At its heart, capitalism is simply a set of guiding principals built upon the fundamental assumptions about human nature. For example, the basic assumption of human nature underlying the system of capitalism is that people are self-interested and rational beings that will act in ways which maximizes their own utility. Adam Smith, considered to be the father of capitalism, assumed that with the right incentives and regulation, these profit-seeking behaviors can be channeled for the betterment of society itself (Smith, 1776). What is important but often forgotten is that there are certain conditions which must be met in order for capitalism to work efficiently. These conditions are that 1) consumers would be rational and would know exactly what price they are willing to pay for a certain good 2) the buyers and sellers would have access to all information pertinent to the transaction 3) the costs of production including externalities are fully accounted for in the transaction 4) income would be fairly distributed with workers getting the exact amount of value they create (referred to as “capitalist conditions” from here onwards). Critiques of capitalism often fall prey to treating the effects of capitalism as inherent in the system itself, rather than as deviations of the system from the aforementioned conditions. Thus, the mistaken notion that capitalism has “failed” is spread around without considering the possibility that the issue may not be with capitalism in itself, but rather, our attempts at implementing pure capitalism. Though not explicitly mentioned, Stephen A. Marglin offers us one example of a compelling critique of capitalism which points to the deviation of the system from condition number three by arguing that society has not placed accurate value on the positive externalities of “love”. In this essay, I will attempt to argue that criticism of capitalism can be institutionalized as being failures to meet the four capitalist conditions.
Few can doubt the positive effects capitalism has had on the world. Even Marglin who presents himself to be an ardent critic of “Western Capitalism” points to numerous feats of this very system in lowering infant mortality rates, growing life expectancy, expanding food production and increasing access to schools and doctors. Although these are only indicators relating to our physical wellbeing, these achievements are not to be underestimated. Maslow’s Hierarchy of needs shows us the importance of physical health. In his pyramid, categories of mental well-being, or what he calls “esteem” and “self-actualization”, lies atop of the health of our physical state such as the proper functioning of our “physiology” and the guarantee of “safety” (Psychology Today, 2012). Maslow’s pyramid shines light on the significance of the capitalist system’s ability to fulfill the needs of our wellbeing. These, along with other indicators, are not necessarily proof of the success of capitalism, but rather proof of the potential.
There are two major ways in which pure capitalism contributes to our well-being. One is through the production of a greater array of goods and services, some of which contributes directly to our health. For example, fertilizer, refrigerators, machinery, all have dramatically increased the potential for people to produce and store food, mitigating the fluctuations in our ability to access food. These have unsurprisingly contributed to the potential for us to live healthier lives. The second way in which capitalism helps to ensure our well-being, is through the economic dependency it creates between groups of people, making conflicts amongst market players more and more expensive. Capitalism has created a socio-economic framework in which peoples of different cultures, race, and geographic location, can participate in a common economic market which thrives from the deeper integration of peoples into the system. The bonds created amongst these nations have created an intricate network of relationships which causes an amount of damage and pain to stakeholders when severed, leading to greater incentives for conflict-avoidance. Though one can claim that these relationships could have formed under other socio-economic models such as communism, the level of business and trade under a communistic system can be reasonably assumed to be less than that of the capitalist system where entrepreneurship, risk, and production has far greater benefits for the individual, assuming that the individual responds more strongly to privatized benefits for the self rather than any form of identification with societal benefits at large. The accuracy of this assumption is debatable, but as this forms the basis of the capitalist system we have today, I will treat this assumption as a given. In these ways, the promotion and availability of goods and services which directly contribute to our physical well-being, and the inter-connectedness of markets in the global economy which makes conflicts increasingly costly, have contributed to the increase in our well-being.
Two common criticisms of the above-mentioned benefits are that, certain counter-incentives to the wellbeing of society at large have been created within the capitalist system, causing some actors to induce harm upon others, leading to an unsafe environment. Two examples of this are factory owners who exploit their workers to cut costs, and nations which choose to go to war for resources or access to markets. The poem “I swallowed a moon made of Iron” by worker migrant Xu Lizhi provides a compelling argument for the inhumane exploitation of workers in the workplace, and the lack of consideration for human-rights and human emotions (Lizhi, 2014). The Iraq War serves as an example of a nation going to war for resources such as “oil” which made up a significant part of the factors of production for the United States. These two criticisms do provide evidence against the fairness and morality of modern day capitalism. However, these are not representative of pure capitalism which should be based upon the capitalist conditions mentioned in the introductory paragraph.
The seeming lack of regard for human rights and human emotions are deviations of the modern day capitalism from condition four. If migrant workers were paid fair wages that accounted for the value they produced, there would be no need to as long, and would have higher purchasing power to increase their standard of living. In order to show that this was a failure in part of capitalism, there must be evidence to show unjust, irrational, and inefficient outcomes even if the capitalist conditions were satisfied. Thus, as the exploitation of workers do not satisfy condition number four, we must blame this not on the capitalist system itself, but rather on the failure of society in correcting this deviation. With government regulation enforcing human rights and fair treatment of laborers, or through promoting awareness of the immorality of labor exploitation, these issues can be mitigated. In this case, as these workers were illegal migrants, the issue becomes one of political nature as well, regarding whether illegal immigrants working in a nation should have similar rights as nationals.
The second example of the Iraq War, highlights the deviation of the capitalist system from condition two and three. If we were to treat the general public as consumers and the government as sellers, we can say that there was imperfect information passed on from the sellers to the consumers regarding the existence of weapons of mass destruction in Iraq. Furthermore, the consequences of the action in terms of the continuing damages from the severely strained diplomatic relations between the United States and Iraq and the rise of anti-West terrorism was not properly accounted for in the decision making process. Hence, under a perfect capitalist system, it is likely that the public would have denounced the war had they have been better informed of the information relating to the existence of Weapons of Mass Destructions in Iraq and to the ongoing consequences of such a decision.
Here, one can make the counter-argument that it is not the irrationality of the actor which matters, but rather the incentives within the capitalist system itself which may propel an individual to act in irrational ways. If it is true that the structure of the capitalist system has—embedded within it—incentive structures that motivates one to act irrationally, one can indeed say that capitalism is a failed model. However, as mentioned before, capitalism in its purest form is simply a socio-economic structure that was built upon the presumed inherent tendency of human beings, and not vice versa. The profit motive is what the capitalist frame-work is based on, but the profit motive is at best channeled and encouraged by the capitalist system; it is not a product of it. The source of the profit motive is not the capitalist system, but rather ourselves, and the capitalist system simply seeks to guide our profit-seeking behavior to overlap with the benefit of society. Thus, questioning the decision-making process of actors within the capitalist framework is fundamentally a question regarding the nature of human beings. If the assumption is that human beings do not assign any value to human rights, or assign higher value to the benefits they receive from lower-priced goods over human rights, it only goes to provide further justification for the capitalist system as the most appropriate socio-economic model. This is because, if humans were so selfish that they gave no genuine care over others, no socio-economic models such as communism—which privatization, selfishness and individual pursuits are suppressed—can hope to survive. The system which flows more with the grain of human nature would still be the capitalist system which is based on the very assumption that humans are inherently selfish. In reality, the nature of human beings likely falls in-between, in that humans do thrive in environments where the pursuit of self-interest is accommodated for, but that societal values are malleable and subject to change. The existence of such diverse political thought is evidence in itself that there are no universal inherent qualities of human beings that can be described in one word. Liberals and Conservatives are worlds apart in their values, and this serves as a glimmer of hope that with education and social awareness, societal values can be shifted to more properly account for the externalities such as the violation of human rights talked about previously.
The piece “Development as Poison” by Stephen A. Marglin is a prime example of such critique of capitalism. Marglin convincingly claims that Western capitalist values erode communal ties and economizes on “Love” which he claims is a “hyper-public good”, or a good which increases in amount the more it is used. Hence, he makes the argument that economizing on such hyper-public good is irrational, and that the positive externalities of Love should be given heavier consideration when making decisions (Marglin, 2003). Marglin does not claim that this is an inherent feature of capitalism, but that this is an irrational deviation away from a more efficient outcome. It is also implicit in his conclusion that it is indeed possible for humans to readjust their decision-making process to take into account the positive externalities of love. Hence, his piece is criticism not of capitalism itself, but of the deviation of the system from condition three of capitalism which promotes the proper consideration of externalities.
The assumption that values are malleable, however, would leave capitalism open to the argument that the very fundamental assumption of capitalism that human beings are inherently selfish, is also subject to criticism. This is correct, but far from evidence that capitalism is a failed system. Although it is possible that another system, such as communism, can become the dominant socio-economic framework, it does not discredit the potential for similarly tweaking the societal values of human beings to fit the capitalist system. Perhaps there are stronger tendencies for human beings to be one way over the other. If the assumption is that human beings are more selfish than they are altruistic, than a capitalist framework would be more natural and most likely sustainable than a communist framework which underplays the selfish desires of human beings. The vice versa also holds true. If all of these claims are taken as given, it is easy to see how difficult it would be to label a certain socio-economic factor as a complete failure. In order to prove a socio-economic framework as incompatible with the world, or severely unjust, one would have to prove the existence of such unjustness even with the complete fulfillment of those conditions necessary to realize the pure form of said model. In other words, in order to prove the capitalist system as unjust, one would have to show that even with the realization of the four conditions of pure capitalism, there would still be significant evidence showing the unjustness of capitalism.
If this is not the case, any criticism of capitalism can not be said to be a criticism of capitalism itself, but rather the deviation of the system we are seeing today with the purest form of capitalism. The immediate solution would therefore be the realignment of modern day capitalism with pure-capitalism, and not alternatives to capitalism. Before we question the socio-economic framework, it is necessary to question the decision-makers within the model–ourselves. What do we value as individuals and what do we value as a society? Are there ways we can shift our values to more accurately account for the negative and positive externalities of our decisions? Can we be more altruistic? It is our answers to these questions which form the basis of the capitalist system, and thus, greater emphasis should be placed on changing ourselves rather than the system.
Lizhi, X. (2014, November 16). I Swallowed a Moon Made of Iron. Retrieved November 4, 2017, from Hummus For Thought: https://hummusforthought.com/2014/11/16/xulizhi/
Marglin, S. A. (2003, April 6). Develpomnet as Poison. Harvard International Review , 24.
Psychology Today. (2012, May 23). Our Hierarchy of Needs. Retrieved November 4, 2017, from Psychology Today: https://www.psychologytoday.com/blog/hide-and-seek/201205/our-hierarchy-needs
Smith, A. (1776). An Inquiry into the Nature and Causes of Wealth of Nations. London.