Capitalism makes people compete for scarce resources.
People compete for scarce resources because scarce resources are, well…, scarce. Free markets enable people to compete for resources peacefully. Prior to capitalism, people dealt with scarcity largely through conquest, and enslavement.
Free trade has eliminated any excuse for conquest. As Adam Smith observed in The Wealth of Nations, trading with people in other nations to obtain goods is far less costly than trying to conquer and contain them. People produce more when they benefit from their production than they do at the point of a bayonet.
Smith also argued that free labor is far more cost effective than is slavery. Again, people produce more when they benefit by their production than they do under threat of punishment.
Capitalism is based on greed, extreme competition, predatory behaviour and nearly zero empathy.
Capitalism is based on the idea that people should be free and that they should own themselves and the product of their labor.
People under any economic system try to improve their own material well-being and that of their families and loved ones. Is that “greed” or is it simply being responsible?
By and large, individuals try to improve their conditions within the rules established by society. Under a free market, people trade goods and services with others. An entrepreneur with no empathy for her customers is unlikely to understand what goods and services her customers want and will not stay in business long.
In a socialist country, to the extent to which people give according to their ability and receive according to their need, people tend to demonstrate minimum ability and maximum need. More likely, though, goods flow from the politically weak to the politically strong. As a result, predators rise to the top.
Capitalism doesn’t care about those who are poor, sick, or disabled.
Capitalism is not a living being. Only people can care about others, and they can care about others in whatever economic system they are in. Under a free market system, people benefit by helping others. Entrepreneurs can profit only by providing goods and services that people want and for which they are willing and able to trade the fruits of their labor.
In a Capitalist system money is required for education and healthcare.
The provision of education, healthcare, food, clothing, and housing requires resources, and someone must pay for, or otherwise provide, those resources. Money is a proxy for those resources and it facilitates their exchange. In a free market, the people benefitting from services like education and healthcare pay for them. In socialist societies, or in welfare states, others must bear the cost.
Economist Milton Friedman observed that there are only four ways to spend money:
The best way to ensure that money is spent wisely (that is, to get the most value for the least expenditure), is to let people spend their own money for their own benefit.
Richard Fulmer worked as a mechanical engineer and a systems analyst in industry. He is now retired and does free-lance writing. He has published some fifty articles and book reviews in free market magazines and blogs. With Robert L. Bradley Jr., Richard wrote the book, Energy: The Master Resource.
READER COMMENTS
vince
Jul 10 2022 at 11:14am
The problem is definitions. Everyone has their own definition of capitalism and socialism. To ideologues, capitalism is free markets with unfettered greed, and socialism is collectivism in which everyone is industrious and altruistic.
The term capitalism began as a pejorative. I prefer to call it market economics to avoid the baggage.
Jim Glass
Jul 12 2022 at 9:34pm
The term capitalism began as a pejorative. I prefer to call it market economics to avoid the baggage.
Don’t simplify too much, as Einstein might warn you.
Many non-capitalists regimes make extensive use of market mechanisms while directing the allocation of capital top-down.
“Capitalist” regimes allocate capital via the market.
Thomas Lee Hutcheson
Jul 10 2022 at 4:34pm
That’s a feature, not a bug.
Depends on the capitalist
Ditto
And food and shelter, so what?
Mark Brady
Jul 10 2022 at 7:15pm
I suggest that your argument requires explicit recognition of just and unjust property rights. Which are just and which are unjust? The site value of land? Patents and copyrights? What constitutes free and unfree labor?
Grant Gould
Jul 10 2022 at 10:05pm
Most of the socialists I know, at least, would say of the “Capitalism makes people compete for scarce resources” point that in particular Capitalism is the economic system based around making resources scarce, and that the need for markets to allocate scarce resources is a “yes, but” fact — that it is the work of capitalist rent-seekers that keeps housing supplies limited, encloses labor’s right to compete behind patents, creates ever more complex licenses and regulations that make the right to be productive a commodity bought and sold in cash, and so forth.
It may be a somewhat overstated point, but it’s harder to dismiss out of hand than I think you are making out. And it is intrinsic in the definition of capitalism that they are working from, even if it that definition is not yours.
Richard W Fulmer
Jul 11 2022 at 11:37am
The problems you list are products, not of free markets, but of government interventions in the market. As Arnold Kling has observed, the result (if not the aim) of much regulation is to increase demand and decrease supply. Patents and copyrights are creatures of government that lend themselves to gaming (e.g., patent trolling and drug formula tweaking). Trade unions fight for regulations such as minimum wage laws, job licensing, and anti-gig-work laws, because they reduce the labor pool and drive wages up. Companies lobby to for regulations that will put competitors at a disadvantage or lock them out of the market entirely.
Unfortunately, the government has gone into the business of selling special privileges. Unsurprisingly, wealthy people and companies are best able to buy what the government is selling.
People don’t resent the rewards that come with real achievement. Wealth earned by a Lebron James, a Bill Gates, or an Oprah Winfrey doesn’t send mobs into the streets armed with pitchforks. What people do resent is wealth amassed by swindlers. What they resent even more is a political system that institutionalizes wealth transfers to swindlers.
Jim Glass
Jul 12 2022 at 11:56pm
Unfortunately, the government has gone into the business of selling special privileges
Your history is backwards. Government has been working its way out of selling special privileges for a long time.
Lincoln financed his presidential campaign in large part by having the governors who supported him sell monopoly state corporate charters and remit the proceeds to his political team. Corruption most foul! But not by the standards of the day. And much less foul than having the monarch and parliament sell national monopoly corporate charters, the standard 100 years before that. Which was much less foul than having the king, barons, warlords, whatever just divvy things up as they personally liked before that. And the medieval guilds granting monopolies forever, endless list.
Libertarians have a tendency to indulge in Eden-ism. Once there was a natural state of goodness, but then the government began selling special privileges, and made things bad and is still making things worse. Instead of the reality: For most of all time (and still in many if not most places today) there was nothing but “special privileges” layered one upon another, while in the liberal democracies these have gradually been being cut back over the last 300 years.
Similarly with violence. In imaginary state-less Eden people all cooperate peacefully for the common good. Then “the state” somehow arrives without being requested and imposes violence on us all. Although the reality of pre-state societies was:
“the actual percentage of the population that died violently was on the average higher in traditional pre-state societies than it was even in Poland during the Second World War or Cambodia under Pol Pot.” — Jared Diamond
That’s just normal life, not during some terrible hunter-gatherer war. Project those death-by-violence percentages on the full 20th Century and you get not 100 million dead by war but 2 billion.
This huge reduction in violence has occurred as states have risen – because of them. As monopolists of violence they do what all good monopolists do, reduce supply of what they monopolize and eliminate competing suppliers. The #1 reason why populations support even the nastiest states is they suppress day-to-day violence.
This is going afield from the original point, but here’s the moral: When criticizing the status quo look at the big, long picture, not the quick snapshot. Getting the flow of history backwards isn’t going to help one’s diagnoses and policy prescriptions.
Richard W Fulmer
Jul 13 2022 at 8:19am
Almost before the ink was dry on the Constitution, the United States suffered from the abuses of crony capitalism. But the party didn’t really get started until the Progressive Era – roughly 1890 to 1920.
After the Civil War, companies tried and failed to create lasting cartels that would fix prices and limit competition – that is, to limit the “fetters” that consumers and rival businessmen placed on them. The cartels always failed because there was too much incentive for cartel members to cheat on the deals and drop prices to gain market share.
Progressives “solved” the problem by creating government-enforced cartels such as the Interstate Commerce Commission, the Federal Reserve Bank, and the Federal Trade Commission. Naturally, this was all done in the name of protecting the public.
FDR’s New Deal extended cartels to agriculture and to the automotive, trucking, and airline industries, while LBJ’s Great Society Medicare and Medicaid programs extended them to healthcare.
Richard W Fulmer
Jul 13 2022 at 8:35pm
Correction: Government agencies like the ICC weren’t cartels, rather they created and enforced industry cartels.
Jim Glass
Jul 14 2022 at 8:25pm
… abuses of crony capitalism. But the party didn’t really get started until the Progressive Era – roughly 1890 to 1920.
Are we kidding?
After the Civil War, companies tried and failed to create lasting cartels
Yes, cartels fail. State enforced monopolies are much more profitable. That’s why Lincoln’s campaign team made so much money selling them. (Crony capitalism?)
Progressives “solved” the problem by creating government-enforced cartels such as the Interstate Commerce Commission…
Well, for perspective let’s look back a ways before 1890…
[] Early 1800s, NY State creates and sells a monopoly on all steamships operating in state waters, including all of NY harbor to the New Jersey-side high-tide line. A profitable monopoly indeed! In 1813 this was sold for 10 years to Aaron Ogden, governor of New Jersey (! … cronyism?) Now, Ogden had a business partner, Thomas Gibbons, and one day in 1817 Ogden jumped out his back window and ran as Gibbons pounded a bullwhip on his front door (something about Gibbons’ wife). Denied justice by bullwhip, Gibbons decided to bankrupt Ogden by breaking his monopoly.
Among other steps, Gibbons hired young Cornelius Vanderbilt to create a cross-harbor ferry customized to run the NY ‘blockade’. This drew huge business with low monopoly-busting fares, landing passengers wherever possible in NY. New Jersey now had passed a law making it criminal to enforce the NY monopoly, so the states were close to an actual shooting match. It’s a great and often amusing story, but not for here…
When the accompanying lawsuits reached the Supreme Court, one of Gibbons’ personal lawyers there was William Wirt, Attorney General of the United States, earning a nice fee on the side. (Cronyism?) It helped, he won. Gibbons v. Ogden (1824). Thus the Commerce Clause as we know it was born.
[] 1862. An older Vanderbilt buys control of the Harlem Railroad, but to operate it needs a charter from the city. He amply bribes the notoriously corrupt city council to get it — then they think, “hey, we can make a lot more money if we sell his stock short then revoke his charter!” Which they did. Openly. Bragging in the newspapers about how much money they were going to make. Because there was nothing illegal about it. But while they were gloating they didn’t notice he was executing a corner on all the Harlem shares. Which meant that to cover their short sales they had to go to him to buy the shares they needed and pay any price he asked. Ouch. But there’s more!…
The NY State Legislature, equally corrupt, closely working with Vanderbilt’s rival Daniel Drew (cronyism?), decided it could do the same thing and get away with it because Vanderbilt’s credit was tapped out dealing with the city. It told Vanderbilt he had to get a charter from it too, he amply bribed them to get it, they sold his stock short and then killed the charter. And they bragged openly and publicly how they were really going to get rich. Unbelievably to all, Vanderbilt cornered his stock again. And this time he wasn’t so forgiving about it. OUCH!!
Vanderbilt’s “double corner” defeated all the elected state legislators working closely together with private-market short sellers in a joint attempt to destroy him for their own profit — that’s crony capitalism for you, red in tooth and claw. The full story is legendary in business history (which is greatly under-taught to all our cost.)
Note that while these examples are notable historically, they are just typical of the everyday relation between politics and business back then. Everyday crony capitalism.
Ok. But one may object: none of these awful abuses involve the federal government. True, although the federal government was very small before World War I. But then, there was the epic corporate-political graft of the transcontinental railroad. Massively corrupt federal government crony capitalism 1860s-style.
Personally, as crony capitalism goes the ICC and FTC seem like weak tea compared to the generations before 1890.
Crony capitalism only became serious after 1890? How can this possibly even be? The further back one goes before then the easier it was for people with business and political positions to “crony up” for gain. Why wouldn’t they?
Richard W Fulmer
Jul 14 2022 at 10:58pm
Weak tea? You’re talking about individual companies. After the ICC was established in 1887, the scope widened to entire industries. Until President Carter deregulated the railroads in the 1970s, the ICC controlled the routes, lading, and rates of every interstate railroad in the country – not just the Intercontinental Railroad. The goal was to protect the railroads, not consumers.
From 1935 to 1980, the ICC similarly regulated all interstate trucking – largely with an eye to protecting the railroads. The Commission controlled rates and routes and limited market entry. When President Carter signed the bill deregulating the industry, he stated that the reforms would reduce “consumer costs by as much as $8 billion each year… and… conserve annually hundreds of millions of gallons of precious fuel.”
You can point to some steamship monopolies in the state of New York. I can point to the Merchant Marine Act of 1920 (the “Jones Act”), which prohibits transporting goods between American ports on ships that aren’t American built, owned, registered, and crewed. The Act significantly increases the cost of shipping American products between American cities. As a result, goods that could more efficiently be sent by water are sent by rail, truck, or air, wasting fuel and producing far more pollution and CO2 emissions than necessary.
During the four decades from 1938 to 1978, the Civil Aeronautics Board (CAB) regulated passenger airlines engaged in interstate operations. It assigned routes, set fares, limited market entry, subsidized airlines, and regulated mergers. Intrastate airlines – not subject to the CAB’s entry restrictions or price controls – could transport customers for half the cost of their CAB-certified rivals.
Jim Glass
Jul 12 2022 at 9:16pm
it’s harder to dismiss out of hand than I think you are making out. And it is intrinsic in the definition of capitalism that they are working from, even if it that definition is not yours.
I really don’t understand this.
“Capitalism makes people compete for scarce resources”
Resources are always scarce, so people always compete for them and have all through human history. Capitalism provides markets as the mechanism for competition. Socialism, Feudalism, Theocracies, et al, use social and political power and physical force as the means of competitive allocation.
Capitalism is the economic system based around making resources scarce,
Really? If you think capitalism makes resources scarce, explain the VAST increase in resources available to humanity seen in the 300 or so years since the arrival of capitalism – in the capitalist countries, that is.
Where were those resources in all the 300,000 years of prior human history? Somebody enjoying them right now is a bit of an ingrate it may seem!
Hey, is the Internet a resource available for you to use? Where was electronic communication in all the thousands of years before capitalism? Post your answer electronically below.
it is a “yes, but” fact — that it is the work of capitalist rent-seekers that keeps housing supplies limited [etc.]
the interest groups that lobby for market-destroying rent controls, price controls, NIMBY zoning and the like are hardly capitalists – capitalists don’t destroy markets, and distribute the use of capital via the market. Thus the name “capitalist”. And that’s any economically literate person’s definition of the word.
Jim Glass
Jul 13 2022 at 12:27am
Free trade has eliminated any excuse for conquest.
If only it were so! Free trade has eliminated economic gain as a motivation for conquest. But there are lots of other motivations.
Putin’s not in Ukraine for economic gain, but he sure has a motivation for conquest. All the Balkan groups that have had knives at each other’s throats since their wars after Yugoslavia broke up — for that matter since back before World War I — free trade has zero impact on their motivations driving that.
World War I itself was fought by great powers all full well knowing the full benefits of free trade, yet they all thought they had plenty of excuse for the conquest of each other. Pretty obviously none of them fought that war for economic gain.
Economic gain is far from the only driver of human behavior.
Richard W Fulmer
Jul 13 2022 at 11:03am
There is a difference between an excuse, or justification, and an explanation. One could conceivably justify the theft of a loaf of bread if one were dying of hunger. People living a hand-to-mouth existence routinely justified all manner of evil under the banner of “necessity.” While I find such arguments unconvincing, they can’t be dismissed out of hand.
Ethnic hatreds, racism, lust for power, and desire for glory or fame are all explanations for conquest, none are excuses.
Jim Glass
Jul 14 2022 at 8:59pm
There is a difference between an excuse, or justification, and an explanation … Ethnic hatreds, racism, lust for power, and desire for glory or fame are all explanations for conquest, none are excuses.
Of course. And when it comes to understanding war I’m sure you’ll agree that what matters is explanations, not excuses.
Ian
Jul 15 2022 at 5:59am
You say that under socialism, power flows from the politically weak to the politically strong, but that is absolutely the way capitalism functions in practice. Socialism is about redistributing economic and political power from the strong to the weak for this very reason.
Richard W Fulmer
Jul 15 2022 at 1:36pm
Intentions are not results. Capitalism, regardless of the intentions of capitalists, has pulled billions of people out of poverty around the world. Socialism, regardless of the intentions of socialists, has resulted in equally shared misery among everyone but those at the top.
Incentives matter. Free markets create incentives for people to produce. Socialism creates incentives for people to demonstrate need.
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