The Problem with Capitalism

Let me begin by stating that I am not an anti-capitalist, but in a perfect world, it would not be the philosophy of choice. However, we do not live in a perfect world, and thus, it appears to work better than any other philosophy when applied as a whole to an entire nation/people. That said, I would like to lay out some of the greater failings of the capitalistic philosophy.

Capitalism assumes that all people are self-interested. Furthermore, it asserts that people should act on that self-interest in order to achieve the greater good. A simple example of how this works goes like this:

Farmer John harvests his field of corn and stores enough for himself and his family. The rest he sells to the grocer in exchange for money that he uses to buy other foods/supplies from the grocer.

A free market exchange of goods has taken place where each individual acted out of his/her own self-interest. The farmer did not sell his corn to the grocer because they were friends, but because he needed the money. The grocer did not by the corn out of pity, but because it was good business and he knew he could sell it for more to his customers. Both acted self-interestedly and both benefitted and probably thanked one another as they left. Thus, out of self-interest, both parties end up helping one another and the greater good is served. So why is this a problem?

First of all, it's void of personal morality. It expects people to act selfishly with no concern for the wellbeing of others. This is contrary to the yes you can concept which expects people to care for one another, to lift up and edify, and encourage greatness. It expects service and virtue while capitalism works on a foundation of selfishness. It gets away with this by claiming that such behavior is actually better for everyone in the long run. While it may work to the benefit of many, it is clearly not beneficial to all in every case. One clear example of this is the way businesses get involved in politics in order to influence policy in a way that creates a market advantage for that business. This is clearly unfair and usually ends up wasting public funds for private purposes. Yet this is exactly how we should expect a pure capitalist to behave. It is in the self-interest of that business and all its shareholders to ignore the greater good of the rest of society and to use public funds and the democratic system to secure their own fortunes.

Many other criticisms of capitalism such as income inequality, commercialism/materialism, exploitation, etc. all have some validity. I believe the root cause of these faults is selfishness. Capitalism is built on the foundation of self-interest. One may argue that not all capitalists are wholly selfish as is shown by large charitable donations and other altruistic acts. However, in such cases, the alleged capitalist is not adhering wholly to the capitalist philosophy. Some other philosophy is in play there. One that expects altruism, morals, and concern for one's neighbor. One that is much more in line with the yes you can concept than a capitalist one.

Capitalism vs. The Free Market

From the time I began to gain an understanding of economics, I was always under the impression that Capitalism and The Free Market (TFM) were the same thing. Over the last few years, however, I have begun to understand that they are very related but very different terms.

TFM is a system based on the idea of personal property. Each individual has ownership of his/her property and they, therefore, have the exclusive right to decide what happens with that property. This being the case, any exchange of goods is done so with the explicit consent of the owner of said goods. Under such a system, no third party, including the government, would be allowed to interfere with or regulate the exchange of goods (zero market regulation). In other words, every individual is FREE to do whatever he/she pleases with his/her goods. If an individual wishes to exchange their goods for money, he may. If she wishes to give her goods to others at no cost, she may. In order to maintain the system, the only role required of the government would be to ensure all market exchanges are done with the consent of all parties involved (protection against theft, contract enforcement, etc.). *Footnote 1

Capitalism, on the other hand, is completely different from TFM in that it is not a system of rules. Capitalism is a philosophy, or set of beliefs, based on various assumptions on human nature, that dictates how one should act within the system. In other words, TFM is the rules of the game and Capitalism is one strategy on how to play the game. While Capitalism requires TFM, the reverse is not true. Any variety of strategies may be employed within TFM. Capitalism is only one available strategy.

While this is a matter of semantics, it is actually of great importance. Particularly to those who wish to defend the merits of TFM. I will explain why this is so important in a later post regarding the weaknesses of Capitalism. For now, the big take away from this post is that TFM and Capitalism are not the same thing.

1. I am not aware of any place on this Earth that maintains a true 100% Free Market. It would seem that such a place would be impossible since it requires some government protection to maintain its integrity, and yet, that same government must collect taxes in order to do its job, thereby interfering in the exchange of goods. Today, TFM exists on a relative scale. While the U.S. boasts a Free Market, it is nothing near TFM that existed at the time of the Founding. On the other hand, the U.S. market is still quite free when compared to nearly all other supposed Free Markets of the world.

Good Quote

“Of all tyrannies, a tyranny exercised for the good of its victims may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their own conscience.”

-- C.S. Lewis