I recently had a drunken conversation with a good friend about the woes of capitalism. He's studying economics so I felt quite inept in the discussion. He is much more qualified to discuss economic theory than I am but I have been reading some socialist stuff lately so I am firmly convinced of the failure and inadequacy of capitalism in the world today. I see it as both morally wrong and economically inefficient to provide for the population of a nation. I do not disagree that it has made many people rich. My qualm is that it has made many more people poor than it has made rich. The conversation just kind of ended awkwardly with my friend insisting that I had a misconception of what capitalism truly was. He suggested that I was substituting what I saw a capitalism for the actual basic truth of what capitalism was. We both agreed that capitalism as it now stands is not working but he contested (and I disagreed) that capitalism is fundamentally sound as an economic system.

I decided to do some homework because I realize that since I've been reading socialist literature lately, I'm probably biased in my view of capitalism. So I set out to try to see it from the other side. What follows is basically from wikipedia, the online free encyclopedia. Wikipedia has been very thorough in all of my studies thus far and I have no reason to doubt what it says. As I did my research for this blog I learned a lot from its thorough coverage of the concept of capitalism in an economic, literary, and historic context. I start with the basic definition of capitalism since I've been charged with not knowing what capitalism truly is and only knowing capitalism as what I see it as.

Oxford English Dictionary: "The condition of possessing capital; the position of a capitalist; a system which favors the existence of capitalists."

Merriam-Webster Collegiate Dictionary 11th Edition: "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."

Cambridge Dictionary of American English: "an economic system based on private ownership of property and business, with the goal of making the greatest possible profits for the owners"

Scott-Foresman Intermediate Dictionary: "an economic system in which private individuals and groups of individuals own land, factories, and other means of production. They compete with one another, using the hired labor of other persons, to produce goods and services for profit."

Wikipedia: "The etymology of the word capital has roots in the trade and ownership of animals. The Latin root of the word capital is capitalis, from the proto-Indo-European kaput, which means "head," this being how wealth was measured." (Another example of this is stock. We think of stock as an investment on Wall Street. This term came for livestock.)

So basically, capitalism is an economic system
a. Based on the private ownership of capital goods (property, means of production)
b. Based on a freedom of bargaining between the buyer and seller
c. Based on the system being controlled/regulated by a free market
d. An economic theory where looking out for one's own common good benefits everyone

My friend defined capitalism as "If you work hard you make more money." I could not fundamentally argue with that fact. Say there are two people. Person A works 20 hours a week at a certain job. Person B works 40 hours at that same job. Person B will get more money because he worked harder. That is true. However, that is not capitalism. Even under other economic schemes (socialism, for instance) this is true. This definition is really the American dream. The idea of rags to riches. I had a big problem with this contention as there are many people unable to escape poverty who work harder than others who do little work and make tons from it. Regardless, that's all beside the point. Capitalism isn't "If you work harder, you make more money." That's just fair. I wouldn't stand behind any system that wouldn't reward hard work with more compensation. Compensation for hard work isn't the issue here because that's not what capitalism is. Using the 4 points above I will now outline my issues with capitalism. Understand that I've been reading a good bit of Marx lately. I'd like to say I'm being unbiased in my writing but obviously no one is ever unbiased. Just be aware of the position from which I write these criticisms of capitalism.

a. Capitalism is an economic system based on the private ownership of capital goods.

I have no fundamental problem with the concept of ownership. If one owns the money to buy something, one can own it. Without the concept of ownership any economic system would fall apart I think. One must own a piece of bread to eat it or anyone could just come up and take that bread away from the person. I could be wrong though. Perhaps there are societies without the concept of ownership but I feel that: a. that concept is so ingrained into our heads that to think outside of it would be impossible and b. I don't think we have to dismiss the idea of ownership to have a fair society. What I do have a problem with is the exploitation of ownership.

For example, I own a business. I make straws. I buy all of the machines to make straws and I buy the land and build a factory to make the straws. I hire labor to run my machines to make the straws. I start making money as a business owner. Eventually, the income pays off my initial investment to buy the machinery and factory. Fine. After that I have a problem though. I continue to make money; more money than the amount of labor I put into the process. This is unfair. I'm not doing much work. Perhaps a little management here and there. Perhaps some worrying about making my money. However, as far as making straws goes (the thing that I'm selling, straws that is) I'm not putting in as much labor as I'm getting paid for. There is an imbalance. I'm working less than the pay is worth. This must mean that someone's getting short changed. Who? The workers. If I'm selling my straws for the actual value that they are worth and I'm making money while not putting labor into it, someone's getting short changed and the only people left in the equation are the workers. This is referred to by Marx as capitalist gain. Why is this ok in our society? The exploitation seems obvious to me. It seems unfair. Why is it ok? Because I own the machines. We as a society have agreed that because I own the machines (the means of production) I should receive capitalist gain from my products and exploit my workers and that's ok.

b. Capitalism is an economic system based on a freedom of bargaining between the buyer and seller.

The problem I have with this is that the finished price after bargaining has nothing to do with the actual value of the product itself. It has to do with how much the buyer is willing to pay for it. This is such a prevalent idea that the phrase "Something's only worth as much as someone is willing to pay for it." is accepted in our society. Something should be worth the amount of labor and materials that are put into it. Rare gems are worth a lot because they are hard to find and require a lot of labor to discover the rare places in which they are found. Cars are worth a lot because of the many parts that are involved in their construction and the massive amount of labor required to assemble the car. However, this really has nothing to do with the selling price of the product. The product is sold for the minimum price that people are willing to pay for it, not for it's actual production value.

For example. When the disc-man (portable CD players) first came out, it cost a lot more do than it does now. This is true with most products. When they are first released they are sold for much higher costs and then as time goes on the price comes down. Why is this? One could argue the theory of supply and demand; either that upon a product's release the supply is low or the demand is really high (both having the same economic effect of higher price). However, I don't think this is true. I don't think the supply is low. I've seen shelves full of new computers, TVs, technology in general, that isn't being bought because people are "waiting for the price to come down." I've heard this all of the time. While initial productions runs of products are often small, that is not always the case. Also there is the issue here of which is causing which. Are there small initial production runs because the manufacturers know that few product will be sold because of the high price or do the small production runs cause a high price? Maybe a little of both? Regardless, I've seen lots of newly released products sitting unpurchased on a shelf on a broad scale so I don't believe the concept of limited supply. Also, in a market where most products are not needs but rather desires I refuse to believe in the concept of demand. People don't need an iPod, they want it. However, they won't buy it until it comes into their price range. The person's "need" for the product and the sale value of the product have nothing to do with the actual value of the product but rather the price range of the buyer. Simply put, the seller will sell it at the highest price possible at which the buyer will buy (likewise, the buyer will buy it at the lowest price possible at which the seller will still sell it). This sounds like sound economic negotiating but I hope you can see how the final price of the item is completely removed from the actual value of the product, thus being irrational. Imagine a world where things actually cost what they were worth.

c. Capitalism is an economic system based on the system being controlled/regulated by a free market.

This one really bugs me. The concept of a free market is glorified to such a high position these days. People think a free market can solve any problem. Libertarianism and anarchy bank on this concept and capitalism is just a dressed up version of either of those. Free market, is once again, just a system of exploitation. First of all it replaces the actual value of a product with the price a buyer is willing to pay for it, as discussed above. This always ends up being as high as possible while keeping the customer. One may argue that the customer is also pushing for the highest price possible. However, the seller has other customers to go to. The seller has no personal need to sell to one individual customer. One could argue though that the customer can just go to another seller. Competition right? I'll attack that in my next point but let me just say that the number of choices of customers that a seller has will always outweigh the number of choices of sellers that a customer has.

Secondly, competition and a free market not only drive down prices, they drive the quality of work down. Laborers are forced to work harder and faster, with fewer breaks, for longer hours, to stay competitive on the free market. I work as a security guard at an extended care facility. One night I got a call that a call light was out in one of the nursing wards. If the patient had an emergency, she would have had no way of efficiently calling a nurse into her room. I tried my best to fix it but after replacing the cord it was still not fixed. I asked the head nurse if this was enough of an emergency to call in the maintenance worker on call. She informed me that it was because there was a law that said that all call lights in medical facilities had to be operational at all times. It makes sense. If we wouldn't have called the maintenance worker in to fix the call light, the patient could have suffered from some emergency and, in a worse case scenario, died without the nurses knowing anything. It was not competition and a free market that made me call the maintenance worker in that night, it was a law. It wasn't competition, it was federal regulation. My point is that many libertarians and hard core capitalists would argue that these safety issues would be solved due to the free market. I think that's wrong. To stay competitive the head nurse would have told me to have someone fix it in the morning. That's what competitiveness gets you. However, because there was a federal safety regulation (state planning and regulation is the opposite of a free market) we possibly saved that patient's life. There are many behind the scene things like this that aren't at all effected by the free market and that wouldn't be regulated by competition. The head nurse's motivation for calling the maintenance worker in that night was not because she wanted to have a safer, more competitive, service to sell where we could brag about how we are more safe than the competition, her motivation was not getting fired when the facility possibly sued her for the possible death or injury of the patient without a call light. This is a great example of why the free market cause the lowering of workers conditions and quality in product.

Also, the free market is self destructive. The guise of competition cannot sustain itself. The very nature of competition is to defeat one's opponent. In capitalism there are winners and losers (to be more correct, there are a few winners and many losers). One company will posses the management to make the product faster and for lower wages than the other and they will eventually drive the competition out of business. As the company picks up the market share of its recently defeated foe it becomes strong and pushes all competitors out of business. Eventually, there are no competitors and all of the "advantages" of the free market are gone. Then the company is free to release bad products at extremely high prices and pay its workers next to nothing.

This is the equivalent of a baseball season where a team would have to close down if it lost a game. That's fine for a little while as the winner just moves to the next team and beats it, putting it out of business. Eventually though, the team will run out of teams to beat as all of the others would be out of business. Then the victor isn't much of anything. There's no one to play against. There's no game. The free market is the same way except that the final monopoly exploits the people. Consider Microsoft.

d. Capitalism is an economic system where looking out for one's own common good benefits everyone

This just simply isn't true in the short run and in the long run. This is my least favorite point I think because it just confirms that capitalism is institutionalized greed. Not only that, but it implies that greed is what's best for us all. We all do what's best for ourselves and in the end everyone will be taken care of. This is morally repulsive to me. I believe that humans are naturally social beings and that they take great pleasure in caring for others and helping others out. I think the best way to heal from a traumatic experience is by helping others out. The most beautiful moments of human history are when people have helped other people. There is actually economic theory behind this.

On a more practical level I believe that when competition is invoked, a lose-lose outcome is inevitable. Imagine that two employees are trying for the same position at a company. The company needs to hire someone and these are the only two qualified candidates. They could both try to offer the lowest price for themselves to the employee thus devaluing their own labor and themselves to a point where they aren't getting paid anywhere near the value of the work they will contribute (this is what happens most of the time and is happily labeled competition and celebrated as a joy of capitalism). Also the company loses out in this situation because an employee who isn't paid well and doesn't have health insurance will be more absent from work due to illnesses as a small example. On the other hand the two workers could team together, choose a value for their labor and tell the company that either both of them are hired or neither of them will work. By cooperating, the employees both win. This isn't a perfect example but I'm just trying to show that cooperative solutions and economic planning are the way to go instead of competition and institutionalized greed.

I feel like all of America are those employees having to price themselves down in their value to the elite few who own the true means to make money. If we would all cooperate and do what's best for each other instead of doing what's best for ourselves, I truly believe that we would all benefit mutually. This of course takes a lot of education and planning.

Thus concludes my criticism of capitalism. Capitalism isn't the American Dream (American Myth) where working hard rewards you. While that theory is flawed in itself, it's just not capitalism. Capitalism is an economic system that thrives on the destructive exploitation of the working class at the hands of an elite few who own the means of production. It is institutionalized greed and morally repulsive to me. I refuse to be happy with this system that sets us all up for failure. I refuse to believe that the only way people will innovate and be inspired to work is through exploitation and greed. There is a better way and that way deserves our attention, study, and focus. As my friend, Sara, says, let's replace capitalism with something nicer.  ¶ 3:09 AM