A Case Against Capitalism

The United States, contrary to what talking heads tell you, is a representative republic. We democratically elect leaders which make up our central government, which administers the affairs of our nation. This pattern is more or less reflected all the way down to the level of counties and cities. This system of government, at least as practiced in the United States, fosters an economic system called capitalism.

Socialism could be said to be the opposite of capitalism, in that ownership of the means of production is instead shared by all those in the society. Pure socialism has been tried at various times down through the ages. A group of people get together and agree that the benefits from their labor shall be shared equally among the populace. However, the system routinely fails because human effort is often unequal, and some people seek to game the system by not working but still sharing in the bounty. Humans who work harder than others typically wish to be compensated more generously, but socialism doesn't allow this.

Pure socialism typically demands a small group which can vote on important matters. Scaled up to the size of a country, it becomes impractical for members of society to directly vote in matters of importance. Thus, the need for a government of representatives arises. In practice, this government owns the means of production, in the name of the people, and the government representatives make all the important decisions. In practice, this arrangment leads to a privileged few ruling over the vast majority. And of course, this is violently against socialist principles. Moreover, it inevitably happens that in such a society, the government tends to regiment the people and kill or imprison those who choose to disagree with the decisions and activities of the government.

Communism isn't really worth mentioning, as it is merely a more extreme form of socialism, and also has never worked.

Monarchy is more or less a defunct form of government. While some monarchies still exist, they are rare. And those that do exist are often not true monarchies. For example, consider the United Kingdom. While their queen may overrule the decisions of parliament, she seldom does. In practice, the country is ruled by parliament, some of whose members are popularly elected. In a true monarchy, the regent owns all the means of production, and the populace are subject to the whims and caprice of the monarch. This can and has had disasterous consequences.

A pure democracy is impossible for any group larger than a village, as mentioned above regarding socialist groups. It simply becomes impossible to manage a large society where everyone votes on decisions which affect the community. In fact, it could be argued that a pure democracy is more or less the same as an anarchy, where there is no central government.

So why all this talk of types of government? Because it lays the groundwork for the economic system I want to discuss, capitalism.

Capitalism isn't a form of government. It's an economic system fostered by certain types of government. It's characterized by private ownership of the means of production.

Obviously, capitalism is antithetical to socialism, communism or monarchy. In all three cases, the means of production cannot be privately owned. A representative form of government can and usually does foster the principles of capitalism. Individuals may own the means of production, and are typically compensated to the extent they are successful.

It's often pointed out that this type of system rewards innovation, and to some extent it does. By contrast, in societies where equality of compensation is enforced, there is no incentive to innovate. However, innovation can also fail. Millions can be invested in innovations which are impractical or which no one wants. So there are no guarantees. But in general, innovation is fostered and rewarded by the capitalist system. The United States is a prime example of this.

Now, let's take a look at the practical side of capitalism. For this analysis, we have to make a distinction between small and large companies. Small companies, while they represent a huge percentage of American commerce, do not have a broad unified effect on society. Their large counterparts, however, do.

A large company typically is owned by many individuals. Or so they say. The company issues stock certificates, each of which represents a fractional ownership of the company. But there's a problem. Very few of the stock certificates of a company allow the owner of the certificate to vote on company matters. And if you "own" a piece of a company but can't vote on how it conducts its affairs, do you really "own" a piece of the company?

Aside from a company's initial public offering (IPO) of stock, it typically issues stock to pay for the expansion or improvement of the company. You could ask why such a company doesn't just get its expansion money from a bank. The reason is that banks often don't have enough money to finance the expansion of large corporations. In addition, funding such expansion puts the banks at risk. What if the expansion fails to yield a benefit? What if the company goes under? And companies have to pay interest on bank loans. The longer it takes to pay back those loans, the more interest.

Instead, companies issue stock, which you or your retirement account administrators buy. In effect, you're loaning the company money. But it really isn't even a loan, because the company doesn't have to pay it back. Companies sometimes return small dividends to stockholders, but they are not obligated to. So really, you're not loaning them the money. You're giving them the money. And if you're lucky, they'll give you some money back in the form of dividends.

So what's the point of buying stock if you don't actually own part of the company and they don't have to pay it back? Well, that's where the stock market comes in. Thanks to rumors, innuendos and statistics, stock can rise and fall in value. The share you bought yesterday for 100 dollars might be worth 110 dollars today. Or it might be worth 90. But that value is solely and only determined by what other people think the stock is worth. In fact the stock itself represents nothing. It only has value in the opinions of potential buyers. If they want to buy it for more than you paid, you win. Stock certificates might as well be rocks or raindrops for all the intrinsic value they have. The stock market is, for all intents and purposes, an advanced form of gambling.

So whatever ownership you think you have of the means of production in a capitalist system is ephemeral. That's not how the theory works, but that's how it works in practice.

Properly managed companies expand. In doing so, they engage in mergers and acquisitions. Your current cable company is probably the result of several mergers and acquisitions. This reduces competition, but it also reduces choice. How many large cereal companies are there? About two. So when you buy your breakfast cereal, you probably buy it from one of two companies. Airlines, railroads, cable operators, and office supply companies are typically all made up of multiple companies which have been purchased or merged with existing companies. In this way, companies gain larger and larger shares of the market and reduce consumer choice.

In this fashion, companies graduate from being large to being huge. The phrase "too big to fail" was invented to describe companies whose failure was thought to significantly damage the American economy. And thus, the government needed to move in to save them. At least that's what the government thought.

Consider a company like Amazon, which originally was simply an online bookseller. After the advent of Amazon, how many national bookstore chains are there? I can think of two. Soon, Amazon began to sell almost everything else under the sun. How many businesses were killed by Amazon's rise?

I'm not trying to downgrade Amazon. I shop there. But they represent a trend fed and nurtured by unbridled capitalism. And it might interest you to know that the richest person in the world is the founder of Amazon, Jeff Bezos.

And that brings up another point. How does capitalism affect the wealth of the population? And here you have the chief complaint against capitalism. Capitalism makes the rich richer and creates a larger and larger gap between the rich and the poor. Notice I didn't say it makes the poor poorer. It doesn't. In fact the so called "poor" in the United States are the richest poor people on the entire planet.

Now, I don't object to people being rich. Heck, I'd like to be one of them. But wealth buys power. And that power allows people you didn't elect to make decisions which affect you in ways you might object to.

For example, currently we're in the middle of the 2020 presidential election season. Michael Bloomberg, former mayor of New York and one of the world's richest men, is attempting to buy his way into the presidency. His spending on political ads and organization proves this beyond a doubt. This is, of course, contrary to the American system of democracy, at least the way Americans view it. And to date, all his spending hasn't made him the frontrunner in the democratic party. But the prospect of someone so rich and so willing to buy a political position of such magnitude frightens many, including me.

Without some sort of intervention (which must inevitably be governmental), the wealth gap continues to widen. Nothing in capitalism exists to stop or slow it. And the extent to which government intervenes is the extent to which we no longer have true capitalism.

Perhaps it's worth considering what might happen if companies were no longer allowed to sell stock. They would either have to finance their expansion with the banks, which would often be impractical. Or they'd have to finance their expansion out of their own pockets. I've seen the kind of waste and excessive spending which goes on at large companies. What if they were forced to trim their budgets to afford their expansion? What if they were forced to become more efficient? Wouldn't that be a benefit to the companies and the consumers?

The bottom line is that capitalism creates haves and continually elevates them above the have nots. Of course, there will be poor and rich in any society. But this gap becomes extreme as a result of capitalism. More importantly, capitalism produces unelected decision makers who have increasing power over you. Even now, many of the richest among us own or sit on the boards of banks, media companies, and educational institutions. They can dictate the agendas of all these entities, often to your detriment.

Look around and you will see numerous examples of rich people in power making decisions you don't like. And because you didn't elect them, you have no choice but to accept the consequences of their decisions.

Again, don't get me wrong. I have nothing intrinsically against capitalism or rich people. Both have made the world a better place. But there comes a time when you have to reflect on a system which elevates some far too high over others.

I don't have a solution for this. I don't know of a better system. I suspect that there must be a governor on unbridled capitalism. But I don't know how to implement such a thing, and I'm certain none of the rich people or corporations would agree to it.

But I think it's worth thinking about. The more people who think about it, the more chance there is that someone will come up with an idea that actually works.

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