Capitalism 101

“The cement in our whole democracy today is the worker who makes $15 an hour. He’s the guy who will buy a house and a car and a refrigerator. He’s the oil in the engine.” – Lee Iacocca (Iacocca: An Autobiography, 1984)

I ate breakfast this morning at a greasy spoon in Baltimore. At the table next to mine, an intelligent-looking young man in black was denouncing capitalism. It brought me back to my own anti-capitalist days — Kent State, “Give peace a chance,” etc.

Good memories. They say if you are not a liberal when you are young, you don’t have a good heart and if you are not a conservative when you are old, you don’t have a good mind. I don’t think of my thinking as conservative, but it is amusing (and sometimes slightly scary) to realize what innocent and sometimes silly ideas inexperienced people have about the way things work.

What is capitalism?

Had I asked the young man sitting next to me, he would have told me it is a system in which consumers are forced to buy shoddy merchandise at the highest possible prices from corporate polluters and exploiters so the capitalists can get rich.

“If that were only the case!” writes Bill Bonner in the Daily Reckoning, his daily online investment service (www.dailyreckoning.com). “But, in fact, capitalists are more often exploited than exploiting. They are taxed, regulated, forced to hire people at above-market rates, and required to provide various benefits to various groups as well as collect the taxes of the state without compensation. For this, they get the privilege of competing with one another to earn a measly return that has averaged about 4% after inflation and after taxes — for the last 100 years.”

Competition keeps prices down. Anyone who has bought a car or a computer in the past 20 years knows that. The real beneficiaries of competition are not the capitalists but the consumers — who get better products and services at lower prices. “This is probably more true of the Internet than of any previous technology,” says BB, “because it is more readily available to all competitors — with no hope of any of them gaining, or protecting, a competitive advantage from it.

Why is it important to understand this?

Because anti-capitalist sentiment is responsible for many of the bad laws in the world today. I’m referring to laws that make it harder for individuals without a lot of money to start their own businesses.

Most laws and regulations that concern business now restrict it rather than enhance it. Yet it is new businesses — and new businessmen — that are responsible for the lion’s share of wealth created and the great majority of new jobs. These laws — which hurt everyone — are created to limit wealth producers. But in so doing, they damage all those who benefit from the production of wealth — including wealth consumers.

“Never forget this principle,” says Gary North, editor of Remnant Review: “Capitalism benefits the consumers, not the producers.”