The Problem With Capitalism

Capitalism has several problems. First, not many people appreciate why it's a good thing. Tell them that it's the best way to allocate a nation's resources and their eyes glaze over. You've got to explain that only by having resources flow to the most productive engines of industry, do you achieve improvements in people's standards of living. "Standard of living," yes, that's a concept most can relate to.


But capitalism has some corollaries that just don't sound good. Example: "Greed is good."
How can that be anything but a loser? Greed, greedy, aren't they all terrible things? Well, really, no. What is greed? Is it wanting more than what you have? That's greedy? Why?
Well, suppose you've already got a lot, is it okay to want more? If not, why not?

You might hear, "He invested heavily and lost it all. That's what happens when you're greedy." Well, no. That's what happens if you take on more risk than is appropriate. Or, that's what happens when you didn't anticipate risk and failed to diversify. Or, that's what happens when you buy a stock that had already appreciated and you didn't think it would ever drop. But wait a minute; that's the same as failing to anticipate risk. In any event, none of the scenarios just described defines greed.

Greed suggests a lack of ethical principals or a lack of generosity. And, those things are not good. If you have a lot of money you should give some to charity or "good causes." But, it has no place in a discussion of economics. People wanting more and better stuff is what promotes industry and ultimately raises everyone's standard of living.

There's another economic principle that can upset people not accustomed to thinking in economic terms; it's "constructive destruction." Sounds like an oxymoron. There's destructive destruction and then there's constructive destruction. When your house burns down that's destructive destruction. However, when you stop using a pickaxe and acquire a backhoe, or when you trade in your horse and buggy for a gasoline powered car you have examples of constructive destruction. Turning to backhoes eliminates a lot of jobs that call for people swinging pick axes. And, when you get rid of your horse and buggy, you've ended the careers of lots of fine horses and harness manufacturers.

Constructive destruction calls for adjustment. People swinging pick axes have got to learn how to operate back hoes. People manufacturing buggies have got to learn how to assemble cars.
Generally, the new work is far more productive than the old. But, you do need social programs because adjustment could well prove difficult; especially for the older worker.

Capitalism is tough, but in the end it helps people a lot more than leftist dreams of redistributing wealth through taxation or mandating laws to protect inefficient jobs.

There is a lot more to understanding economics. This is just a starter.