Is Capitalism a Humane System?

Before attempting to answer the question, we must first define the terms. What does „humane” mean? The dictionary describes it as „having or showing compassion or benevolence”, a definition that immediately raises the assumption that humans are compassionate and benevolent. Idealistic as that sounds, evolutionary biology firmly contradicts that assumption. Humans, like all mammals and, to some extent, like all other creatures on Earth, are highly individualistic beings. Our underlying motivation for most things we do in life is reproduction and survival, and the way we increase our chances of replicating our genes and living a long life is by getting as high as possible on the hierarchical scale. We do altruistic things, of course, but they not only help other people or other creatures, but they also help ourselves by making us feel better, morally superior to those who are not altruistic, therefore placing ourselves higher in the hierarchy.

Next, we must define capitalism. Capitalism is 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. It is a pretty straightforward and widely understood definition, essentially meaning that every product and service delivered to the people is provided by an individual or group of individuals who seek their own wellbeing. That definitely doesn’t sound very compassionate or benevolent and for that reason, many people think there surely must be a better way to do things, a way that doesn’t include a few people controlling all means of production in a way that is dictated by their own self-interest.

Both definitions are subject to debate, but what is not subject to debate is the undeniable reality behind economics: Earth resources are scarce, meaning all of us cannot have everything at the same time. We all want a house on the beach, but there aren’t enough beaches on the planet for all of us to build houses next to them. Of course, we can all maybe take turns in living in those beach houses, so that everyone is happy at least some of the time, but how do we handle more complex issues than the beach example?

The reality of Scarce Resources with Alternative Uses

Not only are resources scarce, but every basic resource has an almost unlimited number of ways in which it can be used. In his book, “Basic Economics”, American economist Thomas Sowell offers a great analogy on the sheer complexity of resources and their scarcity, by using milk. Milk is a basic resource that can be consumed exactly as it is when it comes out of the cow, or it can be transformed into countless other forms. You can make cheese, yogurt, butter, use it for a million different cookies and recipes, and so on. So how do we use it? Who decides how much milk goes into chocolate products and how much into cheese? Not only is determining what the population’s wants and needs when it comes to milk products a titanic task but the public’s preferences also constantly change.

Obviously, milk is one of the thousands of different prime resources, so deciding what goes where is a superhuman task. The socialists and communists thought that the best arbiter to decide how resources are fairly used is the state, working for the good of the people and making sure no individual exploits others by using resources for their own personal gain. That was proven to be a monumental failure, for two main reasons. First of all, no state entity, no human entity for that matter, could possibly feel society’s pulse and know exactly how much cheese and how much butter the population needs this month, and also make the calculation for every other imaginable prime resource. The second reason is that the state, any state, is not held directly accountable for its failures and that inevitably the wrong people will be in charge of distributing resources. The result was, in socialist and communist countries, huge surpluses of things no one needed at that particular time, but also huge and tragic shortages of other things people needed.

The other option is the capitalist way. A large number of individuals acting on their own behalf, for their own gain, competing against each other for people’s money. No superhuman entity deciding how much cheese and butter a few million people need, but many different agents trying to guess the demand and provide the supply. If you guess right, you are successful and make a profit. If you guess wrong, you go out of business and another entrepreneur takes a shot on guessing what people want and need. And if you get it extraordinarily right, if you figure out a way to use scarce resources with different potential uses in a way that convinces millions of individuals to voluntarily give you their money in exchange with what you have to offer, you make people’s lives better, you create wealth that is more than the sum of its parts and you become a billionaire. And then, ironically, you are criticized for depriving the world of wealth.

The Myth of Rich People Hoarding Wealth

It’s a hot topic nowadays and you hear about it everywhere: income inequality. Those greedy billionaires and CEOs paying themselves huge bonuses while worker wages have stagnated for decades. It just doesn’t seem fair; no person should be making that much money. Why do you need 50 billion dollars for? You might as well give away 99% of it and you’ll still be left with enough money for a very decent life, right? Well, not really.

First, there’s the famous 1 percent discussion. One percent of people own more than 50% of the wealth and apparently the gap is rising every day. That sounds outrageous, we surely must be heading for a financial Apocalypse. Except that it’s wrong, in more ways than one. First of all, the so-called 1 percent is not a homogenous group. A major study conducted from 1968 to 2011 has shown that, in the US, 70% of people spend at least one year in the 20% group, 53% spend at least a year in the 10% group, and, shockingly, 11.1% reach the one percent for at least a year over the course of their lifetimes. The wealthy are not always the same people, as for someone to reach the one percent, automatically someone has to leave the bracket. Also, a minuscule 0.6% of people stay in the 1% for more than a decade. It’s the same with companies; if you look at a list of the richest companies from 30 years ago you won’t find many that are still there today. Yet, throughout history, wealth has been retained by the same families for generations. What causes this turnover in wealth? Capitalism. The “guessing what the public wants” part can make you a billionaire or it can take your wealth away.

The gap isn’t that great either, unless you want it to be. More precisely, unless a certain news organization wants to write a spectacular headline. “Top 1% owns as much as the bottom 50%” sounds bad until you realize that, in order to make that statistic sound good, you have to put everyone with any kind of debt into the bottom 50% bracket. Meaning that if you and your wife have decent salaries, drive two new cars on leases and live in a huge house that’s mortgaged, this statistical model will put you in the bottom 50% when obviously your life is better than half the population.

Also, something that is so logical for anyone with a minimum of economic literacy still needs to be stated: no one actually has 50 billion dollars. There’s no huge basement in Bill Gates’ house, where he swims in gold coins like Scrooge McDuck. A billionaire is work X billion dollars because the sum of his assets is worth that much. A headline in Time magazine said, “Mark Zuckerberg Lost $15.1 Billion in 5 Minutes This Morning”. Did he burn that money? What happened to them? Well, he never actually had it. His ownership in the company it founded was estimated at a certain worth, and when news came out stating that Facebook is unable to generate worth at the rate it was initially predicted, the company’s value dropped.

And why is inequality inherently bad? Sure, it sounds bad, and doctrines like Communism were built on it sounding bad, but after a certain point, isn’t the quest for equality just envy in disguise? If I make 1000$ and you make 3000$, but thanks to technological improvements that you made I am able to make 1700$, but you will make 5000$, doesn’t everybody win? Sure, inequality has grown, but you earning more doesn’t make my life worse. Unless the economy is a zero-sum game.

Zero sum game myth

You hear it all the time. Multinationals come to our country, take our factories, make money and then take that money to their countries, robbing us or our many riches. They come in, take a slice of the economic pie, and then run off to their home country with it. That would indeed make perfect sense if the pie was actually a pie, but it’s not. A company invests in another company or an industry, updates its technology, enables it to make better and cheaper products, pays taxes, employs many people who also pay taxes, ending up generating significantly more wealth than what was there initially. Yes, their objective is profit, but we should all hope they achieve that objective instead of thinking we’re being robbed. Because if you invest 1$ and make 2$ it doesn’t mean you have robbed someone of one dollar, it only means that you have taken scarce resources with alternative uses and created one dollar’s worth of wealth.

Stagnating wages myth

A much-loved statistic for critics of Capitalism in the US is that American wages have stagnated since 1978. You even read about it in Economic publications, if you adjust for inflation the spending power of the average American is roughly the same as it was in the 70s. Again, that sounds really bad, it’s the perfect argument to make for the billionaire elites taking all the money away and leaving the average Joe in the same place he as 40 years ago. But statistics are as seductive as they are misleading. What is money? Money is a representation of value. Tens of thousands of years ago, a fisherman, a blacksmith, and a sheepherder decided that it’s too hard to determine how many fish you need to buy a sword and how many small knives you need to buy some wool and sheep milk, so they determined a common denominator to make these calculations easier. Money is like meters, like liters. They don’t actually exist; they’re just there to measure something.

Having said that, how relevant is the fact that wages have stagnated since the 70s? What’s more important, the amount of money you have or what you can buy with them? If what you can actually buy that’s important, wouldn’t a more relevant statistic be exactly how much time you have to work in order to buy a certain product? Well, not only do we work less, but basically everything we buy today costs dramatically less than it did four decades ago, in time we spend working for them. A rough estimate shows that what took 60 minutes of work in 1980 now only takes 21 minutes of work to purchase.

Not only that, but you’re not actually buying the same product either. Everything you buy now is light years away from their 1970s counterparts. And what does that bring to the average user? Even more time. Automatic washing machines, smart vacuums, more reliable cars, literally thousands of other things that work better and help us have even more free time. What has caused this dramatic decline in the time you need to put in in order to buy something, as well as their dramatic increase in quality? Decades upon decades of greedy capitalists looking to make large profits by making things a bit cheaper and a bit better than the competition. Decades upon decades of bad ideas being punished by the consumers and driven out of business.

 

Why is it altruistic?

Now, calling capitalism altruistic sounds forced even for some of its supporters. How can it be altruistic when it’s represented by a cutthroat competition between people and institutions that are always competing and hoping the others will go out of business? The answer is, simply, capitalism forces selfish people and institutions to be altruistic. A greedy businessman can only make more money in a free market in one way and one way only: to deliver a good or a service that is better and/or cheaper than the competition. In other words, to convince a large number of people to voluntarily give up their earned money for that specific good or service. So, even if that greedy businessman is a sociopath who doesn’t care about anyone but himself or herself, capitalism forces altruism by making companies produce things people want and need. You can only be rich in a poor country if that country has no working free market. Otherwise, everyone is poor. Critics of capitalism have no way of explaining why the most billionaires of the world live in the richest countries. If those selfish individuals would take money away from the population, wouldn’t those countries become poor?

Changes over the last 200 years, popular knowledge about improvements

The most straightforward way of showcasing capitalism’s worth to humanity is a simple statistical look at the last 200 years. In the last three decades alone, one billion people have escaped extreme poverty thanks to technological improvement and free markets. One billion! Every measurable statistic from the last decades or centuries shows significantly less malnutrition, infancy deaths, child labor, slavery, exploitation of women, not to mention a continuously growing life expectancy. Humans have existed for over 200.000 years, yet all of this happened over the last 200. What has changed in this relatively short time? Have humans biologically evolved? Not at all. What changed was that people were given the power of free enterprise, power was taken away from the unworthy few emperors, kings, lords etc. and given to anyone smart and hardworking enough to earn wealth.

Conclusion

Capitalism is far from perfect, and so is the world, some will say. While that’s absolutely true, what’s also true is that humans are also far from perfect. Communists thought we can all work for each other and reach for one common goal, but that only works under the assumption that we are all equal. The harsh reality is that we’re not equal, some of us are smarter, and others work harder. If the teacher each gave us the same grade, an average of all our grades put together, none of us would work hard to get a good grade because our hard work would only represent a tiny insignificant fraction of the outcome.

We are not equal, and there will always be people who are significantly smarter and hyper-productive, people who can’t stand sitting still, who work 100 hour weeks. And there will always be people who are selfish and want everything for themselves, with total disregard for other people’s wellbeing. We have two choices: we either bury out heads in the sand and live the sweet illusion of perfect equality, or we acknowledge the fact that these people will always exist and capitalism is the only way we can channel their energy and dedication for the benefit of everyone.

Will we ever find a better system? The short-to-medium answer is a definite No. The only way a superior alternative to capitalism will appear is if we manage to overcome Economy’s number one premise: the Earth has limited resources with alternate uses. Until we all have a 3-D printer in our house that makes food, clothes etc. out of thin air, there is no possible better way to allocate those scarce resources efficiently. And who will eventually invent such a machine? A greedy capitalist, of course.

 

 

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