Myths of American Capitalism

downloadDespite being a libertarian (or a classical liberal), the only thing my political, social, and economic ideas have in common with right-wing libertarianism is a dislike of authoritarianism. It’s actually a very important piece of common ground, since almost everyone on the right seems to instinctively brand me an authoritarian simply for having socialist economic views.

In addition to claims that all socialist policies are authoritarian, I hear a lot of wishful thinking, terrible logic, and complete falsehoods from advocates of anti-government capitalist ideas. Let’s look at a few of those.

Negotiation of Wages

The idea is that setting a minimum wage is harmful, and if businesses and workers could freely set wages based on supply and demand, everything would be great.

The obvious problem is that as long as workers are competing against each other for jobs, the principle of supply and demand will drive down wages (when supply > demand, prices go down), and too often that only means more profit for the already rich business owners instead of more jobs. As technology and automation destroy more and more jobs by increasing productivity per worker, and as the population continues to grow, wages based on supply and demand would only go down because the supply of workers is increasing even as demand for them decreases.

On top of that, 0.1% of Americans own more than 20% of the nation’s wealth, while more than half of the population has a negative net worth. This extreme inequality strengthens giant corporations, which have major influence on the market and government policy. Workers are forced to take low wages because it’s better than nothing, and nothing is what they’d get if they tried to negotiate. There’s almost always another desperate person willing to take a lower wage.

Human Labor as a Commodity

Now, none of the above seems to bother the government-hating capitalists, because they see labor not as the use of valuable human life, but rather as something they can buy and sell like consumable goods. If you can get a lower price on the raw materials you use to make your products, that’s great. If you can get a lower price on human labor, that may be great for your bottom line but it has a much more complex impact since it’s essentially exploiting human life for monetary gain.

Very low wages damage the economy in several ways. First, people who earn very little also spend very little. This is a major problem in an economy that is driven by supply and demand, because a lack of spending results in a lack of demand. Low-wage workers are also unable to attend college to improve their skills, or they end up taking huge loans, in which case a lot of the money they earn after college goes toward paying off those loans. That money could be contributing to economic growth, but instead it’s sucked away by debt.

Low-wage workers also struggle to simply feed, house, and clothe themselves and their families. Poverty is a very expensive problem, because it leads to higher rates of crime, drug abuse, obesity, disease, and so on. People who oppose government welfare are driving up our debt in the long run, because it’s more expensive to deal with the consequences of poverty than to prevent poverty in the first place. Some cities have even found that it is cheaper to provide housing for homeless people than to leave them homeless. A guaranteed basic income for all Americans would be cheaper than our current welfare system.

Conflating Taxation with Theft

Because unregulated capitalism inherently leads to massive wealth inequality, income tax should be considered a symptom of capitalism. In such an economy, using some money from the richer members is the only feasible way I know of to create a social safety net to support the people who are unable to support themselves. But anti-government capitalists often oppose taxes, claiming they’re coercive.

You know what’s coercive? Being forced to work yourself to exhaustion just to survive, because you happened to be born into a society that doesn’t value human life enough to make sure all its members have the basic necessities.

Businesses do not generate their profits alone. They use public services such as roads, they use the labor of employees who were educated at public schools, and they use an established society as a customer base. It is nonsense to claim that a business has zero responsibility to help support the society that enables it to generate profit in the first place.

If someone was really interested in eliminating taxes, they would advocate some form of locally managed democratic socialism to distribute a portion of business profits directly to the people in need. The greed underlying right-wing libertarian economics is clear; they want the benefits of capitalism without paying the cost. Or perhaps they want to pay the cost with human lives rather than their precious money.

Deregulation to Help the Economy

To some extent, it is true that fewer obstacles for businesses allow for a more active economy, but reality is more complicated than the simple black-and-white of this myth. The really hardcore capitalists claim that government has no right to set rules for businesses, or that regulations should only deal with obvious ethical concerns like fraud. They claim that bad business practices will be weeded out by the free market.

The problem is that the natural consequence of a competition-driven economy without guiding rules is an environment in which very large businesses can thrive even if they offer products of inferior quality and pay low wages. As I’ve said before, pure capitalism causes a flow of wealth from the poor to the rich, ultimately concentrating wealth in the hands of very few people and leaving the rest of the population without the capital necessary to start businesses. The logical end result is a form of neo-feudalism in which a handful of giant corporations own the entire nation and everyone else depends on them to survive. The more dependent the people are on a business, the more it can get away with.

So, in order to maintain a market economy some regulations are needed to counteract the concentration of wealth with an opposite flow from the rich to the poor. A capitalist economy can only work for everyone if everyone has the capital to participate. It cannot be sustained when more than half of the population has a negative net worth and a thousandth of the population owns a fifth of the nation’s wealth. Money is power under capitalism, and the “free market” can’t weed out bad businesses if those businesses have as much power as millions of individuals combined. Someone would have to organize a movement of millions of people to stand up to them, which is theoretically possible but very difficult and unlikely, especially when the business provides necessary goods and services to millions of poor people and there aren’t any better options because a huge business has the power to destroy competition.

What a market economy needs is regulations that give small businesses a fair chance, and probably a limit on how large a business can grow before it must break into multiple smaller ones.

Keeping Government out of Business Keeps Business out of Government

One of our biggest problems in America right now is crony capitalism, the corruption of political processes by profit-seeking companies. I’ve heard several capitalists claim this situation is caused by government meddling, but that’s barely half true. Government should absolutely be separated from the monetary part of business, but it was deregulation and a permissive attitude toward the unethical involvement of business in the political process that led to crony capitalism.

After the Great Depression, laws were put in place to protect against large businesses using their economic power to influence elections and getting politicians into office who would push policies that benefit said large businesses. Unfortunately, those laws were undermined or repealed toward the end of the 20th century, leading us directly to another recession, wealth inequality as high as it was in the 1920’s, and a corrupt government that bows to the will of the rich while neglecting the poor.

Market Economics or Capitalism

When I mention market socialism, most people don’t understand what it is. They seem to think that capitalism is the only form of market economy, but there’s an important distinction to be made between capitalism and market economics.

A market economy is one in which decisions and prices are based on principles of supply and demand, including competition to drive innovation and economic growth. Capitalism is based on private ownership of the means of production, and operates on the central principle that the owner of a business rightfully owns every cent of the profit generated by it. Some variations do add some social responsibility, but in its purest form, capitalism means the people with capital are entitled to all the profit they can generate.

When I talk about market socialism, I’m talking about an economy where decisions and prices are based on principles of supply and demand, including competition to drive innovation and economic growth, but instead of having rich individuals creating and profiting from businesses, the means of production are socially owned (much like an employee-owned business), and profit is distributed more widely for the benefit of the people. Such a system would counter the flow of wealth from poor to rich that I mentioned above, and could eliminate the need for most taxes if it was handled properly. It will probably become necessary to implement market socialism as new technology makes it impossible to keep everyone employed.


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