_________________________________________________________________ Capitalism: Frequently Asked Questions PRACTICE _________________________________________________________________ 1. Aren't coercive monopolies a natural product of laissez-faire capitalism? 2. Doesn't unregulated capitalism lead to worker exploitation? 3. Doesn't the government have to regulate something? 4. What would happen to the poor without the welfare state? 5. Isn't the government necessary to stop pollution and industrial waste? 6. Shouldn't the state provide public education? 7. How do I get my piece of the pie? _________________________________________________________________ _________________________________________________________________ 1. Aren't coercive monopolies a natural product of laissez-faire capitalism? No. One of the most common fallacies about the free market is that monopolies are an intrinsic part of it, so this topic deserves special attention. To find out why this assumption is false we must ask: what are monopolies? and where do they come from? A coercive monopoly is exclusive control in a field of production, completely exempt from competition and the laws of supply and demand. The only reason competition could ever be absolutely barred is because the monopolist is benefiting from what is called a "barrier of entry." These barriers, however, can only come from one place: the government. It is only a government that has the power to "raise" a business above the laws of the market. In a free market, all businesses are subject to market forces, and therefore must constantly be competing to stay ahead of their competition. But when the government grants a certain business a franchise, subsidy, or tariff protection, competition is legally barred. In other words, government is the source of all coercive monopolies. And it is precisely these types of monopolies that Adam Smith condemns in The Wealth of Nations. For example, in the United States all utility companies are monopolies. This is not because they deliver utilities, such as water and electricity, better than any of their competitors, but it is because the government has granted them a franchise for a certain territory. This means that no one else is allowed to enter the utility business apart from the government, and any attempt to do so would be treated as a criminal act. The only type of monopoly that could exist in a free market is a non-coercive monopoly, one that is earned. This could be accomplished only if the business "delivered the goods" better than any of their competitors, and even if they did, they would only have monopoly status so long as they were the best in their field and they would still be subject to the laws of supply and demand like everyone else. Historically speaking, any business that tried to establish a monopoly in a free market by buying out its competitors or undercutting prices by selling at a loss has gone bankrupt. 2. Doesn't unregulated capitalism lead to worker exploitation? No. The simplest answer to this question is that in a capitalist society all workers are free to choose who they are going to work for. So if a worker doesn't like the terms that an employer is offering them for a job, they can simply look for work elsewhere until they find a better job, or not accept any job at all. Just because a worker doesn't like everything about his job doesn't mean he is being "exploited." For someone to be exploited they have to be physically forced to work against their own will. It is only a government, not a businessman, that has the type of power necessary to enslave people. But there is more to consider. In a free market economy, all employers must compete for the services of their employees. If an employer offers lower salaries or poorer working conditions than other employers in a given field, workers will seek to work elsewhere, and the employer will lose his employees and go out of business. This means that it is in the economic self-interest of employers to provide higher wages and better working conditions than their competitors. Wages are not risen or lowered because an employer is kind or cruel. Wages, like all other commodities, are subject to the law of supply and demand. It is an inevitable consequence of capitalism, through the accumulation of capital and the widening of labor markets, that workers' wages rise and their choices of employment increase over time. It is capitalism, not monopolistic unions or "pro-labor" legislation, that brought the pre-industrial serf out of his misery. 3. Doesn't the government have to regulate something? No. (If you've begun to notice a pattern in these answers, its because there is one. Almost without exception, all accusations that are leveled against capitalism are false and are ironically a product of capitalism's opposite, statism.) All forms of government regulation, whether they are personal or economic, are violations of rights and should not exist in a free, i.e., capitalist, society. Not only is it immoral for a government to tell you what chemicals you can safely consume or what is the minimum wage you can charge your employees, but all these regulations backfire from their intended purpose. Lets take two examples: Regulation of medical products and minimum wage laws and observe their consequences in practice. (Remember that they are already bad in theory because the government is infringing on people's freedom.) Regulation of medical products is an attempt by the government to play "Daddy" and only make legal what medical products they believe will be beneficial to the "ignorant" masses. Since 1938 the U.S. Food and Drug Administration has decided what medical goods may be sold in the United States. The FDA requires that every new medical product must establish its safety through often time consuming and unnecessary testing procedures. But does the FDA actually save lives? No. Sure, they may stop some dangerous drugs from coming on the market (and who knows if they would have been bought any ways), but the number of lives lost due to delays of life-saving drugs far outweighs any lives that might have been saved. For example, the FDA kept beta-blockers off the market for ten years, and estimates show that they could have saved about 10,000 lives a year. This means that the FDA is responsible for more deaths than the Korean and Vietnam Wars combined. In a free market, it would be in the economic self-interest of a medical product or drug company to only release safe products so that the public would trust them and buy their products more often. Minimum wage laws are supposed to stop employers from offering wages that are considered to be too low (by what standard?). In an attempt to protect workers, minimum wage laws actually turn out to cause unemployment. For example, if the minimum wage is $4.25/hr, then it means that anyone who's labor is worth less than $4.25/hr cannot get a job . So anyone who would have had that job will be unemployed because the employer cannot afford to hire everyone at raised wages. Furthermore, minimum wage laws stifle economic advancement because it is usually the poor who would be willing to work for less than the minimum wage, and if they cannot find jobs, they cannot better themselves. These are just two examples of how disaster always proceeds from government regulations. 4. What would happen to the poor without the welfare state? Before answering this question I would like to point out that the welfare state represents a gross injustice and massive violation of individual rights. Simply described, it is a system in which the government steals money from most of citizens to give it to others. There is nothing that can justify the violation of rights, especially not the "need" of the recipients of grand scale theft. Like all false theories, the welfare state crumbles when put into practice. The goal of the welfare system is to help certain citizens when they "need" financial help in order for them to become productive members of society. But running counter to its intentions, welfare actually helps to create the problem it is supposed to help by literally creating a class of dependents. These dependents are people who have no concept of self-responsibility and look upon the government to take care of them just as their parents did (or were supposed to) when they were young. Once again, it is the government that is the source of the problem, in this case the large number of poor people in America, not capitalism. If one were really concerned with poverty they should realize that capitalism has raised man's standard of living, created more opportunities for economic advancement, and done more to increase human happiness than any other system ever could. Without the welfare state, those unfortunate individuals who could not support themselves would have to rely on private charities. In capitalist society, however, these individuals are necessarily a small minority and have always been in more capitalistic periods throughout history. [Note: no advocate of capitalism could morally justify "over-night" abolition of the welfare state, a quick downsizing would be the only appropriate action] 5. Isn't the government necessary to stop pollution and industrial waste? No. The key to stopping pollution is the hallmark of capitalism: private property. The reason that it is so easy to pollute rivers, oceans, the air, and land is because they are publicly owned. Since public property partially belongs to everyone, no one person takes care of it, and property with no real owner is easy to pollute. However, if all property was privately owned, then no one could dump in a river that they owned only a section of because the waste would drift into another person's part of the river, thus violating their property rights. The same applies to beaches and oceans. If the ocean was divided up into privately owned portions, then no one could pollute their part of the ocean without the pollution spilling into someone else's property. Also, if the beaches and parks were privately owned and the owner charged money for people to use his land, then it would be in his economic self-interest to keep his beach or park clean and pollution free so people would frequent his property more than his competitors. 6. Shouldn't the state provide public education? No way. It is a clear violation of rights for the state to force children to go to school with or without their parents' consent to learn ideas that their parents may or may not approve of (today's private schools are a false pretense because they must "live up to" educational standards set by the state). Government schooling is bad in theory because it assumes that a proper function of the state is to provide education for some of its citizens at the expense of others, and it is not. The state must never enter the realm of teaching ideas because then it becomes nothing more than a tool for social engineering. Teaching is necessarily selective, therefore it should be up to the parents to send their children to schools who teach in the manner they deem best. It should not be up to pressure-group influenced politicians to decide the content of a child's education, and therefore his mind. The sorry state of American education, which has become nothing but a vast bureaucracy, pays tribute to the fact that the government cannot provide quality education (or anything else) to its citizens. When public schools actually consider, and sometimes do, teaching that the Bible's "creation" myth has equal scientific validity with the theory of natural selection, you know something is wrong. The solution is to give the market free reign on education and end the state sponsored monopoly on education. If the government can't even deliver mail on time, then how are they supposed to be expected to properly educate people? In an industrial society there is a very real economic need for education. If educational institutions had to compete for the value that is attached to the diplomas they offer, educational standards would necessarily rise. Like all goods and services provided in the free market, quality education would become a service that would available to nearly all of the population because of its high demand. Just look at what a (basically) free market has done to the computer industry, with cheaper and more powerful computers being made every few months, just imagine what it could for education. Schools would be competing with each other to provide the best education at the lowest price to all consumers. There is a concluding principle that should be realized: The free market can do anything cheaper and with higher quality than the government can, except provide protection from force. Government necessitates bureaucracy and waste by its very nature. 7. How do I get my piece of the pie? Although most people don't ask this question so explicitly, the premise behind it ignores a fundamental economic fact: Wealth is not a static quantity, it is created. The metaphor of an immutable "pie" which we should try and divide up evenly and "fairly" is simply false. In a free market, in the long run one man's economic gain is another man's economic gain. By applying our minds to the task of survival, human beings create values that previously did not exist in nature. Through the division of labor values are created in abundance and freely traded to the mutual benefit of both parties. By this process wealth is made and is a product of the mind, not of brute labor or muscles. All the machinery in the world won't get you anywhere without the minds to operate it or the thought to create it in the first place. This is why doctrines like Social Darwinism do not apply to the realm of human affairs. Animals compete for a given quantity of recources, and only those who are best suited to obtain certain values will survive. This obviously does not apply to human beings. If it did, human population would not have increased by 300% since 1900. Thanks to capitalism, for the most ignorant and inept person "mere survival" is no longer a problem. Take a look at the streets of any city if you don't believe me. This economic principle has been easier to grasp since the industrial revolution, which created a level of material abundance on earth that no Pope, Czar, Pharaoh, or King could have even dreamt of (let alone equaled) in previous times. But in case someone does ask, the proper answer is: "Earn it." _________________________________________________________________ | Goto Top Page | Theory | Suggested Reading | Send comments and suggestions to shadab@uclink3.berkeley.edu