Field of Science

On Capitalism

Like it or hate it, there's no denying that capitalism is the dominant economic system on the globe. In countries which established capitalism on their own terms (i.e. not the ones where capitalism was forced by intervention from other countries), productivity and average (material) quality of life have grown consistently, far outperfroming countries with other economic systems. What is behind this success? How can a system which is (in some sense) based on inequality provide better for its citizens than systems which explicitly try to provide for everyone?

Let's take a closer look at how capitalism works. Ideally, people provide goods or services which are useful to society, and if other people value these goods or services, they give money in exchange for them. Money is a powerful incentive, thus people have a motivation to provide things that other people want. If any particular need of society is not being taken care of, there is especially high incentive for some entrepreneur to come along and start providing it. Eventually, people evolve different strategies of providing good and services: they organize themselves in different ways and experiment with new products and methods of distribution. In theory (there's that word again!) the people and organizations that are successful are those that most effectively provide what other people want.

Broadly speaking, this is exactly how a complex system should be run. The incentives are in place for people to do things that are good for other people. Those who "run" the system (i.e. the government) do not dictate exactly what we should do, but instead make sure the incentives work correctly in encourage us to be useful. Creativity and experimentation are allowed, even encouraged. The final result is unpredictable, but the market works in delivering to most of us the things we need.

Of course, there are many, many problems with capitalism. Too many for me to list exhaustively, though I will highlight a few major ones:

  • Inequality: In any incentive-based system, some people will get more of the incentive and some will get less. This is just how incentives work. Under capitalism, however, money is tied to our basic ability to survive. If we want to avoid people starving to death, or living homeless, just because they are bad capitalists, the best solution is a strong social safety net that provides basic necessities for everyone.

  • Unfair competition-If you have a good idea and a good way of delivering it, you should be able to make money from it under capitalism. Unfortunately, established corporations have ways of squelching efforts by upstarts. These unfair practices should be illegal, but combatting them requires a strong, independent government, and for this we probably need publicly financed elections.

  • Harming the public-This is a broad category, including things like deceiving your customers out of money (think credit card companies) and using up resources that should belong to all of us, like the environment. Again, a strong, independent government is necessary, though citizen activists also have an important role in protesting these abuses.

  • Money "becomes" morality-I've been thinking a lot about this point lately. It seems that in any incentive-based system, people have a tendency to internalize the incentives to the point where they bleed into their notions of right and wrong. For capitalism, this means that some people seem to think anything that makes them money must be "right"--a point that mundane turbulence made earlier. This is a serious issue for capitalism because it feeds into all the other negatives above ("The love of money is the root of all evil.")

I think the overall message is that capitalism is very good at providing for the needs and wants of individuals, because the incentive (money) comes from individuals. It is much worse when it comes to providing for our collective needs (e.g. a clean environment.) We need to think creatively about how to make captitalism and democracy work for our needs as a whole, and not just as individuals.


  1. Agreed!

    P.S. I think you need to put an "http://" in front of the link to my blog, and it's "the love of money is the root of all evil."

  2. I noticed something a little to the side of your actual point, but which ties into some of your longer-range themes.

    Why is "money" such a good incentive? What is "money", anyway? It's a society-wide standard unit of utility. Yes, I could trade my plowshares for three of your mules and two chickens, but I could really use a brick of tea, and can anyone make change for an ox?

    What "money" does is it flattens complexity. It provides a single, universal medium of exchange.

  3. @mundane-Thanks! Fix'd.

    @John-Yes, good point. I think the underlying message is that simplicity itself is a kind of power.


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