On The Mechanics Of Capitalism

For a few years now it’s become a political platform position on the left to tax the rich – in particular, the billionaires. For the overwhelming majority of the population who aren’t rich, this has quite an appeal, whereas there are still middle-class folks who oppose it by believing that through hard-work, and hard-work only, they can achieve the American Dream. The growing inequality we’ve seen take place across the world has given capitalism a bad reputation, but as always, the issue isn’t as simple as it looks and burning it all to the ground to build it back up will not solve society’s discontents.

The term capital dates back as far as the 12th century, and originates from the Latin word caput, meaning “head” (as in, head of cattle). However, the term capitalism didn’t begin appearing until the 17th century, and was used to describe a system in which capitalists owned said capital. The entire system revolves around the idea of private ownership and control over the means of production to generate a profit. It inherently assumes that the future holds more prosperity than the present, which is why in modern times we go into debt to get an education so that we can make more money in the future. 

Therefore, ownership is the key idea to understand capitalism. It essentially means that if you own a factory, you get to do what you wish with it – if you want to leave it idle, produce goods, or sell for something else you deem more valuable, you decide. This also encapsulates the concept of economic freedom into it, which is deemed invaluable in Western democratic societies. This system rewards risk-taking, so for entrepreneurs who put their money and livelihoods on the line to generate value for society, when they succeed, benefit tremendously from it in the form of monetary compensation (which is a proxy for ownership – you can trade those dollar bills for something else you deem more valuable). 

Innovating is a risky endeavour. It often involves large sums of money upfront to conduct research and development, which 9 times out of 10 leads to unsuccessful results. Therefore, if someone invents a new technology that improves society’s wellbeing (such as a vaccine or a software), trademarks are available to protect those inventions so they can reap the fruits of their venture. These very same entrepreneurs offer society a key trade: capital for labour. To them, having someone else operate a forklift for $20/hr is deemed a better usage of their time than doing it themselves, whereas for the labourer they deem it more valuable to accept this payment instead of going on an entrepreneurial endeavour themselves. This ongoing trade of capital enables for a natural circulation of money through the economy, which in theory flows towards where it will generate the most value per unit of measure. However, a number of economists agree that capital markets don’t regulate themselves therefore a certain level of government intervention is required to maximize the benefits to society.

This is where we enter the debate over welfarist policies and where in the spectrum does a society feel comfortable to be on. We hear stories every year of companies taking advantage of their employees by denying them bathroom breaks or paying unliveable wages, which serve as examples of how unhinged capitalism has a tendency to bend towards tyranny. Core labour rights passed in the 20th century that gave workers the freedom to join a union, abolished forced labour, and condemned discrimination at work are indisputable rights for a healthy & functioning labour force. But with the increased monopolization of industries, slowdown in productivity, and increased technical knowledge requirements to earn a basic living, we are seeing again a widening wealth gap form in society that is having geo-political repercussions around the world. And so, with the further devastating effects of the COVID pandemic, governments got to test the waters of what more robust welfare programs could look like and the impacts they would have in their economies.

There is an unavoidable trade-off that is made when we move towards higher distribution of wealth through regulatory factors. If the capitalist theory is correct (which most economist would agree it is), by not letting capital flow towards higher productivity areas of society and instead force it to go to lower growth endeavours, we are inevitably sacrificing future societal prosperity for present individual comfort. With the explosion in population growth the world has seen in the 20th century due to developments in health care, sanitary infrastructure and contraceptive innovation, if we sacrifice too much of the future to solve the present’s discontents, we are inevitably creating further present discontent for our future selves. Therefore, this ongoing balance between preserving economic freedom vs furthering government regulatory overreach becomes more of a dilemma than a right or wrong situation. 

Counter-intuitively, ownership is also a form of preserving society’s political freedoms. In a way, it redistributes tyranny into the hands of the wealthy, instead of concentrating it in the hands of the state. Consequently, instead of having one tyrant in government, you have thousands of tyrants (the rich) competing with each other – which enables people the freedom of choice. Additionally, ownership also serves as a way to determine the value of things – take the open ocean for example, which isn’t owned by anyone. This means that it’s every man for himself, and since it contains fish, which carries value in our society, people will try to get as many fish as they can before it runs out, since it’s free. So, without ownership you can’t protect things, and if you can’t protect things society is doomed to have bad actors who will take advantage of what we deem valuable.

And so, while preserving economic freedom to build a better future to our children is important, society also needs to take into consideration to what extent it is willing to deregulate its markets without making its present citizenry so deeply unequal that resentment begins to grow through the cracks and radicalization of ideas become mainstream. The same way that this utopian world we dream of where there’s very little suffering has been proven over and over to be just a dream, savage capitalism is also proving to be an inhuman system that sucks the life out of 90% of the population while disproportionally benefiting the current holders of capital. Historically, we’ve seen this tape being played repeatedly throughout time – when things got too unequal, successful societies found ways to reign in discontent through redistribution of prosperity in effective and productive ways. While those that swung too far in either direction were pushed to the annals of history among the company of fallen empires.