IN PRAISE OF CAPITALISM ( A System Of Mutually Advantageous Deals)
It is excusable that the ordinary man in the street knows practically nothing about Economics. He may easily have passed through an entire school ‘education’ none the wiser about Economics than the day he started school. However it is awful that the so-called intelligentsia, ‘the unintelligent intelligentsia’, even most so-called ‘economists’ among them have no real understanding of the dynamics, workings and balances within Capitalism. Even worse, they seem to think a satisfactory economic system can start from purely abstract ideas rather than observation of human beings who have time limited lives and important natural instincts (such as being acquisitive).
So let me analyse the fundamentals of a ‘demand economy’ in general and Capitalism in particular. My first observation is Capitalism is a natural system. It was neither invented nor dreamed up by any person, unlike Marxism. It is not the product of the imaginings of any mind – it is the product of reality. One does not attempt to fit it to mankind nor impose it upon mankind as people do with Socialism. Rather Capitalism is a natural system already fitted and adapted to mankind and from that one can try to understand it. Furthermore it is so natural that it can only be suppressed by extremely violent totalitarian governance.
My next point is though the free market system may not have been called Capitalism throughout history its biggest element (apart from casual exchange or trading of belongings one incidentally possessed) was in essence Capitalism. In Capitalism people accumulate (by manufacture or by buying in) a considerable supply of goods such as farm produce, manufactured goods or shipping or insurance services. They may possibly employ labour to assist in this accumulation. Then one sells this off, usually in smaller numbers or smaller amounts to other people. The accumulation of the large stock with which to trade generally requires capital to establish the venture as does the employment of labour. This ‘trading’ though very much accelerated by the invention of money and the extra scope for ‘profit’ that money brings, has been going on throughout known history. It is also worth noting that throughout history ‘reputation’ in business has been extremely important. If one became known for cheating (say on quantity being sold) one would get a bad reputation. That could be ruinous to one’s trade and livelihood, most especially in societies where people mostly knew each other.
Another essential point is that trade and Capitalism only really works (at least in a free society without slavery) if every party to the trade sees some benefit or advantage for themselves. The buyer must see a use or an advantage for himself in buying for the price he is paying for it. The seller must also see advantage for himself in selling at that price, either in terms of making a reasonable profit (comparable to what he could have made selling to somebody else in the market) or at the very least in clearing some hard to sell stock. So the sale of anything, be it milk or shoes must seem advantageous to both the buyer and the seller. Otherwise there would be no deal and no sale. So the perception of mutual advantage is absolutely essential to the free market and Capitalism. The same principle of mutual advantage applies to the employment of labour, both for employer and also worker. The worker is selling his time and his labour and wants a livelihood, indeed as good a livelihood as he can manage, certainly pay that is comparable to what he might get elsewhere out of it. The employer in turn wants to get an overall advantage out of employing that person. So he wants the employee to give him more in value in terms of his business than the costs of employing him. Otherwise what is the point of going to the considerable bother of employing somebody?
Furthermore the market and Capitalism will also adjust to supply and demand in an area. For instance if there is more supply than demand for apples, producers will over time start growing something else, something more profitable, say pears instead. Likewise with labour. If there is an oversupply of labour in an area and wages are poor or non-existent, labourers will over time move elsewhere, to another town or another country to find work. In contrast if there is an undersupply of labour and wages are good, labourers will over time move from another town or another country to obtain the good wages until there is no longer a shortage of labour. So Capitalism has an inherent adjusting mechanism! In Capitalism to make more money it is also important to obtain a bigger market, a market which can be increased by supplying lower income as well as higher income people. So what is novel (such as automobiles) and is originally an expensive luxury product for the wealthy usually spreads out to middle income people and eventually lower income people. So within Capitalism there is an advantageous inbuilt mechanism for spreading desired new products (such as televisions, automobiles and refrigerators once were) from just the rich to most people. There is also incentive to develop those innovative and new products for which there is likely to be a market. Although the risks of researching, inventing and bringing new articles or inventions to market are considerable, the possible financial rewards of doing so can be very great. So Capitalism is inherently a dynamic system helpful for human advancement. Furthermore free-market Capitalism compared to government controlled activities is anti-bureaucratic because bureaucracy costs money and reduces profits. By contrast in command economies bureaucracy grows partly because it increases the workforce and thereby the pay and prestige of their managers.
Capitalism when properly analysed is manifestly the best system in theory. That is also very much borne out in practice. In general the more free-market, the more capitalist a society has been, the wealthier it has been. For instance from 1945 to 1989 capitalist West Germany was much wealthier than Communist East Germany and now South Korea is much wealthier than North Korea. The basic choice in economic systems is between an inegalitarian demand-based free-market system, Capitalism (based on mutually beneficial ‘deals’) that succeeds and a ‘command’ based hypothetically (although not really in practice) egalitarian governmentally directed system that fails.
Societies have a political choice between a rational outlook and irrationality. Adopting the individual people’s market ‘demand’ system to the maximum feasible extent, based on individuals’ personal demand is rational. This is especially so because Capitalism is a system of deals that only works if the deals are thought by all contracting parties (the buyer and the seller, the employer and the employee) to be in their own interests. Capitalism emphatically does not (as the political left wrongly claim) exploit one party at the expense of the other but can only work if all contracting parties believe that the proposed arrangements are ultimately beneficial to each of them.
As it is rational politics to advocate Capitalism and irrational politics to oppose Capitalism, rationalists must necessarily support Capitalism.
Geoffrey H. L. Berg M.A.(Cantab) – The Guru Of Rational Politics