The free market allows for peace and prosperity to florish in the world
As the specter of the economic crisis hangs over America, the free market has once again become the whipping boy. We should have seen this coming. History shows us this is the norm. When inflationary policies and Keynesian economics backfire, thrusting the world into a tailspin, our leaders love to lash out and attack the method of production that sustains modern civilization. It was done in the 1930s, and it is the same in 2008.
What is this capitalism, anyway? Capitalism has one central component: private property rights. This is the right to do what you wish with acquired property as long as one did not obtain this property through theft. Embodied in this is the right to trade your property with anyone regardless of location, as long as the transaction is voluntary – meaning there is no coercion or threat of physical violence. Violence is counter to the ethic of private property rights, as it is manifested against the right to life, i.e. the property right to our body and the property right in the physical objects we own.
Given this ownership, a spontaneous order develops. The system starts out small with a limited division of labor. One member specializes in farming, another in tailoring, and then goods are exchanged.
As the economy becomes more complex, all members of the society can specialize. A median of exchange develops naturally as a trade relationship between one good and every other imaginable good or service becomes impossible to calculate. Prices develop when all goods and services are linked to this median. It becomes easy to see the value of one good in terms of another.
Prices are a staple of capitalism. They are indicators of thousands of actors’ thoughts and actions. They help one assess if an industry is worth investment, the relative scarcity of a good or service and the demand for a particular item.
This is the antithesis of the jungle, where it’s every man for himself. The drive to maximize profit is conditioned upon providing people with their needs and wants. Customer service is a requisite to making money. People who are the most productive are those who can provide for the most needs. No other system can link individual self-interest with the needs of others like capitalism. Cooperation, through the framework of a market, expands productive capacity.
Capitalism is not a win-lose situation, like it would be in the jungle. As all transactions are voluntary, both parties think the transaction will be to their advantage. I engage in work as I value the monetary reward over the time I spend working, and my employer values my work over the money they pay me. I buy a Coke, as I value the Coke over the money I give up, and Coca-Cola values my money over the Coke I drink. Everyone wins; everyone is better off.
Capitalism out-produces every other economic system conceivable. This means lower prices for the most basic goods and services, thus we all survive best. Property rights protect what the worker earns, preventing its theft from the physically strong, who would dominate if we lived in the jungle. Wealth creation is the only means for reducing poverty. This is why the poor have a record from migrating from socialist to freer markets where there are wealthy people who can offer jobs and needed goods.
It is the wealth creation capitalism produces that is a prerequisite to charity and giving. If we were all struggling to survive, no kind action would be possible.
Capitalism drives up wages. As workers are free to work for whom they wish, companies attempt to pay the most productive members more, so workers will work for them. A firm that keeps a worker’s wage under the value of their labor will lose him. Attempting to force market outcome through distorting prices has unattended consequences.
Competition means the best ways of achieving production will succeed. This creates a race to the top. People must be flexible, always looking for the best way to satisfy others’ needs, the best way to make people happy. Old, outdated structures of production will be left behind, but that’s because there are better ways of addressing peoples’ needs.
Capitalism binds people together through production, and causing conflict creates economic disadvantages. Only when corporate interest links up with government interests do we see corporations benefit from war. Capitalism, free from government war making, creates the conditions for international peace.
Far from criticizing capitalism, we should embrace it and use this wealth-generating machine to make the world a better place.
Gilson, a business sophomore, can be reached via [email protected]
Capitalism may sound nice, but it’s proven time and again to fail us
Theory is a whole lot of fun. You get to take ideas and run them to absurd conclusions. With theory you can make models for how things will work and why. In theory many things are fantastic. In theory the idea of communism is a good one and problems rarely happen.
Reality sure has a way of messing things up.
The capitalism Blake Gilson speaks of is a great theory. The idea that businesses value labor and will pay accordingly is very seductive, but wrong, especially when you factor in immigrant and undocumented labor.
Look around should you ever have cause to drive down Gessner Road on a weekday in the early morning you will see scores of undocumented workers just waiting on the street. Many people who have been able to capitalize on capitalism also show in the wee hours. The people who capitalize troll the area, then pull up to a group of undocumented workers, say a number and that number of undocumented workers jumps into the bed of the truck or the backseat of the car.
True, businesses do value work and do pay a wage. But when you can go and get an undocumented worker without paying the minimum and without paying taxes on productivity, the value of labor drops. But it also drops for another simple reason: greed.
The idea that "the drive to maximize profits is conditioned upon providing people with their needs and wants" is historically wrong. This condition does not exist. It never has. It never will. It is evident in the wages that major corporations pay.
Major corporations are undoubtedly the biggest beneficiaries of free-market capitalism. The way they become so is exactly by denying the workers’ interest and asserting business interest. Larger corporations, such as fast-food and massive markets such as Wal-Mart, provide the majority of the most prolific jobs in low-income communities. The reason is that they are the only corporations that provide a good or service that low-income people can utilize and afford – simple staples and food products, also known as the bare necessities. How many high-end furniture stores have opened on Scott Street? How many chic nightclubs can you go to on Cullen Boulevard? How many retail outlets that pedal state-of-the-art technology operate down McGowen Street?
Granted, those are a lot of luxuries, but what about bare necessities? Minimum wage is set. With minimum wage and 40 hours per week, no person has the capability to live at a level that this nation could certainly provide.
Let’s say after taxes minimum wage is equal to $6 an hour. Multiply this by 40 and you get $240. Continue the math and a full-time minimum wage worker can earn about $960 per month. We all know the cost of living in Houston. Keep in mind that most people living paycheck-to-paycheck have no ability to save for retirement. Sorry, but this is the jungle.
What this truly does is create slaves. People have to accept wages because, just like Gilson argues, people can choose who they work for based on the compensation they receive for time. But according to his theory of personal property, businesses can also pay what they like if there is a
cheap labor market.
Capitalism’s strongest, most undeniable argument is that it is not socialism. Other than that, the history of capitalism has shown that, in reality, labor gets the shaft. Real life contingencies like greed factored into the depression of the ’30s that hurt the global market, and they factor into the crisis we are seeing today.
The entire world is in a panic because of deregulated businesses out to get every single penny they can, as well as governmental officials on both sides of the aisle willing to work ostensibly for their constituencies, but realistically for the business interest.
Is this a call for socialism in the United States? Far from it. It is a wake up call. There are more than two ways to base an economy, and pointing out flaws in one is not an argument for the other. However, this is now the second time the United States’ free-market capitalism has sent the world economy into disaster. Do we really need a third before we get the hint?
Why haven’t we been able to come up with something else? Capitalism is not the factor behind low-cost innovation; technology and education are. The Russians still have us beat in the space program, the Chinese have us beat in outer space missile capabilities and the Japanese have us beat in many technologies, yet only one of those has a truly free-market capitalist system set up.
Khan, a political science and history junior, can be reached via [email protected]