22 April 2014

Free Market VS Capitalism (What is Capitalism?)

[Part 3 of 10, Free Market VS Capitalism essay series.  Part 1 here]

When people point out the extreme income inequality, the corruption of politics, the dissolution of labor protections, environmental degradation, and all the other similar and related injustices we see occurring, they are not referring to free market economics.  These things are almost all due directly to capitalism.
The best analogy for capitalism I've come up with was during a spirited debate about the ethics of capitalism on the Mr Money Mustache forums:

A person makes a snowball.  In order to make a snowball, you have to physically go outside, scoop up some snow, and mush it together.  You produce it by your own physical labor.  Once you have it, you can put it down in the fresh snow and start rolling it around, and more snow will stick to it.  That makes it a lot easier to get more snow on your ball more quickly.  And the bigger it gets, the more it collects with each revolution.

The assumption I always made - the one that most make - is that capitalism arises naturally from the free market.  One person produces more income than they spend, they save the difference, they invest it, it earns them more income, which they reinvest. 
This really does happen, and could happen in even the most primitive and simple society.

So the extremes we see today must be the natural extension of that process... right?

But that is equivalent to saying "When I work out, I get stronger and more muscular - therefor body builders and power lifers must have gotten to where they are just by working out even harder, for more years" - neglecting that all of the top athletes have some degree of genetic gifts, professional coaches, extremely strict diet plans, and most use some form of biochemical assistance that would get them banned from most professional televised sports.
Its the same with capitalism - the extremes we see today are not just from some people working harder and investing more wisely.  There is another element being introduced.  That element is the state.
The State is the coach, diet plan, and performance enhancing drug of capitalism.
In my analogy the person making the massive snowball is still out there in the field, pushing the ball around the field with their own arms and legs.  The increases come faster, but they are still contributing to the process.
But what happens if they find themselves at the top of a hill?  Push it to the edge, and it takes off on its own.  At that point they have stopped contributing any labor.  They have stopped contributing anything at all.  If the hill is big enough, it may get enormous, gobbling up any snow in its path (and perhaps crushing anything that gets in its way - but lets not take this analogy too far just yet...) much faster than any person could possibly collect it by actual productive labor.

What the state does, in this analogy, is control the angle of the hill.
By default, the part of capitalism that is built into the market - if you earn more than you spend, you will have excess, and that excess can be invested - can tilt the field inherently. 
But what we see today is a massively tilted field, and that is due to specific policies and laws and rules that - although we take many of them for granted - are choices we, as a society, have made. Choices which we could change any time we, collectively, decide to.

[Next up: The Current State of Affairs; or: Why Should We Care?]


  1. I look forward to each installment. You're instructing on issues I've never paid attention to before and doing so in a digestible format. Thank you.

    1. hey, thanks for the feedback. That's what keeps me motivated to write


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