I tried to find a “neutral” depiction of capitalism as an image to associate with capitalism. I was unsuccessful. Yet, the reality is that there are good things about capitalism. But not “pure” capitalism.
I am not an economist so I cannot get into fine detail or formulas about capitalism or any other economic system. But most of us are mainly concerned with the basics and I believe that I understand the basics well enough to open it up for discussion.
Capitalism is, of course, centered around capital. Capital is money and money is a form of expressing the production and transfer of resources. Within the system of capitalism, capital can be accumulated and then used to generate more capital via mechanisms, or production, that the person controls. If no one restricts them on marketing, distribution, production, or pricing it is called a “free market” which is a tantalizing illusion.
Why does capitalism work?
Capitalism primarily works because there is direct feedback. If I work hard, and am paid more than I need for living, I can save money for future needs. Those future needs might include higher education, starting a business, investment in other people’s businesses, or something else. This dream, and feedback, motivates people more (unfortunately) than just a desire to “do one’s best”.
There is a variant to this process and that is the situation where your ancestors have accumulated capital. There is a potential that you can continue to be wealthy, and likely get wealthier, without ever doing any work. (Managing, and investing, money can be considered work but that work can be outsourced.) It is also possible (in both scenarios) that your money/capital is spent faster than it comes in, the market changes, investments become insolvent, and so forth. Thus, a “riches to rags” story comes true.
Focused amnesia is an illness contracted by too many of the ultra-wealthy. They somehow forget that their wealth is created, and sustained, via the work and labor of many others (pre-AI era). Anyone who says “I did it by myself” is severely deluded.
Capitalism has the great advantage over pure socialism or communism in that it works with the attributes of people who want direct feedback for their labors (for those who actually work for their wealth). George Orwell, in his book “Animal Farm”, gives a scenario where a group of animals attempts a communal society (communism) which is taken over by a greedy group which enslaves the rest (unrestrained capitalism).
What subtypes of capitalism exist?
I doubt very much whether an economics textbook will use the same words that I will use. But the concepts will be there.
“Pure” capitalism is unrestrained and works solely with the system of “free market” which could be paraphrased as “anything goes”. Alas, since (for some people) greed can become a severe illness where there is never enough (closely related to a gambling addiction), pure capitalism will always degrade into a centralized system where an “elite” person or group controls, and rules over, everyone both within the economy and the political system. It may be a form of feudalism, an aristocracy, a corporatocracy, a plutocracy, or an oligarchy (present-day Russia can be described as an oligarchy). Democracy and unregulated capitalism are NOT compatible. Present-day is becoming close to an unregulated capitalism and is very similar to displaying the conditions which occurred before the Great Depression.
Within restrained, or regulated, capitalism, there are limits imposed. A minimum wage can be imposed to keep workers functional (sub-living wages are currently supported by public social nets and the taxpayers). Child labor can be banned. Working conditions can be held to a reasonably safe standard. Limits on the number of weekly working hours can be set. Benefits may be required. Taxes can be imposed upon both corporations and individually wealthy people to redistribute directly, or indirectly (via social benefits), to the people who create the wealth. Restrictions can be placed on companies to prevent them from raising prices without reasonable justification (primarily via anti-monopoly laws). Laws can be set for environmental protection. Unions are often necessary to negotiate “win/win” situations for labor and management. When imposed equally on all businesses, these restrictions do not limit the basic foundations of capitalism.
In the U.S., we are at a stage between restrained capitalism and “pure” capitalism which I call uber-capitalism. Companies have some restrictions but have undue influence over the government and legislators such that restrictions keep being eliminated. Taxpayer money supports people to be able to survive on too-low wages. And, regardless of official tax rates, the tax laws are written such that many corporations and wealthy individuals avoid paying a reasonable share (or even any at all) of the economic needs of the country. It is necessary to examine the actual tax amounts rather than the theoretical amounts.
Is capitalism the best economic system?
Yes, as far as I know of economic systems. This is not because it is truly the “best” but because it will work without having a society of saints. Any system that requires EVERYONE to do their best and look after the interests of the community will fail because there will be a sufficient number of people who do NOT follow the rules, do not care about the community, and will take over the economy. Neither the former Soviet Union nor the present China have ever been true communist countries. And the “socialist” countries scattered here and there have safeguards such that there are not too many people wanting the country to just take care of them.
Is there a system that implicitly allows for both the ultra-greedy and the lazy and still provides a good life for everyone? Not that I know of but I’d love for someone to discover it.
The dangers of capitalism and the dangers of AI/automation
As stated early, unrestrained capitalism just doesn’t remain stable. It devolves. When opportunities are equal for all (a state never yet achieved), everyone has a chance to do the best that they are able but in the real world equal opportunities are only a dream.
Once a business has been set up, the efforts of many people are required to keep it functional and profitable. With regulatory restraint, everyone is supported properly by their efforts to succeed.
However, with AI and automation both “improving” faster and faster, there is a real and distinct danger that businesses may become almost self-sufficient. A business could produce tangible or intangible products without any humans participating. (There is the likelihood that someone will need to be around to maintain the physical needs of the equipment but that is still likely to be a huge reduction in the number of people needed.) Income inequality could become even more extreme than it is currently.
Futurists, and idealists, say that the work of humans would just shift into creative careers leaving the monotonous, physical, and dangerous work to the machines. Right. Once again, this is highly unlikely to occur because of the variance of abilities, and attitudes, of too-many people in the society. Science fiction authors, and others who look to possible futures, try to deal with this potential situation. Governments are not nearly as good at such visions (which doesn’t make them less important).
Conclusion
Capitalism works because it does not require saints. Unrestrained, or unregulated, capitalism degrades (or devolves). Democracy is not compatible with unrestrained capitalism.
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