Let's talk about capitalism again.

Today’s topic is Why Capitalism Doesn’t Work. Ready? Here we go.

The idea behind capitalism is fairly straightforward: everyone gets a chance, and success depends on how much hard work and creativity you put into your work. With enough of those two qualities, the theory goes, anyone can successfully market his or her product or service, or successfully move their way up the ladder by helping the corporation market its product or service. Capitalism is all about selling; whoever has the best way of getting more people to purchase the product or service gets the most money.

Sounds good, right? Sure it does. But there is a hidden assumption that is not satisfied in the real world – namely, that hard work and creativity are the only factors that determine whose marketing is better. In fact, this is as far from true as possible. The truth is, marketable resources and assets are distributed very, very unevenly around the world. Some countries have oil, others don’t. Some countries have ores, others don’t. Et cetera, et cetera. Furthermore, capitalism did not arise in an organized fashion. It gradually replaced the feudal system over a period of 150 years or so. Which means that some people got started a lot earlier than others.

So what we have, instead of a world where everyone has an equal chance to succeed based on determination and ingenuity, some people simply start off much better than others. Having a shitload of money on hand makes it a lot easier to put marketing ideas into practice. So those who happen to be rich and hardworking, or rich and creative, or rich and hardworking and creative, automatically have a massive advantage over those who are merely hardworking and creative.

The rich use their money to market their ideas, and they get more money, while those who aren’t as rich (much less the homeless guy whose idea would change all our lives) don’t make as much money because they lack the resources needed to implement a good enough marketing strategy to make enough money. In other words, you need to have money to make money. So while in theory capitalism gives anyone with a good head on his or her shoulders a chance to succeed, all it does in the real world is help those who have money get more of it, while those who don’t have as much money don’t get as much of it, regardless of who is more creative and hardworking.

In searching for past threads on this subject, I noticed that some of them posed the question of whether or not capitalism is doomed to “fail.” I make no claim either way on this situation. I merely claim that capitalism does not achieve the goals it sets out for itself. Discuss.

Explain Hong Kong and Singapore. Korea and Taiwan. For that matter, explain Ireland (today vs 20 years ago). Russia has probably more natural resources than any other country on earth, yet the standard of living there is pertty low. Natural resources are great to have but they are neither necessary nor sufficient to ensure wealth.

That’s absurd. You are claiming no one who was poor ever became rich and vice versa. Of course it’s easier to make money if you have some in the first place. If we took all the money and resources in the world and distributed them equally to everyone, you’d have people who are filthy rich and people who are dirt poor within a few years.

Also, can you give us an example of a rich country that does not opperate on the principle of capitalism? You can’t because there isn’t one. I’d say capitalism works pretty damn well.

To reiterate John Mace’s last thought: You got a better solution?

As of yet, the one failing of capitalism is that only a few people can be the best salesmen or the most creative individuals (and just as often as not, the best product does win.) But for every person who is just naturally good at attracting money to himself, there’s going to be people who truly suck at it. And in a capitalist market, the people who suck are doomed to live at the bottom–with their only fault being that they just aren’t very good at the Capitalist Game.

However, if you look at societies in the world, the countries who have done better in business have a class of poor people who are still much better off than the poor of other nations; even communist. “Trickle down” is largely scoffed, but as a general idea (that is, so long as you aren’t coercing money to the top, instead of just allowing it to get there) it does seem to work. As a result of the people who are successful, the bottom rung of the economic ladder is hauled up with them.

Miners become factory workers, factory workers become data entry operators.

Ah, no, this is not the idea behind capitalism. The idea behind capitalism is that a society exists to maximize the freedom of the citizens to live their own lives and keep the fruits of their own labor. As an organizing principle, the idea behind capitalism is that it is the individual who has the best information about what that individual needs, and when you allow individuals to negotiate with each other, the true value of goods and services emerges, and this makes organizang an economy around voluntary transactions very efficient.

Capitalism does not guarantee any individual outcome. It does not exist to fulfull what you see as social goals. That is what government does, or private organization, or individual charity. Capitalism as a system simply ensures that goods and services are created by those most efficient at it and sold to those who will pay the most for them.

Actually, the single largest factor in the success of capitalism is the corporation itself; a strictly-defined legal structure allowing individuals to freely pool their resources to accomplish a goal and draw out individual profits and/or satisfaction. The extreme opposite, communism, forcibly collectivizes resources and allows no individual profits.

Capitalism doesn’t have “goals” as such, though many individual capitalists do. They often fail. Their rate of failure, however, is lower than individuals in other systems and their rates of success are higher.

Rather than attempt to go into details I’ll just join my voice to asking the question John Mace and Sage Rat voiced: Whats a viable alternative to Capitalism? What ‘works’? Afaik every succesful nation on earth today is somewhere on the sliding scale of ‘capitalism’…from the more socialist oriented European nations to the more capitalist oriented nations like the US…most other successful nations falling somewhere inbetween but still on the same scale. So…what are the alternatives? Whats better?


While I think it’s silly to not recognize capitalism’s virtues and benefits, there is (as always) a difference between theory and practice. What I object to most about capitalism is it’s inherent lack of ethics, which often seem to play a large role in success (exemplified by business leaders who are psychopaths). The ideas of meritocracy, efficiency, and self-reliance are all very appealing (to me) and form an amazingly self-regulating system. However, unbridled capitalism often rewards the worst in human nature, which I see as it’s main problem. As Sam Stone puts it:

Which is fine (and even admirable), so long as efficient cannot become synonymous with ruthless.

I’m not entirely that is true; there are certainly notable pathological situations & times, where reprehensible behavior is accepted or encouraged, but I don’t see that this is the norm.

An additional problem is that unethical behavior will be a problem in all systems; does another system do better in restraining unethical behavior? For example: we’ve had the great depression, but we’ve never had a purge. AFAIK, the unethical are not generally the successful ones; we have standards of what’s right and wrong, and the amoral don’t thrive so well in market economies. (See, e.g., Culture and Prosperity, although the author choses to eschew the actual definition of “rational” for some bizarre reason.)

Then you don’t understand the definition of “efficient” in economic terms. A competitive market economy is one where a given level of welfare is reached with a minimum of resources; it’s not a bloody struggle for dominance. The efficiency is achieved because the market sets the price rather than individual producers or consumers.

I am no fan of capitalism, it does have many problems, and unchecked capitalism can be extremely ruthless. Capitalism is not a form of government, it does lead to inequalities, which can be through the laziness of people, it can also be through lack of access to resources. The purpose of government is to try to reign in the excesses of capitalism and try to mitigate the inequalities.

There are different ways of organising things that may be better in principal at least, YMMV or that. But there are two problems, in principal is all well and good, but putting them into practice is something else entirely. As the Soviet Union discovered. The major problem would be how you would change from one system to another, even if you decided another system was better.

What the OP said, and then some. In short, although their proposed ‘solution’ cannot work and imposes a despotic authoritarian state and fails to address the real problem anyway, the Marxist folks’ critiques of capitalism are largely right-on-target. Capitalst economies are not meritocracies. It is never equally easy for a person with resources and a person without resources, equally willing to work and equally talented, to make money.

Not just marginally unequal but unequal to the point that the bigger factor by far, in whether or not one can make money, is whether one current has money (or comparable capital resources). Not whether or not one is willing and able to work. Not whether or not one is brilliant and talented, or dependable and responsible, or even motivated and aggressive.

The biggest problem with critiques of capitalism is that most of them don’t go very deep and therefore don’t address the central problem. You can’t just swoop in after a week’s worth of capitalist transactions and redistribute the resources “more fairly” and expect that to work. That undercuts the mechanisms that fuel capitalism and make it function without fixing the problem. So you still get horders of decently talented, motivated, intelligent, responsible people willing to work but who, due to lack of resources, can’t capitalize on that and who, therefore, are marginalized and underemployed, then you take away a chunk of money earned (or just “earned”) by the better-positioned and hand it over to them. What have you just done? You haven’t made these people less marginal, you’ve subsidized marginality. The economic conservatives who say the welfare system pays people to be lazy and to not work and to not be responsible are right-on-target. They are absolutely just as correct as the Marxists are in their critique of capitalism.

Wanna know what else? Jobs programs, affirmative-action programs, equal-opportunity programs, all that stuff designed to level the playing field and make it less true that success falls to the already-successful? All that stuff? Cannot ameliorate more than a tiny handful of the problem. Cannot. Capitalism, as a system, as a fundamental characteristic of its very structure, needs poor people, in more or less the same mathematical sense that statistics needs for 50% of people to be of less than average height, or the way 50% of the football teams will end up with worse than a .500 seasonal win-loss record.

The critics of capitalism keep missing the central fact of capitalism: capitalism is not one of several possible market economic systems, capitalism is the market economy, it is, in fact, the money system itself, it is currency and human behavior related to currency-based exchange writ large and unimpeded (aka the “free market”). Got that? If you’re using money, aka currency, aka any quantified means of transacting business, you’re doing capitalism. With or without Band-Aids to mildly slow down what it does (the desirable along with the undesirable). So if you’re serious about wanting an alternative to capitalism, start with the assumption that you will not be quantifying the value of labor or material. There will be no money. Things will not be sold for prices. People will not have salaries or wages. And if you’re shaking your head and saying “that can’t happen”, reconcile yourself to capitalism give or take some superimposed interferences.

No, I don’t. This thread is not about alternatives to capitalism, it’s about capitalism, and whether or not it achieves what it is supposed to achieve. Speaking of which:

I beg to differ. Let me first clearly define what capitalism actually IS: it is a concept that exists in people’s heads, and nothing more. Every one of those people who have some idea in their heads to which they attach the label “capitalism” has some perception of its workings and its effects. My claim is that that which is commonly perceived as the workings and effects of capitalism bear little resemblance to the reality. So perhaps it is best if I redefine my claim as: capitalism does not do what many people think it does, where “what many people think it does” is equal to “everyone gets an equal chance at success,” and “success depends only on hard work and creativity.”

I debated mentioning the so-called “laissez faire” idea in my OP, but I decided it falls very neatly under the uneven distribution of resources umbrella. The fact is, laissez faire is a myth: it doesn’t exist. Anyone with a basic knowledge of United States law should know just how many laws and regulations there are concering the movement of money from one person to another. Taxes influence how companies price their products. Sarbanes Oxley legislation influences how companies run their internal accounting. Antitrust legistation prevents the implementation of certain highly lucrative business practices. Hell, drug laws prevent businesses from advertising their new cocaine product line. Welfare and Medicare give money to those who need a helping hand. So clearly our government does change how resources (mostly money) are distributed among the population, and rightly so, although some of those laws and programs make a whole lot more sense than others.

You’re right, I do need to qualify some of my initial statements. Certainly there are the success stories, those who managed to do very well for themselves. And this continues to happen regularly today. But, the overall trend is that the more money you have to start off with, the more money you are able to make. I’m not saying that those who aren’t rich can’t succeed, only that they are unable to succeed as well as those who are rich.

Agreed. What you outline here is the ideal scenario of capitalism, and if this happened, I’d have no problem at all with it, because it would remove the only objection I’ve been presenting all along: unequal distribution of resources. The fact is that today, the general trend is that those who are rich are rich because they or their families were rich(er) to start with, and those who are poor are poor because they or their families were poor(er) to start with.

Um…where did these ‘rich’ families come from? Were they created by god at the moment of creation as ‘rich’? Are the ‘rich’ families in the US decended from the wealthy aristocracy of old Europe and just inherited their wealth back to…whenever? Afaik most (if not all) of the ‘rich’ families in the US started off as poor or perhaps middle class. Bill Gates is one of the richest men in the country…IIRC he came from a middle class family. Can you provide some evidence to back up your claims? It seems to me you are looking at the results (i.e. ‘rich families’ today) and then basing your theories off of them…without looking at the historical context. Perhaps you could just show that (Some? Most? All?) the richest families in the US have always been rich? Say for the last 200 years (I won’t make you go back into the mists of time)?


So…what separates capitalism from everything else is that capitalism is the only ism that doesn’t rely on barter? Yet, even barter is quantified; e.g., two skate keys for six eggs. So, even barter is capitalism. Thus everything is capitalism. It’s been operating since the some of the earliest human settlements—neolithic Britons were intercontinental traders in flint (cite)— at the very least; therefore, captialism does work.

Those statements are are mutually exclusive. The first statement denies the conclusion that optimization happens on the margin, the second statement is relies on the notion that it does (to a ridiculous extent).

That makes no sense. How can “from each according to his ability and to each according to his needs” be just as absolutely correct “welfare pays people to be lazy”?




Now you are starting to get it. Capitialism is based on the following:
-Resources are “scare” (scarce meaning not infinite)
-Resources are distributed unevenly
-Individuals or pools of individuals (as in a corporation) can claim ownership of assets

Capitalism makes no claims of “fairness” other than “you can do whatever you want with whatever you own”.

Ok…so how does this translate to the real world?

Everyone has needs and wants. Just about everyone has something that meets a need or want of someone else. No one can meet all their needs and wants by themself. In a capitalist environment, people are free to exchange their goods, services, materials and skills for other stuff they need.

Let me give you an example. I own land. There are trees and iron ore on that land. I see that there is a demand for lumber and iron in the next town over so I hire a bunch of folks as lumberjacks and miners. I give them a fraction of the money I make from selling the lumber to the sawmill and the iron to the steel mill.
Do they make as much as I do? No. The market for their labor supports me paying them a relatively low salary. I can’t pay them an arbitrarily low salary however since they would go find work elsewhere.
Now I guess the question is, “is this fair”? To a certain extent it is largely a matter of luck that my land has natural resources. Do the employees who work that land deserve to share in the profitability of my venture? Capitalism does not assume everyone has an equal chance at success. Capitalism only dictates that everyone should have the right to sell or buy their resources for whatever they can get for them.

This touches on the inherent flaws of capitalism:

  1. It tends to skew in favor of those who own the means of production. Let’s face reality. It’s less of a hardship for the factory owner to replace the worker than it is for the worker to replace the factory. This is especially true where geography limits the number of employment opportunities.

  2. It assigns no morality to what is bought and sold. If there is a demand for it, there’s a market for it.

  3. It does not account for people with not sellable skills, services or resources. If you do not have anything to bring to the table, you are left out.

Capitalism is the most efficient form of meeting an economies needs and wants, but it does not guarantee that everyone’s needs and wants are met. This is why no one seriously favors laissez-faire capitalism. A healthy economy requires a mix of free-market capitalism, government regulation, and socialized services.

To my mind, capitalism is an amoral system, in that it’s aim is to generate income from capital. There is no ethical component within the capitalist system itself (or within any other money-making system, e.g. mercantilism, for that matter). Ethics must be imposed from the outside, which is to say, by the government.

Capitalism works if the government is correctly playing its part. It fails if (a) the government is in the business of plundering, and/or (b) the government is unable or unwilling to control criminal activities that are in the business of plundering.

I don’t believe that just anyone can succeed in capitalism, any more than I believe that anyone can become a concert violinist. One needs to have certain abilities, some innate, some acquired. I’ve read (no cite, sorry) that people are more likely to succeed in business ventures if their parents were in business. People like me, who’s parents were professionals, are more likely to fall on their asses.

I am not a great lover of capitalism, for the simple reason that I’m not very good at it. But I have not seen any evidence that there’s a system that can work better, given proper governmental control.

Nor am I sure. I’m not making a universal claim that capitalist == evil; I’m not even making a claim as to what the norm is. I’m just pointing out that capitalism pays no heed to ethics unless constraints are placed on the system from outside. And the occurrances of such situations and times is more common than it should be. At a more cursory level, clearly the phrase office politics is derogatory, yet the players often gain success.

Ah, but I do. I purposely used it because of the dissonance. Efficiency, in economic terms, has no ethical considerations. It can just as well be associated with ruthless as with benign or beneficient. However, the fact that efficient and ruthless may be parallel is an issue. As concerns a system with such a large social impact, I see unrestricted capitalism as a problem. And your point about “given level of welfare” is a clever choice of wording; I’d ask why Sun Tzu’s Art of War is so widely read by business people if capitalism is not about dominance (at least, to some degree).

And note, I do acknowledge and appreciate capitalism’s virtues. I constantly qualify my objections with “unbridled”, “unrestricted”, or some other similar term. I’m not sure where one draws the line between a capitalist and a socialist system, but I think I tend towards socialist (at least, in relation to rabid free-marketeers), as should anyone who sees economics as a non-zero sum game.

Well, I agree that many misconceptions exist, but how this demonstrates a failing of capitalism escapes me.

Personally, I don’t have a problem with a legal and ethical framework that surrounds but does not otherwise interfere with capitalism’s framework, solely to curb capitalism’s potential for self-destructive excess. Other political/economic systems end up impairing the society’s productivity as a matter of policy. The key failing occurs when the legal framework is not wholly independent of the capitalist one, and capitalists use their influence to pass laws protecting their own interests to the detriment of competitors. This kind of corruption, however, is certainly not limited to capitalist nations.

Economic systems can’t have ethics, people can.

A point that made me stop and think for a moment, but that I believe is incorrect. How is “to each according to need from each according to ability” not an ethical statement? Or is communism not an economic system? Can they be so easily separated?

This claim is bizarre. Perhaps your understanding of either capitalism or a non-zero sum game is nonrigorous. There is also considerable confusion between the concepts of capitalism and markets. This distinction is critical. Your criticisms, DS, seem to be levied at markets, not at the idea of private ownership otherwise known as capitalism. Socialism is not in any way incompatible with a market economy.

Competitive markets are not zero-sum because each transaction generates value or wealth. Two price-taking agents who freely transact each end up with an object of greater value than they began with. How anyone can describe this environment as zero-sum is a mystery to me.