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Pros and Cons of Capitalism

James A. Watkins is an entrepreneur, musician, and a writer with four non-fiction books and hundreds of magazine articles read by millions.

James Watt Steam Engine

James Watt Steam Engine

Industrial Revolution

The Industrial Revolution changed the basis of economies from agriculture to industry and commerce. Mechanization, and then standardization, lowered production costs tremendously, which made hand-made goods, and the artisans who made them, obsolete. Industry required the outlay of huge amounts of capital for plants, machinery, and raw materials. To recoup this investment, goods were produced and sold at a price above the cost to produce them, creating profits. Merchants then bought these goods, transported them to where they perceived demand to be, and sold them to the public at a higher price than they paid the manufacturer, creating profits. This is capitalism.

The Winner's Circle

The Winner's Circle

Winners

The people who succeed in a capitalist system are, nine times out of ten, those with superior intelligence and energy, who determine to work hard and save their earnings. The founders of great industries virtually all share these characteristics. The function of saving money for the fledgling entrepreneur is to raise himself above daily drudgery for daily bread, develop plans of his own, and find those who will cooperate with him to make his dreams come true. Contrary to the opinion of some class warriors, the upper strata of capitalism is not static; individuals and families rise up into it, and fall out of it, every year. Capitalism provides ladders for talent to climb.

WORLDWIDE GROSS DOMESTIC PRODUCT 2008 CORRELATES TO CAPITALISM

WORLDWIDE GROSS DOMESTIC PRODUCT 2008 CORRELATES TO CAPITALISM

Capitalism Definition

Capitalism provides ever-rising standards of living and leisure time for those who work. This improvement is taken for granted after generations, and this, combined with the frustrations of those who get the short end of the stick, breeds social unrest; an unrest that can include hostility to capitalism itself. In order for this discontentment to develop, there needs to be groups to whose interest it serves to stimulate and organize resentment, to feed it, to voice it, and to lead it.

Capitalism rests on the premise that effective competition is the best way of guiding individual efforts. Parties in a free market economy are free to buy and sell at any price at which they can find a partner to transact with; and anybody is free to produce, sell, or buy anything that may be produced or sold. The law is limited in a free market to the recognition of private property and freedom of contract. Socialism is against the competition.

Capitalism is a system in which the distribution of persons between different occupations stems from their own choices. It is, therefore, necessary that remuneration in these occupations should correspond to their usefulness to the other members of society.

Blacksmiths

Blacksmiths

Creative Destruction

Some highly trained men with hard-earned skills have suddenly lost their value to society because of some new invention of great benefit. The history of capitalism is full of such occurrences, sometimes affecting hundreds of thousands of people at the same time. This diminution of income and disappointment of hopes through no fault of one’s own, despite exceptional skill and hard work, offends the sense of justice of some people.

These people would prefer that the affected persons continue to receive their former income, and that they be sheltered from the vicissitudes of the free market. But if those whose usefulness has suddenly been reduced are protected against their loss, then those whose usefulness has suddenly increased must be prevented from gain. Then remuneration would no longer have any relation to actual usefulness. It would depend on the views by some authority to decide what a person ought to have done.

The differences in remuneration then no longer represent an inducement for people to make the changes that would make them more useful to society, and in fact, make it impossible for those affected to judge whether changes are worth the trouble. People are not willing to do their best without adequate incentives—and they surely will not give their best over long periods of time unless it benefits them directly. Without these incentives, punishment is necessary to maintain discipline, as with slave labor. The ultimate sanction of socialism is the hangman.

 After capitalism, it could be said that the world's standard of living went up a bit.

After capitalism, it could be said that the world's standard of living went up a bit.

Positive Effects of Capitalism

Wherever the barriers to the free exercise of human ingenuity were removed, man rapidly improved his lot, with the lives of no class of people not substantially advanced. To appreciate the fantastic results of capitalism, we must measure it by the hopes men held when it began; and there is no doubt that its success surpassed man’s wildest dreams. By the 20th century, an average working man in the Western world had physical comforts, security, and personal independence, which for previous millennia would scarcely have been dreamed possible.

Intellectuals sometimes use the freedom afforded by capitalism to nibble at its very foundations. But of course, criticizing is what bored intellectuals do best. The foundations to be nibbled include buying, selling, competition, the free market, prices, costs, incomes, rents, interest, wages, money, and profits. Socialism would do away with all of this, along with the worries about what one’s actual and potential competitors might do, and anxieties about fluctuations in the general business climate. Socialism would therefore claim to reduce the brainpower required to run a business or industry.

The pale blue represents democracy which appears to correlate to the standard of living and level of capitalism.

The pale blue represents democracy which appears to correlate to the standard of living and level of capitalism.

Theory of Capitalism

Capitalism relies on the profit motive as its engine. The profit motive is indispensable to sound administration of any public entity. Capitalism provides motivation to individuals and companies; it distributes responsibilities and rewards; it is a system of prizes and penalties. A company that is inefficient, and a bad judge of opportunities; fails to market its products properly, hires poor employees, provides an inferior product, and will be weeded out quickly by the free market.

In modern capitalist societies, family life means less than it once did, what with many people producing no children or only one child. The concern for legacy and posterity loses its power to mold behavior. For many, the family and the family home is no longer a motivation to succeed in business.

Childless individuals become more self-interested and detached from society, than those who see the world from the windows of a family home. A man with a family works and saves for his wife and children; his views and behaviors are shaped by this reality. A man with heirs works for the future irrespective of whether or not he is going to harvest the crop himself.

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People of the not-too-distant past financed their homes, vehicles, and furnishings from previous earnings. The increasing want for consumer goods has led to the credit laden society we now have.

Meeting of Socialists

Meeting of Socialists

Democracy

Democracy is a system for making decisions for the common good, by making the people decide issues through individuals who are elected to assemble in order to carry out their will. Democracy and capitalism are joined together at the hip. It is hard to imagine one without the other.

Only within capitalism is democracy possible. Compared to monarchism or socialism, democracy limits politics by limiting political authority. The state exists to provide legality, and also to provide a firm framework for autonomous individuals in their endeavors. Democracy is an obstacle to the suppression of freedom that is required by socialism.

Democracy offers the widest and most equal opportunities, and the greatest personal freedom to individuals of any system ever devised. Capitalism is perfectly fitted to democracy, in that it features individuals best served by being left alone, rather than those who wish to live off the state. When nations are divided as to social structures, democracy suffers. True democracy never desires its economic affairs to be in the sphere of politics, as poor political strategies would then mean a lack of bread. It is in everyone’s best interests to let free enterprise supply bread where it is demanded.

The rise of world standard of living correlates to the rise of capitalism.

The rise of world standard of living correlates to the rise of capitalism.

Pros and Cons of Capitalism

Capitalism does not simply mean that persons may influence production by choosing beans or peas at the grocery; that a young person may choose between a vast array of career paths; that manufacturers may choose what and how they produce. Capitalism is a set of values; it is an attitude toward life; it is a civilization, and yes—it is inarguably a civilization of inequality amongst individuals and families.

Unfettered capitalism produced the incredible wealth one sees in the United States today. It cannot be assumed that it will continue to raise standards of living while under increased hostility and interference from the intelligentsia. Private enterprises may be burdened and regulated beyond their powers of endurance. The gold standard had to be abandoned as the freedom of free enterprise diminished.

The burdens on business from the gadgets of regulation were a fraction of what they are today fifty years ago. The power of labor drove manufacturing from America as the labor movement renounced allegiance to the scheme of values of the private-profit economy. Coercive legislation, under the guise of social justice, but in reality, serving well-organized coalitions of special interests, has dimmed the light of the world—capitalism.

Positive Effects of Capitalism

Positive Effects of Capitalism

Capitalism vs Socialism

Socialism as Central Planning cannot be implemented without coercion. Therefore, socialism cannot be put into practice except by methods that socialists claim to disapprove of. The words “Tolerance” and “Diversity” do not mean what they mean in the English language, since the aims of those who use these words, as slogans, are the opposite of the definitions.

A common complaint about capitalism is that it is a competition. There is a tendency in schools now to give “participation” ribbons rather than awards for the best, the brightest, and the fastest. But competition is blind, much like Lady Justice. It is no respecter of persons.

There are some who object to inheritance, since some inherit more than others and therefore start the capitalist competition with an advantage. But for millennia people have strived to succeed in life for the express purpose of benefiting their children and grandchildren.

Under capitalist competition, not only do different occupations earn different wages, but also there are huge differences in the incomes of the most and least successful doctors, architects, writers, actors, boxers, jockeys, plumbers, gardeners, grocers, and tailors. Even the liberal John Stuart Mill wrote, “Equality would require that a handful of human beings weigh everybody in the balance, and give more to one and less to another at their sole pleasure and judgment, backed by supernatural terrors.”

The fact is, an unskilled worker earning low wages has more freedom to shape his future than a manager or engineer living under socialism. He can change his job or the place he lives, express his views openly, and enjoy his leisure time as he wills. He is free with no impediments; his life is not assigned to him by brute force.

No Participation Awards Here

No Participation Awards Here

Private Property

Private property is the guarantor of freedom, not only for those who own property, but also for those who don’t. Because the means of production is spread among a multitude of independent people, nobody has complete power over the people; individuals have the power to decide what to do with their own lives. When the means of production is vested in “society” or a dictator, then society or the dictator has complete control over our lives. Even a boss who is a millionaire has far less control over you than a bureaucrat who wields the coercive power of the state and at whose discretion it depends whether and how you are to be allowed to live and to work.

Money Money and Mo Money

Money Money and Mo Money

Pros and Cons of Capitalism

Bureaucracy may yet conquer the free enterprise system with its never-ending restrictions such as Cap and Trade legislation. Central Planning may yet emerge as acceptable to America, though the word socialism will surely be avoided by any who have any inkling what that word actually means. Capitalism—the free enterprise system—may yet be deemed not worth fighting for as a scheme of values, a way of life, and a civilization.

The limitations of our own personal incomes restrict our consumption of goods, and when we lack the money to acquire things we want we may come to the conclusion “I hate money.” This is a mistake, as money is merely an instrument through which the balance between our incomes and desires makes itself felt. Money is in fact, one of the greatest tools of freedom ever invented by man. Money opens an astounding range of choices, even to the poor in our society.

The political ideas of freedom, civil rights, constitutionalism, and parliamentarians, come from the individualistic worldview known as Classical Liberalism.

This content reflects the personal opinions of the author. It is accurate and true to the best of the author’s knowledge and should not be substituted for impartial fact or advice in legal, political, or personal matters.

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