Capitalism Pt 1

In conservative circles, recently, capitalism has become a center of debate.  Much of it started with Tucker Carlson’s rant that attacked the belief in free market economy.  This was followed up most recently by Marc Rubio’s article discussing “Common Good Capitalism.”  Afterwhich, Kevin D. Williamson, took umbrage with Rubio and his ideas. 

There are a number of reasons for this focus on capitalism.  The first is that capitalism and the reliance on the free market is, or has been a cornerstone of conservatism, even when conservatives and Republicans promote policies that are contradictory to this idea, which happens more often than not.  Second, it appears that the liberal and progressive agenda seems to be moving further away from market economy to openly embracing socialism.  As democratic candidates push Medicare for all, Green New Deal, free college, etc, it seems the centrist position is being pushed further left.  However, I think one of the reasons why capitalism has become the center of debate is that many people, including experts, have a misunderstanding of economics, capitalism, and of the human condition.  The criticisms that Carlson and Rubio make are not necessarily a result of capitalism, but symptoms of cultural moral degradation.   

First, economics is often confused or misunderstood to be the study of money and financial institutions.  While economics certainly spends much time in that area, it encompasses more than that. Economics is a behavioral science.  It attempts to understand and predict human behavior in terms of resource use and allocation. As anyone who sat through Econ 101, economics as a behavioral science has two fundamental principles.  The first is that all resources (time, money, air, food, elements, etc) are scarce. That is, society will never have enough resources to satisfy everyone’s wants. The second principle is that when a resource is used, it cannot be used in any other way.  This is the ole “You can’t have your cake and eat it too” scenario. Because of this fact, individuals and societies have to choose how to use their resources. This choice, however, comes with a cost. Economists call this an opportunity cost and is all of the things you give up to use the resource.  These principals are true for all people and societies across all economic systems. Economics essentially tries to understand how and why these choices are made. In most instances, the choices involve maximizing efficiency and productivity but also preferences. In other words, people usually want to get the most with the least.  However, in the scenarios where people seem to choose to use a resource in contradiction of this principle, it usually is not. For example, if a person chooses to spend $10,000 for a Rolex watch as opposed to spending $49.99 for a Timex, they are not making this choice on the most efficient and productive way to tell time. Rather, they are making a choice about fashion, style, and appearances.  Both choices are rational and we make those distinctions all the time.  

Another key principle of economics is that people occupy both economic roles of consumer and producer.  Our role as consumer is obvious and needs little explaining. We consume goods and services for things we want and or need,  However, we also play the role of producer. We produces goods or services in terms of our labor, intellect, and capital. In our role as consumer, we tend to want to maximize our consumption by getting the most of a good or service from a producer for the least cost.  Conversely, in our role as producer we want to maximize our profit from those who are consuming our good or service. The only way to accomplish this is to offer a good or service that society needs or wants. Again, this is true across all societies and economic systems. What this creates is what we call the market.  The market is the interaction of consumers and producers of goods and services. This interaction between consumers and producers is an efficient means to communicate how a society wishes to utilize its resources and is a very fluid process. The market also naturally leads to a competition. Producers are competing with other producers to capture the resources from the consumers.  Consumers are competing with other consumers to get the products and services they desire at the least cost. Again, this is the natural state of things. However, this is where economic systems and political beliefs begin to emerge and try to manipulate outcomes that are perceived as harmful or detrimental to society. I am not going to delve into much of that right now, but just note that when governments attempt to control, restrict, or hamper the market, an underground or black-market emerges.

Also from Econ 101, you will remember that each society has to answer three economic questions:  What to make? How to make it? Who gets the benefit? In Capitalism, the answers are determined by the market.  So, what is produced is based on what consumers either want or need. How to produce it is dependent upon efficiency and productivity, along with consumer preferences.  Finally, who benefits from the production of a good or service is the one who does it the best. For example, I used to explain to my 12th grade Econ students that anyone can go into business selling a product or good or service at the lowest price.  However, making a profit and being able to stay in business is a different matter. That is what made Walmart so special. It wasn’t that they were just offering the lowest price. They were offering a lower price and making a sizeable profit. In non-market systems, these questions are made by politicians, bureaucrats, and technocrats.  They may or may not allow the market to play a role in their decisions. More often than not, they make decisions that serve a number of purposes, the least of which is individual liberty. The intrusion of governments into this relationship between consumer and producer can have sizable consequences, some of which are quite negative.  

Capitalism is an economic system that allows individuals to pursue their economic self interest, both as a consumer and producer.   Critics often make the claim that this pursuit of self interest is exactly why capitalism is a flawed system. They throw slurs such as greed and selfishness.  This is best reflected in Oliver Stone’s movie Wall St. most famous scene of main character Gordon Gekko’s “Greed is good” speech.  However, this is poor analysis of capitalism and of humans. Greed, selfishness, and envy exist in all societies and in all economic systems.   The reality is when people are free to pursue their economic self interest, the only viable option for them is to provide a good or service that the public wants or needs.  This free interaction of people and businesses, combined with the competition that the market creates tends to create more options, more equity, and more responsiveness. Let’s take Walmart for an example.  As the size and scope of Walmart grew, criticism about their business practices, specifically the pay of their employees, increased. Many called Walmart greedy and selfish capitalists taking advantage of their low-skill employees.  They were making billions in profit and could afford to pay their employees more. There are many points I want to make about this point but I am going to keep to one. In response to Walmart, other stores and chains attempted to compete by appealing to consumer wants and needs.  Target, Trader Joe’s, Costco, and Amazon all enter the market by providing a uniquely different experience. I knew people who would not shop at Walmart out of principle, and often blamed the excesses of capitalism, were shopping at other stores which was an opportunity gifted to them by the principles of capitalism.  Now I am not arguing that Walmart should or shouldn’t pay their employees more. What I am saying is that people, including Walmart and their employees, have freedom to engage in economic choices and these choices will ultimately play out in the market. A better view of Walmart would be they utilized a readily available resource, low skill labor, to their own benefit.  If Walmart was not employing them, who would?  

This brings me back to the misconceptions of capitalism and its effect on society.  Certainly, there needs to be some rules regarding economic activity and allowing people to pursue their economic self interest.  Obviously, there can be, and in fact, there are some very negative outcomes. Pornography, drugs, sex trafficking are just a few examples of how allowing unfettered pursuit of economic self interest can go wrong.  But my point is the moral position of capitalism lies somewhere between amoral and moral, but not immoral. The “excesses” of capitalism are in reality the flaws in the human condition. Capitalism, much like democracy, needs to have a robust system of promoting integrity, fairness, citizenship, community, generosity, compassion, and charity.  We used to have a strong Christian backbone to our nation and in our communities that promoted such virtues. As Christianity wanes in importance in our communities, secular attempts are being made to fill the vacuum left by the absence of religion. However, secularism often fails because it lacks a true spiritual center and core. It is a phony system that does not have the intended impact.

Much of the criticisms Carlson and Rubio make are not the fault of capitalism and they make that argument, sort of.    However, they are better understood as a result of many changing variables in our society. Changes in family structure and dynamics, changes in gender roles, changes in education, changes in religious beliefs are more connected to the criticisms they point out.  Capitalism was not the cause of these changes, but it played a role, as it always does. Not as the driver of change, but responding to these changes as the market dictates. People mistakenly put capitalism on the other side of the equation.