Libertas

“Capitalism means free enterprise, sovereignty of the consumers in economic matters, and sovereignty of the voters in political matters.” ~Ludwig von Mises

Ludwig von Mises (1881-1973) The Last Knight of Liberalism "If one rejects laissez faire on account of mans fallibility and moral weakness, one must for the same reason also reject every kind of government action."

What in the hell is wrong with capitalism? I am sick to death of people blaming it for all the problems in the world. It’s responsible for greed. Oh really? There was no greed before capitalism? There was no greed in the communist countries? No greed in the Socialist countries? It’s responsible for poverty. That’s like saying food is responsible for hunger.

Every socialist and leftist in the world automatically blames it for all the troubles in the world. What they don’t realize is that they are condemning something quite different than capitalism, though it loves being called capitalism. As it commits its crimes the critics clamor for more regulations and government interventionism, the very thing it desires.

Ludwig von Mises gave a series of lectures in Buenos Aires in 1958. His first lecture was on capitalism. He begins pointing out that modern heads of industry are often call kings as if they were similar to ancient lords with all their power and prerogatives. The problem with that is the feudal lords ruled their subjects, but the modern “kings” must serve their customers.

Little more than two hundred years ago, before capitalism,  a person’s status remained fixed from birth to death. Few people but the rich had access to any form of industry. The rest, more than ninety percent, worked the land, bound by a rigid feudalism.

As the rural population grew, especially in England and Holland, the surplus population became a threat to the prevailing order. There was not enough to do in the rural areas and they were not allowed to work in the industries of the cities.

The conditions of England in the eighteenth century were worse than modern day conditions of third world countries. Of the six to seven million people of England, one or two million were these outcasts.

Another problem for England was the lack of raw materials. The statesmen and ruling gentry were at a lose on what to do as the forest were depleting and the population was increasing. From this situation emerged the beginnings of capitalism. Some of these outcasts began to produce goods, not for the rich, but for the masses by mass production.

Mises states that this is a fundamental principle in today’s capitalist countries. Big Business, that is so often attacked by leftists, provides for the masses. On the other hand, those companies providing for the elite cannot possibly reach the magnitude of big business. The factory workers are also the consumers, a condition unknown in feudal times.

If big business loses its customer base, it loses its power and influence. That customer base is the mass of common workers. At one time everyone thought that the railroads were too big and impossible to compete with. As long as the railroads served the needs of their customers, they remained powerful, but when other forms of transportation began to compete, the railroads began to lose their power and influence. Innovation, not regulation, checked the power of the railroads.

The right to innovate, to serve the customer better and cheaper, is key to capitalism. This very principle allows for the increase in world population. England in the eighteenth century could only support six to seven million people at a subsistence level. Today tens of millions more live at a higher standard of living.

Why are opponents of capitalism so blind to its benefits? Do they not care that they are even alive? Without capitalism the vast majority of us would not even be alive, and most of those that would have lived, would not be living at the standard they live today.

Where did the attacks against capitalism begin? Not from the workers, whose living and working  conditions by our standards were appalling. For them, however, their working and living conditions did improve. Why else would the population have been able to increase? No, the landed gentry hated capitalism because they had to pay their workers higher wages to compete with the industries. They attacked it by attacking the living conditions.

The workers were already living in substandard conditions on the farms. They still chose to move to the cities to work in the factories because conditions were better, not worse. If not, how could the population have increased after the beginning of the industrial revolution? In other words, children who would have died survived because  of the industrial revolution, because of capitalism. As Mises asserts, “the early historians of capitalism have - falsified history.”

The landed aristocracy used the government to subsidize their payments to the workers in order to keep them from moving to the cities. The factories, the capitalists paid workers a higher salary, and so the people of the rural areas moved to better conditions. Some assume that the wages are set by a different class of people, but the consumers really set the rates, and the vast majority of the consumers are the workers.

Others think it is unfair that a man who supports a family of six receives the same salary as a single man doing the same job. Mises reminds us that the question is not whether the employer bears responsibilty for the size of the family. The question is: Do you the consumer want to pay more because a producer has a larger family? Are you going to choose to buy an identical product at a higher price because the producer has a larger family or will you choose the less expensive identical product?

Karl Marx (1818-1883) "For the bureaucrat, the world is a mere object to be manipulated by him."

Although Karl Marx named the system capitalism, it is still a useful term. It names the source of the social improvements brought about by capitalism, the saving and investing of excess wealth. The savings of capital allows entrepreneurs to innovate and produce new goods and services for the benefit of society. This also increases the demand for workers. This leads to an increase in wages and prices for raw materials. So before the entrepreneur or investor receives the profits, the unemployed worker, the producer of raw materials, or the farmer receive the benefits of the savings and investments.

To attract new workers, an entrepreneur must pay higher wages. As new enterprises develop wages must increase as happened in the England during the industrial revolution. The idea that capitalism makes the rich richer and the poor poorer is utter nonsense. Marx based his thesis on this belief, but the reality was quite different. Marx rejected the unions call for increased wages and shorter hours. Instead he called for government ownership of the means of production, rejecting private ownership.

In every western capitalist country workers’ conditions have improved. He was absolutely wrong thinking that the wages would only cover subsistent needs, his so-called “iron law of wages.” He and other Marxist thought of mankind in merely biological terms, failing to remember that each person has other needs and desires than food and reproduction. They also choose higher standards of living.

A higher standard of living depends on an increase in capital. As Mises says, “A country becomes more prosperous in proportion to the rise of invested capital per unit of its population.” Economic recoveries or developments are not economic miracles. There is no such thing. They come about by sound economic principles.

Recommended:

Economic Policy: Thoughts For Today And Tomorrow by Ludwig von Mises

Subscribe to Libertas: