and this mortgage crises?”
Well, let me take Enron and Madoff first. Capitalism makes no claims that participants are angels. We all know we are all fallible. In order to protect each other from each other’s fallibility, we pass laws. Many of these laws are passed in order to prevent fraud, which is lying in order to take financial advantage of another. In both the case of Enron and Madoff, you had enterprises ran by criminals. This criminality has nothing to do with Capitalism. You would have criminals under any other economic system, because all systems are made up of men. Capitalism will eventually expose the fraud, because you have to continually produce economic value. Fraud does not produce value. Under competing systems, such as Socialism, these criminals can maintain their fraud much longer because Socialism isn’t concerned with economic value. The fraud could be propped by taking resources from another activity that does produce value.
Now, the mortgage crisis is much more difficult, because it did not involve criminality. “See”, you say. “I told you Capitalism was to blame for the mortgage crisis.”
Well, let me just end this blog, and we’ll dig into that accusation in the next blog. Let’s just say, Capitalism assumes people will make rational decisions, but rationality can be changed when outside forces are introduced.