Capitalism

Imagine a playroom filled with toddlers.  One of the toddlers decides to take all the toys for himself. The other children are left toyless and crying. The teacher sees this injustice and then distributes the toys amongst the kids, making sure that everyone has an equal amount and no one is left out. Any liberal would look at this example and make the clear connection between the greedy child and a capitalist, as well as between the teacher and a benevolent socialist government. But is this simple example really a good illustration of the difference between capitalism and socialism?

To say that capitalism is based on greed requires that greed be defined. When liberals use the term “greed”, they refer to someone desiring or pursuing material wealth beyond what is necessary to them. But who is to say what is necessary? This entire definition of greed is based on the idea that there is a distinct limit to success, and anything above that limit is unnatural or immoral. According to the Left, the government should not only decide what is necessary for each person, but also what actions to take to remedy the injustice of having (or pursuing) “excess” wealth.

Looking at it from that perspective, who wouldn’t be a socialist? If one actually accepts the premise that there are moral limits  to success,    and that the government is the best entity to fix this problem, then it would make perfect sense to see capitalism as the promotion of greed, and socialism as the only solution. But this skewed definition of capitalism only explains the mindset behind socialism. True free-market capitalism is based on a different definition of greed: pursuing self-interest.

It is in human nature to want to succeed, to want to better one’s condition in life, to want to provide for one’s family and enjoy prosperity. Our Founders clearly understood this, with the 3rd  God-given right in the Declaration being the “pursuit of happiness.” This recognizes that individuals are created with a sense of “greed”, that is, a desire to pursue personal success. Our nation was unique at the time of our founding, in that we wanted to let people’s destinies and position in life be determined by their own actions rather than the class into which they were born. We began the switch from a class-based aristocracy to a free-market-driven meritocracy.

Over the dynamic history of our nation, building upon the Transportation, Communication, and Industrial Revolutions, these principles of a meritocracy created opportunities for people that had never before existed in history. Through boom and bust, war and peace, our people continued to pursue their own self-interest and thus guide what Adam Smith called “the invisible hand.” As technology and society evolved, people’s self-interests changed, and the economy naturally adapted. Our nation’s economy almost single-handedly nurtured the conditions necessary for one of the most important strengths of capitalism: economic growth.

Imagine our economy as a pizza. Socialists see the pizza as a static object, with the “rich” people having a large share and the “poor” people having hardly any. The only way their mind can conceive of making the situation more “fair” is to redistribute that static pizza. But this view of the economy completely ignores the concept of economic growth. Imagine the same pizza, but instead envision that the pizza is constantly growing bigger. Economic growth, by a dictionary definition, is the yearly growth in per capita GDP. An easier way to think of it is that our economy is not simply shuffling around the wealth that already exists. It is creating new wealth and therefore improving the standard of living of the entire nation.

But the pizza illustration is still incomplete. What does someone do once they have pizza? To fix the picture, imagine that a “rich” person could trade pizza for stuff they want. While the rich person got their stuff, everyone who had a part in making that stuff would get some pizza. The pizza did not have to be redistributed or “spread around”. It naturally “trickled down” the supply-side economics chain, creating the economic growth that grew the pizza and improved the lives of everyone involved.

The concept of “trickle-down economics” is a central tenet to free-market capitalism. This idea fights against the misconception that excess wealth is immoral. For example, think of some millionaire wanting a mansion. A liberal view would be that the mansion is greedy, so the millionaire should be taxed heavily in order to give money to those people who don’t even have  houses, much less mansions. Not only does this punish the millionaire for being wealthy, but it also robs the other people in the supply chain of their share of the wealth that mansion would have created. 

A true view of trickle-down economics realizes the value of wealth in the supply chain. If the millionaire is kept from building the house, the architect and construction companies lose money. Then the painters and plumbers and carpet companies lose business as well. Gardeners, pool cleaners, maids, butlers, and even the kid down the street who mows the lawn would all be removed from that supply chain, stripping them of their share of the economic growth. All things considered, hundreds of people could be involved in the building or upkeep of a mansion, every one of whom would be affected negatively when the wealth is kept from trickling down from the highest levels.

One misconception of capitalism is that it is the same thing as a laissez-faire-style economy. In this form of society, the government is literally not involved at all with the economy. While this gets libertarians and anarchists very excited, capitalism does not mean that government will have no part in the society. First of all, government prints the money. Without a standard of stable currency, no economic system would advance past bartering with precious metals. Second, government is needed to write and enforce laws that keep people from harming others. A stable system of justice is completely necessary to create a safe, level playing-field on which the economy can stand. Third, the government is a consumer within the economy. People cannot ignore the fact that the government requires money to operate functions such as defense and infrastructure, and this piece cannot simply be thrown out of the equation.

However, when the government is used as a solution to economic problems, rather than letting the free market work itself out, irreparable damage can be done to the economy. Excessive taxing, spending, and borrowing all tamper with the free market in ways that the rest of the economy cannot easily resist. Putting restrictions on the rest of the economy holds back economic growth even further. Combine those problems with irresponsible management of currency and it becomes clear to what extent a government can damage the very entity from which it draws its life-force (tax dollars). To remedy this, a capitalist’s goal in government should be to meet the minimum requirements of government while having as little impact on the economy and liberty as possible.

At the core, the debate between Capitalism and Socialism comes down to liberty. Free-market capitalism wants people to control their own destinies, fulfill their own ambitions, and write their own success stories. Socialism wants people to be equal, even if it means being equally miserable. Capitalism does not ensure success, nor does it pretend to. Although not everyone can be wealthy, everyone should have a shot. Any perceived economic injustice cannot be addressed by the government without screwing with the supply and demand sides of the economy in the process and hurting those who help create economic growth in the first place.

The ironic thing about Socialism is that, while supposedly enacted to fix the “evils” of Capitalism, it requires a formerly-Capitalist nation to fully work its magic.  Socialism creates no wealth of its own; it only spreads the wealth around, allowing much of it to evaporate through waste, corruption, and bloated bureaucracies. Just as parasites require healthy victims from which they can draw their sustenance, Socialist states require a strong Capitalist economy to coast on until the wealth dries up.  In America today, we know the parasite exists, and we know how large it has gotten by feeding off of our economy.  Will we do what it takes to remove the parasite of Socialism before we are too weak to fight anymore?  Only by following free-market capitalism can America fight the threat of Socialism and unleash the power of the American spirit once again.