Has Capitalism Failed

by Robert Villegas

  Regulations

  Regulation over businesses is a subcategory of law that is included in the overall concept of central planning. Central planning, according to many classical economists, is a euphemism for socialism and/or communism. It involves the government having a general policy of using force against individuals and businesses to subject them to the central plan of the government as it seeks to accomplish specific moral or economic goals.

  Central Planning is a more benign word for “dictating” and involves the issuance of decrees and controls on the economic activities of businesses which means eventually of individuals. If I say that a dictator is evil but a central planner is good because he is trying to make things better, you might say this is deceptive because essentially a central planner is a dictator. In fact, during the heights of dictatorship in Europe the intellectuals all believed that their “beloved” dictators were simply trying to make things better.

  Regulations are essentially rules handed down by force that tell business people what they must do and how they should report to the government. A regulation might tell insurance company owners that they can only sell insurance policies in the state in which they are headquartered but not in neighboring states. Regulations have the effect of restricting economic activities and increasing the cost of doing business. Therefore, they have the effect of significantly restricting or lowering the amount of trade among citizens.

  Many regulated companies are required to prove their compliance with regulations by means of reporting to government on a regular basis. This requires hiring employees whose jobs it is to prepare all compliance documents as demanded by government. Many of these individuals would be expensive lawyers who must be paid well. This adds millions of dollars to the company’s cost of doing business. In effect, all of these jobs are not just unproductive but they are also counter-productive. There is even the additional cost of being fined and, in some cases, having “regulators” on site to observe compliance.

  Regulations, in effect, can be a boon to the larger company that has the ability to absorb these costs due to a large volume of customers. But they cause harm to smaller companies that cannot absorb the costs of compliance and must go out of business. They also serve as a sort of goal-tender in the industry that keeps startups from entering the field. This is why you will often find that the advocates of more regulations in a particular industry happen to be the large companies that have been given free rein to write the rules to benefit themselves – in the name of “protecting consumers”.

  The justification for creating regulations in an industry is often an old saw derived from Marxism called the zero-sum view of economic transactions. This view holds that capitalism is exploitative and that every trade or transaction is an example of the rich getting richer while the poor get poorer; in effect, by this view, the seller is exploiting the consumer who loses in the transaction. So, the argument goes, the capitalist should be restricted and controlled to ensure he loses in some way.

  Needless to say, the idea that every transaction should be a loss to the seller and a win for the consumer is a violation of the Law of Supply and Demand and results in the market distortions that proceed from such violation. There is no moral reason to assume that a seller is always trying to cheat his customer or that he is trying to get riches he does not deserve. It is not true that every transaction is a lose/win; to prove this all one has to do is look at the increases that are typical in GDP (Gross Domestic Product) within industrialized countries. If there was no value being produced in these societies, there would be no increase in GDP and no people to exploit. You can’t get money from a consumer unless he is producing something of value in his own job.

  Marxist critiques based upon zero/sum trades are false. Capitalist transactions are generally win/win. The purchaser actually does gain a value that benefits him and the capitalist also gains money that he can use to trade or invest. There is no loss unless some deception is involved and history shows that there are thousands if not millions of beneficial trades made every day for both capitalists and consumers.

  SAY’S LAW

  Say’s Law is simply this: “A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value.”[11] In other words, production leads to demand; and in particular, not the other way around.

  In another formulation of the same law, Say wrote:

  “As each of us can only purchase the productions of others with his own productions – as the value we can buy is equal to the value we can produce, the more men can produce, the more they will purchase.”[12]

  The reason this law is so central to capitalist ideology is because it counters and refutes the idea that consumption leads to demand which is the basic premise of re-distribution and cronyism, the idea that social goals take precedence over individual self-determination.

  First, we must understand that advocates of central planning, socialism and all forms of statism need to reverse the causal relationship between production and demand in order to justify their thefts and re-distribution. Their claim that demand spurs supply cannot possibly be true. If it were accepted by the bulk of humanity that production comes first, then all arguments point to the fact of individual rights and that government has no authority to appropriate any of man’s money for any purpose whatsoever. Say’s Law says, essentially that there are negative consequences from a violation of man’s individual (property) rights.

  Production must come before consumption and any effort to spur production by means of consumption fails because putting consumption first requires the expropriation of money from the productive (which restricts production). Further, the effort to spur economic activity through re-distribution fails because it represents a mere transfer of money from one party to another. Both parties would have spent that money in some way so there is generally a net loss because the money is taken from productive people who would likely spend it more intelligently than those to whom it is given.

  CORPORATE STRUCTURE

  Corporate structure is the individualization of a group of people involved in a voluntary association. It involves a system of organization that maximizes productive output with the least amount of input. It organizes its resources into unique and efficient productive processes, staffed by well-trained and well-educated employees who are also well paid.

  As with all corporate organizations, it begins with a Mission and a Vision that the leaders of the corporation use to define business units and structural organization. The logic of moving from Mission to appropriate business processes that result in the corporate Vision is the art of management. It is no small task.

  Indeed, managing an efficient corporate structure requires a genius of its own. The corporation heads must discover and integrate the tools that will help in the achievement of the organization's Vision. The structure is, in effect, a mini-machine with each part performing a different function. If the heads are good engineers, they can keep the machine running smoothly while improving, altering, and adjusting it for more output over time. Some changes have to be made on the spot and require a special skill, the ability to integrate new knowledge as quickly as possible with the tried-and-true.

  The corporation is the ultimate vehicle through which the division of labor and all other features of capitalism are brought to maximum effectiveness for the customer. Anyone who sees corporations as evil villains who practice racism, exploitation and shoddy deceptions does not understand the important and vital influence that economic freedom plays in the life of a corporation and even a nation. The political thugs and brutes who claim to represent the poor, the workers and the aged are actually killing the very institutions (corporations) that make our nation and economy stronger. These busy bodies who think they know what makes a society run are nothing more than destroyers. They have yet to learn that a society which defends individual rights is a capitalist society and that a capitalist society, by its nature, enables people to
make their own decisions. A capitalist society does not require interference and is not predatory by nature. To give professional parasites power over our economic decisions is tantamount to doing the opposite of what society and individuals need.

  Capitalism is the only system that can make effective use of the division of labor, the law of supply and demand, mass production, the use of capital, capital accumulation and corporate structure. No other economic or political system generates the efficient interaction between these essentials of economic life the way capitalism does. In fact, these essentials function effectively only when individuals are allowed to make their own value choices and keep the fruit of their labor. You cannot legislate any of these principles into existence and force them upon a nation. Capitalism is the only system based upon freedom and moral living.

  Is Capitalism Evil?

  The previous chapter offered a number of critical economic factors that influence the functioning of a “capitalist system”. Each of these factors represents an economic principle that liberates individual choice in a number of critical ways. The basic argument for laissez faire capitalism (which means no government interference in the marketplace) is that interfering with any of these factors interferes with the functioning of efficient trade. The so-called “greater good” is not possible if the government has the right and ability to interfere in the economy any time it wants.

  This “greater good” argument is often called the utilitarian argument – but there is a better argument that has scarcely been considered by the defenders of capitalism. It is the moral argument. This argument holds that capitalism is history’s only moral economic system. And this is where anti-capitalists don’t have an answer. It represents a great opportunity that conservatives have missed. In his lecture series, Capitalism: The System of the Mind, Andrew Bernstein tells us:

  “Todays’ capitalist and semi-capitalist nations are the freest and by far the most prosperous countries on earth. The non-capitalist nations by contrast lack both freedom and prosperity. Despite these widely acknowledge facts there is wide-spread hostility toward capitalism among contemporary intellectuals, journalists and politicians. To protect our rights and our hard-earned wealth, we need to understand the full glories of capitalism, including its history, and then stand up for it with the proud certainty that comes only from comprehensive knowledge of the subject.”[13]

  Needless to say, today’s socialist thinks this is all wrong, backwards. He already knows that capitalism is evil because it enables profit. It cannot be possible that capitalism is the most advanced and successful system in history. There must be another reason for prosperity. How can theft and profits lead to a better economy? There is no way that it can. So, the socialist would argue that an advanced economic system is made possible by the machines that produce so much – not by the desire for profits. These machines were invented by men who just had a desire to do things better and not a desire to make money.

  Socialists have an essentially medieval view of moral action. First, they adhere to what is called a “zero-sum” view of economic transactions which holds that whenever two people trade together, one of them loses and the other wins. This turns trade into a hostile act.

  The zero-sum view comes from an even older idea that derived from tribalism and that is the view that reality was all about scarcity and eking out a survival by means of foraging on an essentially barren planet.

  This might have been true for primitive man at a time when he had not known how to make tools; long, long ago, but it is not true since man began to hunt, grow food and make tools. Prosperity became a matter of arranging the natural environment so that man could create abundance and make life more enjoyable. It was not a zero-sum world once man’s mind was given the freedom to “exploit” the environment and even to plant seeds and domesticate animals for the future. Once man began to “develop” his environment, abundance was the order of the day and trade could be a win/win not a win/lose proposition.

  But the socialists, being medievalists, think that nature hasn’t changed, that it is still barren and devoid of life, that man should root out the scraps and try to survive any way he can. If he sees a shoot of green in the distance and some other man from another tribe gets there first, well, that means a fight. That is a zero-sum world. When man finds a shoot and takes it home and plants it in the ground, when he salvages the seeds and saves them in a safe place, he has created an environment where abundance is possible. That is the difference man makes. Socialists have missed the Enlightenment and are still chained to old wives’ tales.

  How could a system that enables each individual to pursue his own happiness ever be moral? If most citizens in society actually achieve their values by means of their own personal choices, isn’t that what it means to have a moral system? If most businesses, in pursuit of profit, provide products and services that improve their customers’ lives, isn’t that a moral system? I’m referring to the overwhelming number of business trades that happen every hour of every day in the millions and billions. In fact, the countless lives that have been improved by capitalism are a clear indication that capitalism is moral. How can the anti-capitalists say that capitalism is immoral?

  The first thing they say is that capitalism is fraught with monopolies and that capitalists are always seeking to corner their markets by predatory means such as the use of government to harm competitors.

  I’d like to point out that the trend toward monopolies is actually a characteristic of socialism not capitalism. It is typical that a socialist would ask the government to declare his company to be in the interest of society in order to ensure that he has no competition. In the Soviet Union, men who headed up industries functioned more like oligarchs and used the power of the state to finance their industries and sought to ensure that no one else was allowed to provide similar products or services.

  Even in our mixed economy, businesspeople with political pull have no problem using government to protect themselves and even to subsidize different business projects – and they are often asked by government to help write legislation for the industry as a whole. This gives them great power and lots of government contracts. The General Electric Company is one such company whose revenues include significant business done with the government.

  But in a capitalist system, properly, no business gets special treatment from the government and must compete successfully or die. There is no significant advocate of pure capitalism who advocates anything like a government/business alliance of any type. In fact, by definition, if a society allows government interference in the economy, it is no longer capitalist but socialist.

  People often say that socialism is the moral economic system because it requires that the individual sacrifice for the collective. This argument also admonishes the advocates of capitalism for their adherence to the idea of self-interest as a motive for action and this is considered to be evil. Additionally, advocates for socialism seldom mention the oppressive nature of the force they advocate against individuals and businesses. They prefer to focus only on the “help” that re-distribution, welfare, government regulations and other coercive mandates provide while they ignore the harm done to the producer and capitalist.

  Altruism, self-sacrifice, is the fundamental principle of socialism and that means forced sacrifice. This idea has been sold as benevolent, noble and good when in fact it results in harm to the productive citizen for the sake of an illusory benefit to the supposed “victim” of capitalism. This moral atrocity has escaped scrutiny in spite of the fact that it means coercion and force against productive individuals.

  Government should never be allowed to use force against honest citizens who are merely trying to live. The fact that government does use force, is the reason why socialism and all other forms of statism are evil. As long as socialists are able to pretend to be doing the “moral” thing in achieving “social justice”, the world will be confronted by the scourge of vice, corruption, injustice and death that always comes
from the idea of “from each according to his abilities and to each according to his needs”. This idea is the source of human evil and directly connected to socialism and the idea that the individual is owned by society.

  Like true pragmatists, they even think that a certain amount of force actually does some good and they seek to define which forceful acts will create more good. They are oblivious to the fact that force restricts free action; in other words, force is evil and can have no positive benefit.

  Like true pragmatists, they even think that a certain amount of force actually does some good and they seek to define which forceful acts will create more good. They are totally oblivious to the fact that the force they are engaging in restricts free action; in other words, force is evil and can have no positive benefit.

  Perhaps this is why socialism appeals to so many young people. Certainly, their older teachers are convincing them that “being smart” about what force to use is the best thing, but because they have never actually had to balance budgets, make payrolls, create products that people will want to buy and perform their work to the best of their ability – all of which must be done to the highest level in a competitive market – it is easy for them to come up with “obvious” ideas that are not obvious at all to someone who has had to balance budgets, make payrolls, create products that people want and to work as hard as possible just to ensure that one is able to make the best salary possible.