Let's talk about Capitalism

I’d like to start a new thread focused on this topic.

This is an attempt at trying to understand a different point-of-view. I admit that I was, until recently, unaware that anyone would try to claim that “Capitalism” is a natural state of affairs. What happens between people in the absence of government.

This leads me to a few questions.

  1. Would you agree that the function of capitalism is to create a good or service and sell it for profit to make money ostensibly to use that money to buy other goods and services that the seller needs or wants?

  2. Before we get too far along, I think it best to get some opinions on how people here define Capitalism. Can you do that for me/?

You can define it yourself, or point to a reference. I’ve gone ahead and grabbed a few off the web, you can agree or define it or quote something else.

The internet dictionary defines it as “an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.”

Investopedia:

Capitalism is an economic system in which private individuals or businesses own capital goods. The production of goods and services is based on supply and demand in the general market—known as a market economy—rather than through central planning—known as a planned economy or command economy.

The purest form of capitalism is free market or [laissez-faire] capitalism. Here, private individuals are unrestrained. They may determine where to invest, what to produce or sell, and at which prices to exchange goods and services. The laissez-faire marketplace operates without checks or controls.

Today, most countries practice a mixed capitalist system that includes some degree of [government regulation]

The business dictionary:

An economic system based (to a varying degree) on private ownership of the factors of production (capital, land, and labor) employed in the generation of profits. It is the oldest and most common of all economic systems and, in general, is synonymous with a free-market system.

  1. What does capitalism require (or reject) to operate correctly in your opinion?

Capitalism is a system in which CONSUMERS are given thousands of options as to how to use THEIR money for whatever purpose THEY deem proper and appropriate with as little government interference and regulation as possible. Every definition I’ve ever read of “capitalism” leaves out the FACT that consumers are a vital, controlling factor in its success or failure. If, in a command economy, the government-controlled producers produce shoddy materials, they don’t get “consumed” and the system collapses, and under communist control, FEW, if any, consumer goods were of a quality that would make others go out of their way to acquire them. The Soviets’ cars, refrigerators, washing machines…even their cigarettes and alcohol…were all of inferior quality and they couldn’t sell them anywhere outside of the USSR. In fact, the ONLY things they managed to sell to other countries were caviar, weapons of war and, in a few cases, Marxism itself–mostly by lying about how “wonderful” it is.

Capitalism is the personal liberty to “capitalize” on whatever you rightfully posess (property, physical ability, ideas and innovations) without outside coercion by engaging in commerce of any type (sale, trade or gift) with others who choose to engage with you without outside coercion.

Capitalism is not a “system” it is what occurs naturally between humans in the absence of a system.

Societies can and should enact laws to PROTECT the above principles from those who would use their power and resources to create the outside coercion that would limit any individual from “capitalizing” on their rightfully possesd property, labor, ideas or innovations.

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The biggest requirement for capitalism to work is freedom. Consumers demand the goods and services and companies to supply them. The consumers have choices as the brands (or companies) they select, and the suppliers compete for the business.

Profits are indicator of success. The companies who succeed, use those profits to plow back into the business and pay some of them out to attract additional capital. Investors who see successfully businesses, are attracted to supply them with capital. Companies that fail or barely hang on do not grow as quickly or disappear completely. It’s not always a pretty picture, but it’s one of the best ways to encourage efficiency.

Are there problems with this system and should there be regulations? Absolutely. Prior to the early 1900s companies could place harmful drugs and chemicals in their products. Coca-Cola had cocaine in it for a time. Meat packers could sell adulterated products. Government supervision has a role.

Another aspect, as one of my undergraduate economics professors said, is “compensate the losers. He was a monetarist and a follower of Milton Friedman, which was the conservative wing of the economics discipline when I was in school. (The Keynesians were part of the other side along with the socialists, who also had a place.) His point was government had a responsibility to help with things like unemployment insurance because it worked to stabilize society. How far does “compensating the losers” go? That is the political debate in a capitalist country.

The opposite of this is socialism, which government control and ownership of the means of production. As one of definitions stated, it is the “command economy.” Under that system a comparatively small number of government bureaucrats determine what is produced and how much of it. Consumers have a limited role. The opportunities from cronyism and corruption are huge because the market is not there to curb it.

I have made this point a number of times, and Mr. Brown has blown me off every time. Even if a command economy is run by angels, the problems of getting the right goods in the right place at the right time are huge. Just think of what goes into an automobile and think of all of the players who have to supply parts for it. Multiply that for every good in an economy, and you will see what those bureaucrats face. Adam Smith’s “invisible hand” plays a huge part in addressing that problem without government intervention.

My niece, who makes over $100,000 a year specializes in logistics. Her job is to get goods distributed to customers on a timely basis, and as you can see, it pays quite well. Note that the goods have already been made. All she does is get them out in a timely matter.