Is capitalism good?

[horvendile]

One should not forget that accumulation of huge fortunes among a few individuals makes it possible (/easier) for them to start new companies, thus generating more jobs. It has often been argued (and probably rightly so, IMO) that the structures in the Ottoman empire and many African societies that prevent(ed) people from getting obscenely rich also prevented industrialization from happening.
(The mechanisms in the Ottoman empire were radically different from the African societies I'm thinking about, but the effect is much the same.)
There is of course no guarantee that a rich person will start generating welfare for others, but it increases the chance.

IMO, it was in assuming a zero sum game Marx went wrong. (Yep... I've read the communist manifest!)

To address the topic question, my answer is yes. Capitalism is good, or at least more good than bad. But it is not the universal answer to everything. There are functions in society where free capitalism / market economy does not work well as sole solution.

Edit: The Marx comment was just a, well, a comment. I do not imply that anyone here is a Marxist, be that good or bad; in fact, I don't even remember if he has been mentioned earlier in the discussion.

 

[DemoCoder]

Maximum wage is absurd. All it does is shift compensation. Already, there is an extra corporate payroll tax that triggers with salaries above $1million, as a result, you saw a shift in the 90s of companies either paying the CEO roughly $990,000 or $1 and dolling out all the extra income as options, shares, and other perks.

Let's say I am a performance artist and I give concerts. I charge $50 per ticket and an average concert has 10,000 people. After two concerts, I will hit your maximum income. Then what do I do? Do I not give any more concerts? How would that best serve society? Think I'm going to go on the road to perform for free away from my family for each concert after the second?

Let's say I work on commission as a salesman. I sell enough goods to generate 1 million in income (not hard to do as a mortgage/real estate broker) Do I stop working? Or do I continue to drive people around to look at houses and do all the legal paper work for free?


What if I'm a highly prized actor or sports player and I would make well over 1 million. Is society best served by having these people quit the game season half way through? Or make less movies? (and thus, impact all the jobs that go with sports events or movie making and viewing?)


All you end up doing is impose a form of wage and price controls, and we all know how well those work.

The flaw in the maximum wage reasoning is that salary paid to individual X must represent a loss to individuals Y. From there, anyone who gains more than someone else is a thief. There's no convincing Marxists that this is woefully wrong.

 

[P4-Fan]

But FDI is not the only way to develop your economy....as long as we are privatizing our economy it is fine.

The important point is investment. Just like China and all the other nonindustrialized nations, India needs a huge amount of investment to bring it up to the standards of the US-Europe-Japan. FDI allows a country to create more investment than it could afford otherwise. Think of it as free money flowing into country that is used to build new roads, power plants, water treatment plants, manufacturing, .... ...
It is FDI that is allowing China to grow its economy at 10+%/year.

My major complaint aginst capitalizm is that it allows one to accumulate unlimited amount of money.....at cost of thousands others....there should be a ceiling on the money one can earn in a year....one million per annum is more than enough...!

Like someone said earlier huge individual wealth does not come at others expense. (as opposed to corruption which comes directly at others expense) It is even a plus because the wealthy are able to invest in large projects that others are unable to afford. Think about a power plant being built in a region that does not have enough power. Everyone benefits from it as it creates jobs and offers electricity, a fundamental necessity to increasing people’s living standards. For the plant to be built someone has to pay for its construction.

Envy is one of the worst sins one can have. The question is not does capitalism allow the wealthy to become more so but does it benefit society by expanding the economy faster than Communism, Socialism, or other rigid economic systems? The answer is yes. Communism and others don’t tend to benefit the poor. They just make everyone else poor as well. Capitalism allows a country to accumulate huge amounts of wealth and resources which over time benefits all citizens.

 

[Sxotty]

In fact, the more rich people there are, the higher they are taxed and the more a government has in its coffers. Moreover, the top 1% of individuals generate some enormous percentage of the economy since they circulate money far more efficiently than others.

That my friend is BS, rich people move more money, but less as a percentage than poor people. Poor uneducated people spend more of their income and therfore move money more efficiently even if it is to the lottery, or the gas station, or vending machines. Rich people are way more cautious. The boom we had was from poor and middle class people going into debt and spending way more than they had, it was not really a great idea, but that is moving money faster than rich people.

 

[epicstruggle]

Capitilism by its self is not a magic bullet. Many nations that have adopted capitilism over the last decade or two, have found many growing pains. The switch from communism to capitilism is very hard. Many have experienced much corruption. Govermnent has to step in from time to time and break up monopolies and make sure that wealth is not controlled by the few.

Example in russia, about 10-12 individuals control about 80% of the countries wealth. They moved in filled the power vacumn and took advantage (legally or illegally). Which ever way they did, the govermnent should get in and break it up.

later,

 

[P4-Fan]

Example in russia, about 10-12 individuals control about 80% of the countries wealth. They moved in filled the power vacumn and took advantage (legally or illegally). Which ever way they did, the govermnent should get in and break it up.

later,

Those 10-12 people and their backers were all big Communist party leaders. Yes the corruption in Russia has caused great pain. But Capitalism is starting to gain traction in Russia and is improving the economy. If it wasn’t for Russia’s demographics (they are going to lose ½ their population over the next 50 years.), aids, drugs, and Chechnya they would be on their way to prosperity.

 

[Legion]

I am rather surprised with as emmotionally charged so many economic debates in here become (Democoder vs l233) that this particular thread is quiet in comparison.

 

[Evildeus]

Well i think you should first distinguish capitalism and liberalism. You can have capitalism without liberalism and thus free market, but you can't have liberalism without capitalism.

Second, in India, the issue is that there's no free market, there's a bunch of law to "regulate" the economy, though that much rules that there's corruption sure. Then people think capitalism doesn't create wealth but corruption.

Third, saying that money is a flaw because people want it more than anything else is to completly deny the raison d'etre of the money. You exchange a good against money because you value money more than the good, and reversely. The money helps the exponential growth of exchanges and then wealth. Without it, we would still be in a pre-historic economy. Sure there're problem with money, for exemple, it causes boom and depression, being the only means that all people use, the disturbance in money supply has great impact on the wealth...

Last, free market is sure the "Capitalism is survival of the fittest" but that's an a posteriori statement, because you never know a priori who is the fittest/strongest etc.

Need to go out

 

[L233]

Is capitalism good?

Hm, I think that's the wrong question. Yeah, it's good when you're on the winning side of the coin. It's good when it works in your country. It's bad when you're one of the losers or when it does not work in your country.

And it does not work for most places in the world. Many of the worst 3rd world hell holes are capitalistic (in the sense of a small public sector) and often a lot more laissez fair than the US the ever was. It does not take much more than that simple observation to debunk the myth that as long as the markets are as free as possible everything will turn out alright. It also debunks the myth that all you need for economic success is capitalism.

So the interesting questions are: Does it work? When does it work? Under which circumstances does it work and are there any viable alternatives? What does it take to make it work properly?

So my answer to the question "is capitalism good" is: capitalism has the potential the be good if the circumstances are right and there are safeguards in place which make sure that the system is kept in balance.

Capitalism will not work (i.e. be "good") without state interferce. One of the traits of free capitalism is that it is self-abolishing. Businesses in capitalism strife for maximum profits and maximum profits exist when there is a monopoly. So completely left alone, a 100% free market will end up being dominated by monopolies or near-monopolies unless some form of regulations exist to limit the means to achieve that business goal.

IMO the success of a capitalistic economy is strongly tied to the existance of a working and stable political/legal system regulating (i.e. restricting) businesses to a certain extend while providing the security they need at the same time. Most 3rd world countries lack the political and juridical structures neccessary so there is no way capitalism can work for them.

Furthermore, I don't think capitalism is that viable until a country actually has reached a certain level of industrialisation. An economy run in an autocratic manner is usually more sucessful in creating an industrial base, even tho those systems usually begin to fall short once a certain level is reached.

 

[Evildeus]

Capitalism will not work (i.e. be "good") without state interferce. One of the traits of free capitalism is that it is self-abolishing. Businesses in capitalism strife for maximum profits and maximum profits exist when there is a monopoly. So completely left alone, a 100% free market will end up being dominated by monopolies or near-monopolies unless some form of regulations exist to limit the means to achieve that business goal.

IMO the success of a capitalistic economy is strongly tied to the existance of a working and stable political/legal system regulating (i.e. restricting) businesses to a certain extend while providing the security they need at the same time. Most 3rd world countries lack the political and juridical structures neccessary so there is no way capitalism can work for them.

Furthermore, I don't think capitalism is that viable until a country actually has reached a certain level of industrialisation. An economy run in an autocratic manner is usually more sucessful in creating an industrial base, even tho those systems usually begin to fall short once a certain level is reached.

Huh? I think you should try some economic course. The profit is maximised in an non-monopolistic situation. Then monopoles exist when there're law preventic competitors to enter in the market. Moreover, democratic laws can be more problematic than autocratics one, but there's no rules on that one. Sure, there's a need for rules, and some rules promote wealth and others poverty, in any autocratic/democratic society. And finally, most of the time, chen the government decides chere the firms should produce/develop there's at the end a collapse of the economy.

PS: Free market or even anachy doesn't mean no rules/law, at list in my definition

 

[L233]

Huh? I think you should try some economic course. The profit is maximised in an non-monopolistic situation.

Um, no. When a company has a monopoly it can set prices at will and it will set the prices at the point at which the profit is highest. If there are strong competitors, it is unlikely a company could set a price which will result in maximized profits.

Then monopoles exist when there're law preventic competitors to enter in the market.

That's why most laws regulating markets and competition aim at preventing entry barriers errected by market players.

Capitalism isn't neccessarily the economic equivalent to "survival of the fittest". That would mean the company which adapts best to the current market situation by offering better products or better prices etc. than the competition will survive and be successful. That might be true in some cases but if the market players had free reign "survival of the fittest" would often mutate into "survival of the strongest". The stronges isn't neccessarily the fittest, the strongest is the one who has the power to keep the fittest down by measures unrelated to direct competition.

Moreover, democratic laws can be more problematic than autocratics one, but there's no rules on that one.

How so? Where's the difference if a law is passed by a parliament or cooked up by some dictator?

most of the time, chen the government decides chere the firms should produce/develop there's at the end a collapse of the economy.

That's why I wrote that such systems will begin to fall short once a certain point is reached.

 

[Evildeus]

Um, no. When a company has a monopoly it can set prices at will and it will set the prices at the point at which the profit is highest. If there are strong competitors, it is unlikely a company could set a price which will result in maximized profits.

*edit* Yeah you are right in saying that the profit is higher in a monopoly (with barriers to entry), i was thinking from a consumer point of view and global one. Sorry for that
Nevertheless, there's also a maximisation of profit when there's competition (even if it's virtual), then the marginal cost = price, whereas in a monopoly the marginal cost = marginal revenue < price.

That's why most laws regulating markets and competition aim at preventing entry barriers errected by market players.

I don't know where you got that from, but the only barriers that stays with time, is institutionnal barriers. All the others can be destroy with time, investment and new technologies.

Capitalism isn't neccessarily the economic equivalent to "survival of the fittest". That would mean the company which adapts best to the current market situation by offering better products or better prices etc. than the competition will survive and be successful. That might be true in some cases but if the market players had free reign "survival of the fittest" would often mutate into "survival of the strongest". The stronges isn't neccessarily the fittest, the strongest is the one who has the power to keep the fittest down by measures unrelated to direct competition.

Once more, i still disagree. To be able to "the power to keep the fittest down by measures unrelated to direct competition" means to have the power to enforce this measures, and there's only one way to do it (legally speaking) having the government in your pocket .

How so? Where's the difference if a law is passed by a parliament or cooked up by some dictator?

Depends on the law isn't it? If a dictator says, all company can enter a market that's good in a free market point of view, if a democratic government put a rule where all new company needs to give 10 million$ to be able to operate, i think there will be some issue, don't you think?

That's why I wrote that such systems will begin to fall short once a certain point is reached.

Sure, but then if it collapse in a situation where you need 50 years to cope with 10 years of government idiot decision, i don't think it's benign

 

[MfA]

Once more, i still disagree. To be able to "the power to keep the fittest down by measures unrelated to direct competition" means to have the power to enforce this measures, and there's only one way to do it (legally speaking) having the government in your pocket .

Of course if in a country all land is owned by a small enough group of people, then even with free market capitlalism they are a defacto (and totalitarian) government. They cannot impose laws on you as such, but they can impose contracts on you ... which has the same effect.

 

[DemoCoder]

I recommend reading The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else by Hernando de Soto for an more accurate analysis of why capitalism fails in many developing countries. It has far less to do with red herrings like monopolies, and far more to do with the lack of institutions.

Capitalism requires a legal framework to resolve disputes, whether over who owns what, or who agreed to what. Without it, there can be no long term planning or investment. Next time you buy a house, marvel over the tremendous volume of legal assertions against your deed, against the multiple organizations involved, and organizations on top of organizations. All of this requires a very complex framework of institutions, laws, and even non-legal traditions. (e.g. it is "understood" that a broken gets 3% of your purchase price, if not enshrined in law)


If you take capitalism and plop it down into a country which has no such institutions, you get mafia, because the only means of backing up agreements at that point is the threat of violence and bribery to those who have a monopoly on violence. Moreover, because everything is so unpredictable, people with money will only invest in things which have short term gain and predictable results: drugs, gambling, prostitution, etc.

 

[Dave H]

I recommend reading The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else by Hernando de Soto for an more accurate analysis of why capitalism fails in many developing countries. It has far less to do with red herrings like monopolies, and far more to do with the lack of institutions.

Exactly. I'd point out that the same is true of democracy, which requires much much more than just free and fair elections to function. Things like a strong, fair, stable and independent judiciary; high literacy and civic education; an effective and corruption-free police force; and both political and apolitical civic institutions.

All of this is why, as an absolute economic and political philosphy, "pure" libertarianism is utterly ridiculous. Neither free markets nor free governments can exist without a huge legal and institutional structure behind them. We have a term for what happens when we "get government off our backs" and "restrict it to essential functions like providing public defense": it's called anarchy. You can see extreme libertarianism in action throughout much of northern and central Africa. It is not, needless to say, conducive to economic growth.

And this is why the notion of "deregulating" certain highly regulated industries is generally a misnomer. Indeed, if you look at the relevant sections of the legal code before and after "deregulation", there are generally much more rules and regulations afterward than before. This gives a clue why some "deregulations" are relatively successful (in the US, airlines and telecommunications are mixed but generally positive examples), while others are total fiascos (the California energy "deregulation" would be the poster child). If you look at these changes as all "deregulations" of monopolized industries, there's no easy reason why some would work while others flop. When you realize they are all really reregulations, it becomes obvious that each will succeed or fail depending on how well the reforms are tailored to the social and economic conditions relevant to each industry. In all three cases (airlines, telecommunications and energy), these conditions are so far from the perfect conditions assumed by Smithian free-market microeconomics that it should be obvious that true deregulation would have led almost immediately to utter chaos.

None of this is to say that there is no space for "practical" libertarianism. It is entirely plausible for the state to grow too big and too encroaching, in which case whittling it down in certain areas would make good sense. But this is a matter for case-by-case pragmatism, not a coherent philosophy.

As for free-market capitalism, the necessary conditions have little to do with a lack of governmental regulation. Rather, the vital ingredients are transparency, predictability, efficiency and a level playing field. Sometimes government can get in the way of some or all of these, but the abscence of effective government is a surefire way to get none.

 

[pax]

... best thread\post ever...

 

[Deepak]

Mahatma Gandhi once said, "There is enough on this planet for everyone's need but not for everyone's greed".

One major flaw in capitalism IMO is that the sole pupose of its existance is to earn as much money as possible in any possible way. The focus is only on money, which is not a good thing IMO. It may have provided material happiness but mentally there is no peace, everyone is in so much hurry. It has made human-ness dissapear among us, we are becoming more and more mechanised. It has also lead to too much exploitation of our natural resources...it has mainly benefitted only rich (atleast in developing world), rich have become more rich and poor have become more poor.

 

[Evildeus]

Of course if in a country all land is owned by a small enough group of people, then even with free market capitlalism they are a defacto (and totalitarian) government. They cannot impose laws on you as such, but they can impose contracts on you ... which has the same effect.

They cannot impose contract, because a contract needs your agreement. That being said, i don't see how all land could be own by a small group of people, and moreover there's always an incentive to do something else than your neighbourg.

PS: You could always go elsewhere, whereas in a totalitarian country, you can't (or you are dead or the possibility to be shot on sight/put in jail)

 

[MfA]

Elsewhere would have to be another country, wether you could travel that far and gain admittance is far from a certainty. As for agreement, you are living on their property under their terms ... your agreement is a given, you have little choice.

 

[Evildeus]

Exactly. I'd point out that the same is true of democracy, which requires much much more than just free and fair elections to function. Things like a strong, fair, stable and independent judiciary; high literacy and civic education; an effective and corruption-free police force; and both political and apolitical civic institutions..

Agree

All of this is why, as an absolute economic and political philosphy, "pure" libertarianism is utterly ridiculous. Neither free markets nor free governments can exist without a huge legal and institutional structure behind them. We have a term for what happens when we "get government off our backs" and "restrict it to essential functions like providing public defense": it's called anarchy. You can see extreme libertarianism in action throughout much of northern and central Africa. It is not, needless to say, conducive to economic growth.

I think you should try to find a place where pure doesn't ask and imply "strong, fair, stable and independent judiciary; high literacy and civic education; an effective and corruption-free police force". One exemple:
http://www.mises.org/journals/jls/9_1/9_1_3.pdf

I find Africa to be the opposite of anarchy and pure libertarianism. It is a place where other countries give money to people to take control of a part of a country. There's no anarchy in Africa, there's a battle of country powers. If there was anarchy/pure libertarianisme, nobody could finance the dramatic situation in africa.

And this is why the notion of "deregulating" certain highly regulated industries is generally a misnomer. Indeed, if you look at the relevant sections of the legal code before and after "deregulation", there are generally much more rules and regulations afterward than before. This gives a clue why some "deregulations" are relatively successful (in the US, airlines and telecommunications are mixed but generally positive examples), while others are total fiascos (the California energy "deregulation" would be the poster child). If you look at these changes as all "deregulations" of monopolized industries, there's no easy reason why some would work while others flop. When you realize they are all really reregulations, it becomes obvious that each will succeed or fail depending on how well the reforms are tailored to the social and economic conditions relevant to each industry. In all three cases (airlines, telecommunications and energy), these conditions are so far from the perfect conditions assumed by Smithian free-market microeconomics that it should be obvious that true deregulation would have led almost immediately to utter chaos.

There's no smithian free market microeconomics nowadays. The pure theory of competition is quite different, and ask for mechanics assumptions that if they were realised there won't be any economics in fact...

And do you think that the "deregulation" in amarica is a great success? You are saying that the deregulation is in fact a reregulation, that it's most of the time a great flop, and you are saying that deregulation have led to utter chaos? Hmmm which is it? Deregulation or reregulation? You can't say that deregulation gives chaos when you say that in fact it is reregulation. Be consistent.

None of this is to say that there is no space for "practical" libertarianism. It is entirely plausible for the state to grow too big and too encroaching, in which case whittling it down in certain areas would make good sense. But this is a matter for case-by-case pragmatism, not a coherent philosophy.

Well, i still need to find a place where there's some practical libertarianism before saying that pure is not possible.

As for free-market capitalism, the necessary conditions have little to do with a lack of governmental regulation. Rather, the vital ingredients are transparency, predictability, efficiency and a level playing field. Sometimes government can get in the way of some or all of these, but the abscence of effective government is a surefire way to get none

Because those condition can't be present in a pure libertarianism economy? I think it can. You should have a look at the international maritime law.