Are We Really Capitalists ?

Critics have been claiming the recent economic crises are the proof the capitalist system is inherently flawed. The underlying assumption being made is that the world is following the tenets of the capitalist system and hence the failure of the system is the failure of capitalism.

In this article, we will question this premise. It is an irrefutable fact that the modern economic system is facing economic crises.

However, whether the system we are following can be called 100% capitalistic is debatable. In fact, we are going to assert that it is the socialistic elements, in our current economic system, that are responsible for the mayhem and the capitalism as an economic philosophy is still sturdy.

The following elements of socialistic societies are present in our economic system:

Central Banking

Central banking was one of the ten fundamental tenets of communism recommended by Karl Marx. Before Karl Marx’s time, a capitalist economy had a free market in all goods and services and money was no exception.

True, that there were monopolies and near monopolies that were formed in the market for standardized gold coins as well. However, such monopolies could not last if they started debasing the currency.

As soon as debasement began, the monopoly would become impossible to run because of increasing competition that was keen to point out the extent of debasement and offer better alternatives.

It is only when central banks became privately owned monopolies protected by the government that systematic debasement became a reality. Government control over anything is not recommended by capitalism.

Therefore, to call the modern monetary system capitalist is probably the most inaccurate description. Yet somehow all countries in the world seem to have a central bank and claim to be capitalist at the same time.

Having a central bank is like giving the remote control of the entire economy to the government and central bankers. True that the government cannot interfere in markets and raise or decrease prices in a so called “capitalist state”.

However, the government can simply raise or drop the total money supply creating price rises or price declines in all commodities at will.

The modern system is therefore not controlled by the free market. Rather it is controlled by the government itself. In simple words, it is not capitalist.

Bailouts and Stimulus

Adam Smith was very clear when he laid out the tenets of capitalism. A capitalist society was a society based on social Darwinism. Only the strong survived in such an economy. There was no room for foolish decision making. The market is supposed to reward diligence with profits and foolishness with failure and bankruptcy.

However, this is not the case in our so called “capitalist” societies. Consider for instance the case of 2008 when the state used taxpayer’s money to bail out private banks. That certainly was not a free market operation!

Also, this is not the only time bailouts have happened. In fact bailouts have become the norm. Consider the European crisis, the savings and loans crisis or any other crisis of your choice.

The government always bails out the corporations that must ideally be allowed to crash and burn as a result of their own mismanagement.

The society that we live in does the exact opposite of what the principles of capitalism dictate. Yet, for some unknown reason, we claim to be “capitalist”

Welfare State

The market mechanism supports individuals who contribute to society and disregards people that are a drain on society. However, the modern economic system calls this inhuman.

There is a rhetoric that healthcare is a basic human right and should be provided to everybody. Similar propaganda is also done for unemployment etc.

If statistics are to be considered, very few needy people actually benefit from these programs. Instead, it is the lazy and unproductive people who take advantage of the taxpayer’s money.

Such unfunded liabilities are dragging down the economies of the western world. Hence it is not capitalism which is causing economic crises!

Licenses

Capitalism is based on the principle of free entry and exit from markets. Having requirements which dictate that licenses must be obtained to conduct business is how the socialist system operates.

Licenses allow the government to decide who can do business and who cannot. This is certainly not how a free market capitalist economy ought to operate. This is not an economy where the invisible hand seems to be operating.

However, the societies that we live in require licenses for almost every business. Banking, telecom, airlines, retail and almost every business operation requires a license. Once again the government has more authority than the market forces do.

Yet for some reason, we call this society “capitalist”!

Subsidies

In a capitalist system, businesses are supposed to be self sufficient. However, in the present world the government taxes one business in order to support another. Agriculture is redundant in western economies such as US and UK. This is because of high cost of labor in these economies.

Third world countries have a cost advantage and can beat advanced economies in primitive tasks like agriculture. Yet farmers in the UK receive about 60% of their income in the form of subsidies i.e. money obtained from other taxpayers! Giving away money is certainly not capitalism.

From the above mentioned points it can be ascertained that the economic system of our times is NOT Capitalistic, not even in the most advanced nations in the world! The argument that capitalism has failed is therefore invalid and inappropriate!

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