A Brief History of Capitalistic Free Enterprise
Page 1
A Brief History of
Capitalistic Free Enterprise
And Why it is Better than
Any Form of Socialism
Glenn Rogers, Ph.D.
Copyright
©
2018
Glenn Rogers
ISBN 978-1-7324881-4-4
No part of this material may be copied in any form
without the express written permission of the author
Simpson & Brook, Publishers
Abilene, Texas
Table of Contents
Introduction
Chapter 1 Understanding the Terms Capitalism and Socialism
Definitional Challenges
An Analogy
What We Will See
Summary
Chapter 2 The First Great Social Transition
From Hunter-Gatherers to Settled Villagers
The Development of Early Societies … and Economies
The Economies of the Ancient World
Summary
Chapter 3 The Economies of Ancient Israel, Greece, and Rome
Israel
Greece
Rome
Slavery in the Ancient World
Summary
Chapter 4 The Middle Ages: The Rise and Fall of Feudalism
The Fall of Rome
A New Social Structure, A New Economic Structure
Challenges and Changes
The Decline of Feudalism
The Emergence of the Nation-State
Summary
Chapter 5 The Industrial Revolution
New Ways of Thinking, New Ways of Doing
The Evolution of Capitalism
Was the Evolution of Capitalism a Good Thing
Summary
Chapter 6 The Great Socialist Experiments of the Twentieth Century
The Relationship Between Socialism and Communism
The Failed Socialism/Communism Experiments of the 20th Century
The United Soviet Socialist Republic—The USSR
The People’s Republic of China
Cuba
Summary
Chapter 7 Which Socioeconomic System, Socialism or Capitalism
Helps People Achieve Their Full Potential
Equality and the Social Justice Issue
Self-determination and Personal Responsibility
Modern Social Democracies Or Welfare States
Robin Hood Taxation
Helping People to Help Themselves
Confusion About Terms
Reasons Why Capitalism is Better than Socialism
The New Socialism
Problems with the New Socialism
Summary
Conclusion
Introduction
Before I retired from academia, I taught Introduction to Sociology probably thirty times or more. When we would get to the chapter on government, politics, and economics (which are often covered in the same chapter) I was always distressed at how uninformed students were regarding capitalism and socialism. I also find it distressing that so many in our society, and even in our government, have embraced socialism as a viable socioeconomic system and want to remake America into a socialist society. The 2016 and 2020 Presidential candidate, Bernie Sanders, is one of them. Along with Bernie, a number of democratic politicians have embraced socialism. One is a young woman named Alexandria Ocasio-Cortez. In the summer of 2018, she won an election in her New York district, defeating her Republican opponent so that she is now a member of the House. Being only twenty-eight years old and an avowed socialist, Ocasio-Cortez’s victory generated a lot of media attention. Naturally, she did a lot of interviews. In one of them, when asked about her views regarding capitalism and socialism, she commented that capitalism hasn’t been around a very long time. When America was settled and established, she asserted, there was no capitalism. I was both amused and confused by her assertion. I had heard that she was a graduate of Boston University’s program in economics. Surely she knew better than to say that early American settlers were not capitalistic in their economic activities. What else could they have been? They certainly weren’t socialistic. They owned and controlled their own resources—meager as those resources sometimes were. Of course they were capitalists. They engaged in free enterprise.
Curious as to the source of Ms. Ocasio-Cortez’s confusion, I began to review some of the literature with which some of her professors might have been familiar. The problem became immediately apparent. For instance, in her book, The Origins of Capitalism, Ellen Meiksins Wood, defines capitalism as:
… [A] system in which goods and services, down to the most basic necessities of life, are produced for profitable exchange, where even human labour-power is a commodity for sale in the market, and where all economic actors are dependent on the market... Capitalism differs from other social forms because producers depend on the market for access to the means of production… Above all, it is a system in which the bulk of society’s work is done by propertyless labourers who are obliged to sell their labour-power in exchange for a wage in order to gain access to the means of life and of labour itself… Few would say that the capitalist system existed in earnest before the sixteenth or seventeenth century, and some would place it as late as the eighteenth, or perhaps even the nineteenth, when it matured into its industrial form.
If one did not know better, one might accept this sort of negative sounding, Marxist-influenced definition as a true and accurate explanation of capitalism, which could lead one to reach a conclusion similar to Ms. Ocasio-Cortez’s. However, when one looks up the definition of capitalism in a dictionary of economics, the definition is quite different from the one given above.
It is apparent that Marxist-oriented economists and sociologists are playing fast and loose with the definition of capitalism in order to align themselves with Marx and continue his negative socialist critique of capitalism. The problem is that what they are saying is simply not true, and playing fast and loose with a definition to make a thing easier to criticize is intellectually dishonest.
One of the things Marxist-oriented economists and sociologists like to do is claim that capitalism as an economic system is relatively new. It is not. Capitalistic free enterprise is ancient. It is the way humans have done business pretty much since there has been business to do. Over the centuries, captialism has evolved into something more complex than it was, say, 10,000 years ago. But the fundamentals of the system are the same. In this small book, I intend to provide a brief historical overview of economics, demonstrating that capitalistic free enterprise has, for the most part, been the economic choice of humans since human societies formed and people began doing business with one another.
But before we begin our historical survey, we need to understand what the terms capitalism and socialism actually mean. Chapter 1, therefore, will focus on definitions.
Chapter 1
Understanding the Terms Capitalism and Socialism
Language is not static. It is dynamic. The meanings of words sometimes change. But not all the time, and sometimes not at all. The meanings of technical terms almost never change. For instance, the word pneumonia refers to a, lung inflammation caused by bacterial or viral infection, in which the air sacs fill with pus and may become solid. The word pneumonia does not refer to an intestinal disorder. Never has, never will. An entomologist is a person who studies insects. It never refers to a person who studies volcanoes. That person is a volcanologist. While the meaning of popular words sometimes evolve to mean or refer to something new, the meanings of technical terms remain the same. And yet sometimes academics like playing fast and loose with definitions
so they can make an argument that they would otherwise not be able to make. This unfortunate reality has happened in relation to the terms capitalism and socialism.
Part of the challenge, especially as it relates to socialism, is that we are often dealing with two different groups of people. One is composed of actual socialists who know what the word means and are advocating actual socialism. They are true socialists. The other is a group of people who seem blissfully unaware of what socialism actually is. They call themselves socialists, but do not appear to advocate actual socialism. What they seem to want are social programs funded and overseen by the government with money they take from the wealthy by collecting extremely high taxes from them. They aren’t especially opposed to capitalism per se, but they don’t want successful capitalists to enjoy the fruits of their labor. They want the government to take most of what the wealthy earn and redistribute it throughout society in the form of social programs. So they are not really socialists; they are social program advocates who don’t seem to understand the difference between the two. Being an advocate of social programs does not make one a socialist. Hopefully, the difference will become clear as we proceed.
Definitional Challenges
According to The Economist Dictionary of Economics (Fourth Edition), capitalism is: “a social and economic system in which individuals are free to own the means of production and maximize profits, and in which resource allocation is determined by the price system.”
The Oxford Dictionary of Economics defines capitalism as: “The economic system based on private ownership of property and private enterprise.”
Merriam-Webster says capitalism is: “an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.”
The Cambridge Dictionary defines capitalism as: “an economic system based on private ownership of property and business, with the goal of making the greatest possible profits for the owners.”
I could cite additional sources, but the point is made: capitalism is an economic system where the means of production (whether it be goats that produce milk to be made into cheese, or a factory and the machinery that produces widgets) are privately owned, and the owner is free to make and sell (or offer his or her services) in order to make money. Thus, if a person owns some land, and on the land apple trees grow, he is free to harvest and sell his apples for money. It is his land; they are his trees and his apples. He can sell them if he wishes, or if he prefers, if he has the equipment, he can squeeze the juice from the apples and sell the apple juice. Either way, because he owns the land, the trees, and the apples, and can sell the apples or the apple juice for money, he can then use the money he earns to buy other things he needs—clothes, food, fuel, and so forth. How much he can charge for his apples or his apple juice will be determined by how much his potential customers are willing to pay. Thus, the market determines how much he can charge for his product. This is capitalism. It is a simple form of capitalism, but it is still capitalism—private ownership of the means of production and the right to make a profit.
This comes into sharp contrast with socialism that is defined as: “A social and economic system in which the means of production are owned collectively and equality is given a high priority” (The Economist Dictionary of Economics.)
The Oxford Dictionary of Economics defines socialism as: “The idea the economy’s resources should be used in the interest of its citizens, rather than allowing the private owners of the land and capital to use them as they see fit.”
Webster defines socialism as: “A social system or theory in which the government owns and controls the means of production (as factories) and distribution of goods.”
In socialism, instead of an individual owner, the government owns the means of production and distribution. Individuals are not free to own, create, make, sell, and profit from their hard work. The government is in charge of economic activity.
Another helpful volume on economics is entitled 30-Second Economics, edited by Donald Marron. In it, capitalism is defined as: “An economic system whereby the means of production (factories, machinery, and so on) and distribution are owned primarily by private individuals or corporations. The prices of labor and goods are determined on the free market, and not by central government. Profits are claimed by individual company owners or, in the case of corporations, distributed to shareholders,” (26). In contrast, socialism is defined as: “An economic system whereby the means of production and distribution are owned by the workers or by the state. Prices of goods and wages are determined by central government instead of being determined by the market,” (27).
These definitions of capitalism and socialism are simple and straightforward, easy to understand … until a Marxist economist or sociologist modifies them to suit his or her purposes. What are the purposes? There could be a couple, actually. Sometimes academics prefer to define terms themselves as part of their larger handling of a challenging or complex topic. As someone with a Ph.D., I understand this. Usually this presents no serious problem. But sometimes, depending on the ideological bent of the academic involved, especially in relation to our topic—capitalism—the reason for definitional creativity is to make it easier to criticize capitalism. Why would they want to do that? In some cases it is because they are simply following the lead of what they consider to be the majority scholarly opinion on the subject. One does not want to break ranks and appear too radical. However, in other cases, they are hard core socialists and want to identify capitalism as a bad thing—something that is relatively new, rooted in greed, thoughtlessness, and cruelty. But is it? Capitalism is not a bad economic system. As we shall see beginning in Chapter 2, it is a very old, highly functional economic system that, in its simple ancient incarnations, provided the underpinning for the economic development of the Western world.
Another term that factors into our study, less problematic than the term capitalism, is the term free enterprise. Turning again to the Oxford Dictionary of Economics, we see that free enterprise is: “A term with political overtones used to describe an economy in which the initiative for production and consumption decisions lies with individuals and companies, and there is limited government regulation.” In other words, in a society that values free enterprise (which is of necessity a capitalistic society) the people engaging in economic activity, not the government, decide what they will do and how they will do it. Businesses decide what goods and services they will offer within the parameters of what the market (consumers) will tolerate as regards pricing, quality, and so forth.
Capitalistic free enterprise is an economic system where individuals own the means of production and determine what to make and sell (or what service to offer) without regulations from some sort of governing entity. They are free to engage in economic activity for profit as they please. The harder and smarter they work, the more they earn. The more they earn, the better off they are.
An Analogy
To be sure, capitalism has evolved and changed. The simple capitalistic free enterprise that has existed from the earliest days of human society, and that evolved into the complex capitalism that characterizes most Western cultures today, may look quite different than it did in ancient times. Selling goat cheese in the local market so one can buy grain to grind into flour to make bread appears to be a different process from seeking venture capital so one can invest (buy stock) in a company that plans on building spacecraft that can take off on a runway like a jet, making trips to the moon and back. However, if one looks closely, the fundamental process is the same: the assets (the means of production) are privately owned and the goal is to make a profit. Whether or not one can make a profit (on goat cheese or on spacecraft) depends on market conditions. This is capitalism.
The problem is that many academics do not want to acknowledge that the underlying process in each of the scen
arios (goat cheese or spacecraft) is the same, and that in each instance we are talking about capitalism. Perhaps an analogy would help clarify the point. Consider the Model T Ford. It was an automobile. Or as most people would call it, a car. It was first built and offered in 1908 and was composed (generally speaking) of a chassis, four wheels, motor, transmission, acceleration and breaking systems, steering, windshield, seats, gas tank, and so forth. It had a 20-horse power motor capable of moving the vehicle between 40 and 45 miles per hour. It was a good basic car that took you from point A to point B comparatively quickly and comfortably. If you have time, look up the Model T online and look at old photos of the car. It was a neat old car. Now compare that early offering from Ford Motor Company with a 2018 Ford Taurus. The Taurus Limited Edition, like the Model T, has a chassis, four wheels, motor, transmission, acceleration and breaking systems, steering, windshield, seats, gas tank, and so forth. But it also has a 3.5 L V6 engine that generates 288-horse power. It has a breaking system that can slow and stop the car automatically, a cruise control system, an auto parking system, a back up camera, a climate control system, a stereo sound system, heated seats, a heated steering wheel, a computer to monitor all the operating systems that can not only remind you when service is needed but that can also tell the mechanic what’s wrong with the car and how to fix it. On and on I could go, but this is sufficient to make the point: the modern Ford Taurus is a much more complex car than the old Ford Model T. But it is still a car. It isn’t something else. The Taurus is much more technologically advanced, able to do things the Model T could not. It has features on it that could not even be discussed in 1908 when the first Model T was built. The Model T was technologically advanced for a car in 1908. The Taurus is technologically advanced for a car in 2018. The difference between them is, from one point of view, astonishing. But from another point of view, each of them is simply a car. One is old and one is new; one is simple and one is complex, but each is a car sharing certain basic features in common. There is no need to call the Taurus anything other than a car. It is a car. Neither is there a need to say that since the Model T was not as advanced as the Taurus, it was not a car. Of course it was a car.