What is Capitalism?
How it works
“Freedom is the open window through which pours the sunlight of the human spirit and human dignity” (Herbert Hoover). In the 1920s, America turned away from worldly concerns and began concentrating on domestic affairs. Some might refer to this period in America as the Decade of Optimism. It ushered in many forward thinkers, innovators, innovations, and cultural changes. For example, Henry Ford created an efficient and cheap means to mass produce automobiles. This allowed even those who earned a modest income to purchase one of his cars.
Airplanes, movies, radio stations, washing machines, refrigerators, and paved roads were just a few of the innovations that the 1920s produced. Additionally, the “Roaring 20s” gave women the right to vote with the passing of the Nineteenth Amendment. The beating heart of this time period was an economic system called capitalism. As defined by Merriam-Webster, 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” (Merriam-Webster). Capitalism is about efficiency, economic freedom, and individual liberty.
The 1920s also saw three Republican presidents in the White House. The latter two, Calvin Coolidge and Herbert Hoover, praised private businesses, innovations, detested big government, and had “a deep faith in the essential soundness of capitalism, which…represented the fullest expression of individualism” (Scholastic). Capitalism paved the way for the innovations that shaped America. Entrepreneurs came up with ideas and were able to freely test them in the marketplace. Almost every product you love today is a product of capitalism. Conversely, almost everything you cannot stand is a product of the government (i.e., BMV, TSA, post offices, IRS). Henry Ford did not revolutionize the auto industry due to an order from the government. The great advancements of civilization were not created by government institutions but rather from private citizens. Entrepreneurs have given us products, innovations, and medicines that have become necessities in our society. Albeit, no system is perfect. Capitalism offers the most freedom and opportunity to each and every one of its citizens; it benefits its entire society and results in the most economic growth of any other economic system.
First, capitalism offers the most freedom and opportunity to each and every one of its citizens. “Everyone has equal opportunity under capitalism. The important truth in this belief is that in countries with relatively open capitalist economies, it is possible for some poor people to work their way up. Most well-off Americans have only to trace back in their families one or two generations to find ancestors of poor or modest means” (Brians). Capitalism gives everyone an equal opportunity to pursue their dreams. It takes limitations away and offers endless possibilities. Those that rise to the top are the ones willing to take risks. They work hard and are dedicated. Additionally, Milton Friedman, an American economist, states, “The great virtue of a free market system is that it does not care what color people are; it does not care what their religion is; it only cares whether they can produce something you want to buy. It is the most effective system we have discovered to enable people who hate one another to deal with one another and help one another” (Friedman). Where monopolies and trading restrictions are common, so too is the special treatment of racial and religious groups over another and, as Friedman adds, the ability to “keep people in their place” (Friedman).
Second, everyone benefits in a capitalist society. Capitalism benefits more than just wealthy entrepreneurs. Everyone benefits from their innovations. The freer the society, the better off its citizens are along many non-economic lines. Thanks to innovations and advancements in technology, even a low-income earner in a capitalist society is better off now than they were years ago, even when comparing living standards for them today with citizens of less free economic societies. Antony Davies and James Harrigan summarize: “On average, people in countries that are more economically free enjoy higher incomes, suffer less unemployment and less poverty, experience less child labor, less gender inequality, less income inequality, less deforestation, and better air quality. Yes, even the environment is healthier where economic freedom is greater” (Horowitz). Capitalism offers its citizens a higher standard of living. Most have electricity, modern plumbing, heating, air conditioning, cell phones, TVs, cable, and more. Most have at least a basic education. Thanks to modern medicine and accessibility to all, people are living longer, as there is less sickness and disease. Even if an individual does not seem to be financially well off under capitalism, they still benefit in many ways. In contrast, with stratified social systems and socialism, necessities deemed by a capitalist society only seem to go to those at the top. Bernie Sanders and other Democratic Socialist American politicians like to talk about the 1%ers in America. However, a citizen of capitalist-leaning America making $34,000 a year after taxes makes up the world’s 1% (Hawkins). Capitalism has afforded American citizens with a better quality of life than much of the world.
Lastly, capitalism results in the most economic growth of any other economic system. “Economic growth is measured by an increase in the amount of goods and services produced over a period of time. The more growth we see, the more we produce as a society,” (Spaceship.com). Entrepreneurs, incentivized by their innovations, create a climate of innovation and economic expansion. Innovation and economic expansion increase the real GDP, leading to improved living standards. The trickle-down from the rich to the poor increases the wealth of all citizens under capitalism and enables a higher standard of living. One way to measure how well a person or country is doing economically is to look at the GDP (Gross Domestic Product), which is the total number of goods and services produced in a year. The Fraser Institute summarizes:
“Nations in the top quartile of economic freedom had an average per-capita GDP of $42,463 in 2015, compared to $6,036 for bottom quartile nations (PPP constant 2011 US$). In the top quartile, the average income of the poorest 10% was $11,998, compared to $1,124 in the bottom quartile in 2015 (PPP constant 2011 US$.) Interestingly, the average income of the poorest 10% in the most economically free nations is almost twice the average per capita income in the least free nations,” (Horowitz).
What this Economic Freedom of the World Index proves is a direct correlation between those countries that are economically better off also being the most economically free. “The average person in the United States produces 3.4x more than the world average in terms of GDP per capita” (Spaceship.com). America is also one of the most capitalist countries in the world.
Conversely, opponents of capitalism claim that it produces a culture of greed, with high-earning “fat cat” CEOs, Wall Street bankers, and entrepreneurs making exorbitant amounts of money while their employees earn only a meager salary. One cannot dispute the fact that all economic systems reflect inherent self-concern. However, these “fat cats” have no choice but to concern themselves with the needs of others, which is quite the opposite of greed. They must work with others to design goods and services that meet the needs of their consumers. Their profit is not so much self-interest as it is a measure of how well they have listened to and met their consumers’ needs. Capitalism is a two-way, fair voluntary economic exchange. When two free people come together on agreed-upon terms to peacefully exchange, each benefits. If the entrepreneur puts their needs above their consumers’, the business will surely fail, and a more altruistic entrepreneur would step in and offer the consumer what they were looking for, replacing the greedy one. Milton Friedman asked, “Is there any society that doesn’t run on greed?” (Friedman). Does Venezuela not run on greed? To suggest that capitalism is the only economic system to run on greed would be incorrect. Friedman continues:
“The only cases in which masses of people have escaped grinding poverty in recorded history are where they’ve had capitalism and free trade. Where the masses are worst off, it’s exactly in the places where countries have departed from capitalism and free trade. There is no alternate system thus far that can hold a candle to the productive activities that are unleashed by free enterprise” (Friedman).
In conclusion, capitalism offers the most freedom and opportunity to each and every one of its citizens. It benefits its entire society and results in the most economic growth of any other economic system. Unless one is ashamed of unparalleled increases in income, increasing life expectancy, higher levels of education, and more political freedom, there is no reason to turn away from capitalism. It is a well-established, historically proven fact that when people are free to buy, sell, and invest with one another freely, they can achieve far more than when governments attempt to control those decisions. Capitalism’s superiority for economic growth and advancements is for everyone who believes that wealth is better than poverty; education is better than ignorance, and liberty is better than oppression. “One of the great mistakes is to judge policies and programs by their intentions rather than their results,” Friedman noted.