Thursday, September 17, 2009

Why Capitalism Works

That the main business of American industry is production, not theft or forgery, should have been noticed long ago. Only a philosophy of anti-capitalism could cloud people's minds to the exacting kind of virtue required of those who choose to be productive. And it is this same philosophy that damns man for being too concerned with materialistic things; that tells man that he has produced too much and he should give away his production. It tells us that to produce is so easy, but to give so hard. It is blind to man's true greatness because it refuses to regard production as an essential, necessary, and highly desirable virtue.

It is this same anti-capitalist philosophy that advocates a welfare-state to forcibly divest men of their incomes for the sake of the nonproductive. And, finally, it is the same philosophy that refuses to consider that a capitalist society can do more good than any welfare society. To prove this last point, we will analyze four essential characteristics of capitalism, their cause, and their consequences. They are mass production, the division of labor, capital accumulation, and corporate organization.

A uniquely capitalist invention is the concept of mass production that lowers the cost of production and spreads the benefits to all parties in society. A key characteristic of capitalism, and this is exactly the opposite of the anti-capitalist interpretation, is that capitalism is for the "masses."

The individual, unlike in any other time in history, for the first time in history, is the beneficiary of capitalist mass production. The anti-capitalist radicals in our government who continuously proclaim that capitalism is for the rich and that there is a separation, in capitalism, between rich and poor, have completely missed the point that capitalism makes the lives of "the lower classes" better by making products (that in past ages would have benefited only the rich) available at lower prices to every man. Capitalism is truly the system that bridges the gap between rich and poor because it elevates the standard of living of every man.

Businessmen like Henry Ford and many others recognized that by lowering the costs of production and prices; by making their products available to the average man, they increased the number of customers. Automobiles, oil and gas, household appliances, and in our time, computers have made the lives of all people better. Mass production has made it possible for the average man today to live a life better than the kings and lords of the past.

A side benefit of mass production is that the movement toward more customers and more products makes it possible for other businessmen to utilize those products too. For instance, J.D. Rockefeller of Standard Oil, in his successful efforts to bring down the cost of producing petroleum-based products, created an opportunity for Henry Ford who needed an inexpensive fuel for the new Ford automobiles. Had not Rockefeller found ways to make oil in larger quantities for lower prices, Ford would never have been able to sell his cars at lower prices to the masses.

Ford’s cars needed a cheap fuel and, before Standard Oil, petroleum was not cheap. There was no private agreement between Rockefeller and Ford to do this; there was only the common principle of mass production that made it possible for both men to improve the lives and toil of average men to an incredible extent, releasing at the same time the energies that other men could use to further improve their lives. None of this could be possible in a socialist system intent on preventing evil capitalists from making profits.

Yet, capitalism is constantly vilified for creating a gap between rich and poor while many more people previously poor are now millionaires due to innovative ideas and ingenuity. Capitalism is the only system that opened up production and the ability to be productive to every citizen willing to work. Capitalism even provided, free of charge, the new machines that created the new jobs for the previously poor. And if you were frugal in your spending, you could make money in a factory, save some of it and invest in other businesses that were growing. Eventually, you could take your money, start your own business and join the economic push for better products and services. You could become rich.

To quote from Ludwig von Mises:
"This is the fundamental principle of capitalism as it exists today in all of those countries in which there is a highly developed system of mass production: Big business, the target of the most fanatic attacks by the so-called leftists, produces almost exclusively to satisfy the wants of the masses. Enterprises producing luxury goods solely for the well-to-do can never attain the magnitude of big businesses. And today, it is the people who work in large factories who are the main consumers of the products made in those factories. This is the fundamental difference between the capitalistic principles of production and the feudalistic principles of the preceding ages."

The reason capitalism overtook communism is because capitalism improved the lives of more people, made them happier, freer, more affluent and more productive. Communism, mired in the separation of classes, between bureaucrats and party leaders over the working classes, produced no such improvements. The workers, the people whom the violent communist revolutions were supposed to have given power, merely toiled in poorly maintained factories and dangerous working conditions. They refused to be productive for people who were skimming the fruits of their labor in order to have better apartments, better vodka and caviar.

Communism tried to steal the benefits of capitalism, mass production, and create a system to beat capitalism but they forgot that the essential element of capitalism was freedom not the machines of mass production that the communists wanted to expropriate. And since the masses were not free, not adequately paid, they were seldom able to purchase the products of mass production, were perennially disappointed because the "managers" chose to produce products they did not demand. The system was inefficient because it was not focused on production for the "masses" but instead was focused on mass production of unwanted inferior products. The result, long lines, inferior products and cynicism.

As the Obama administrations advances towards its new economy, it will encounter the same contradictions. None of its anti-capitalist rhetoric will be proven to be true. When a government is at war with freedom the first casualty of that war is the individual. The second casualty will be mass production.

At the base of any civilization is the division of labor. The complexity that this division achieves, if the divisions are based upon production, is the complexity and extent of that society's success as a civilization. A tribe whose basic division is that of chief, witch doctor, hunters, and child raisers can hardly achieve the diversity necessary for a trip to the moon, although they often find good reason to worship the moon.

The advanced use of the division of labor must be distinguished from the crude forms found in primitive societies. The advanced forms of division of labor represent more than an economic advance; an intellectual advance is required, an advance that is achieved by the man who realizes that specific resources can be much more efficiently employed if he devotes more time and study to them. It also requires the knowledge that, should he devote his time and skills exclusively to one type of task, he will create more valuable goods for trade with others who benefit from the higher quality of those goods.

In its advanced uses, the division of labor represents an intellectual achievement which realizes the potential benefit of an idea and puts it to use. The idea becomes an established asset of the society, and if the division of labor is allowed to flourish without regulation, it adds increasing benefit to the life of every individual in that society.

What is the main enemy of the division of labor in an anti-capitalist society? The enemy of the division of labor is the man who walks into a factory and smashes all the equipment. He does this by ensuring that the businessman cannot afford to repair and upgrade the equipment. There are four tools that the destroyer uses:

1. Taxes
Taxes basically steal the peoples’ money. If the individual were allowed to keep your money, you are going to spend it on making your life better. You will either buy more things that improve your domestic life or you will invest it in businesses that will create better and more products. Either way, if you keep your money your life is better.

The reason people never “miss” the money taken from them by taxes is because they seldom visualize what their lives would be like had they been able to keep the money they earned. And, they also buy into the notion that the money is going to a cause that makes society better. In fact, taxes are spent in ways that the individual would not and that means they are almost always wasted.

Taxes are wasted in a number of way such as in creating jobs that are less productive than your job, in giving the money away to people who did not earn it and who have less pride about how they spend the money (simply because they did not earn it). If you are on the dole, you have less pride about yourself; it doesn’t matter how you spend the money the government gives you - so you might be frivolous where the person who earned it might have been frugal. If it were true that the poor are exploited, why don’t they become rich after receiving the money taken from the rich? Instead, they stay poor for some reason.

A lot of tax money is spent on programs that are nothing more than money laundering schemes where large amounts of tax dollars are taken from tax payers to achieve a so-called “social” goal. Less money in the hands of the producers means that more people will demand the money back through government services. This strains the programs as more people seek to apply for this money. The strain on the program means the government must reduce services in order to “spread out” the benefit. All government programs require rationing.

Taxes destroy seed money needed by the economy to grow. As such they are a drain on the society and they destroy the people they are intended to help.

2. Inflation
When the government needs more money than they can get from taxation, or when deficits get too high to tax any more, they resort to monetary inflation. In order to do it and get away with it, they have to create propaganda that denies the harmful effects of money inflation. The people need to think that inflation will stimulate the economy and make everybody richer. They must be sold on the idea that inflation is a good thing.

Inflation only dilutes the value of the currency in the economy which has the long-term consequence of raising prices for businesses and individuals. Although there may appear to be a temporary stimulus from inflation, the dilution of money will eventually raise prices for capital purchases, raise the interest rates on borrowing and have serious impacts on economic efficiency as well as the values of homes, buildings, factories and capital equipment. The impacts in these areas are sometimes difficult to detect for a time but the result, eventually, is lower production and unemployment as companies seek to adjust to the higher prices.

The more extreme the level of money inflation in an economy; the more extreme will be the results. High levels of inflation have been known to destroy national economies, precipitate wars and create scapegoats, concentration camps and genocide. Money inflation can even destroy entire civilizations.

3. Regulations
The purpose of business regulations is to restrict the business activity of smaller businesses on behalf of larger corporations that can afford the cost of regulations. The goal is to reduce the number of companies in a particular industry so the larger corporations can corner the market. Often regulations are offered to the public as a way of fixing a problem supposedly caused by the free market. Regulations are intended to control business practices, create opportunities for criminals and steer business activity toward social goals rather than the goals of businesses to make a profit.

The basic justification of a regulation is that the business would not otherwise do the “right” thing so it must be forced to do so through regulation. The outcome is to disrupt normal business transactions, criminalize businesses who are unable to comply with the reporting requirements and otherwise give to government control of the business.

Government seldom considers that it is the cause of a poor economy; but it goes without saying that business regulations are the means of introducing inefficiencies into the business world. In order to mitigate the effects of government regulations, large businesses pay politicians through bribes or campaign contributions in order to obtain favorable treatment. Large corporations with the resources to “grease the wheels” of government benefit while they claim to be working with the government to accomplish the government’s social goals. The result is reduced competition, increased prices and fascism.

4. Nationalization
After destroying an important industry through high taxes, inflation and regulations, government has only two options: 1) eliminate all regulations on the industry or 2) nationalize the industry. Since politicians have an inherent distrust of freedom and they never want to admit that they caused the demise of an industry by means of their meddling, they will cover their tracks by nationalizing the industry to keep it alive.

Once an industry is nationalized it is destroyed. It will never again be a viable business and any products and services that it provides will lose value. In addition, in order for the nationalized business to survive, the government must outlaw competition. If it does not, then the nationalized companies will go out of business. This is because government intrusions eliminate their ability to compete with other freer companies.

Capital accumulation works hand in hand with the division of labor. It is also an idea derived from an advanced intellectual level of society. The society that grasps this crucial economic principle and decides to allow capital accumulation - that is, protect property rights - is the most moral of societies.

Through capital accumulation, men are able to invest their savings in ever more ambitious projects, and by producing hitherto unheard of goods and services, they are able to create more wealth, jobs, and higher standards of living. The entire society advances when those few who are able to accumulate vast amounts are given the freedom to do so. In fact, capital accumulation is not restricted to the rich. Anyone can save his money and invest it. In fact, it is the small investor, through his banks and savings institutions, who does most of the investing in a capitalist economy.

Consider the low intellectual level of a government that holds that any kind of profit is exploitation, that only hard labor creates value and that the workers are exploited by the owners of capital and capital resources. Any such society would be for expropriation and re-distribution to such a degree that capital accumulation is destroyed – which means that society is destroyed. This is the low intellectual level of the Obama administration.

Corporate structure is the individualization of a group of people involved in a voluntary association. It involves a system of organization that maximizes productive output with the least amount of input. It organizes its resources into unique and efficient productive processes, staffed by well-trained and well-educated employees who are also well paid.

Managing an efficient corporate structure requires a genius of its own. The corporation heads must discover and integrate the tools that will help in the achievement of the organization's goals. The structure is like a mini-machine with each part performing a different function. If the heads are good engineers, they can keep the machine running smoothly while improving, altering, and adjusting it for more output. Some changes have to be made on the spot and require a special skill, the ability to integrate new knowledge as quickly as possible with the tried-and-true.

The corporation is the ultimate vehicle through which division of labor and capital accumulation are brought to maximum effectiveness and benefit. Anyone who sees corporations as evil villains who practice racism, exploitation and shoddy practices does not understand the important and vital influence that economic freedom plays in the life of a nation. The thugs and brutes who claim to represent the poor, the workers and the aged are killing the very institutions (corporations) that make our nation and economy stronger. These busy bodies who think they know what makes a society run are nothing more than destroyers. They have yet to learn that a society which defends individual rights is a capitalist society. To give these professional parasites power over our economic decisions is tantamount to doing the opposite of what our society needs.

Capitalism is the only system that can make effective use of the division of labor, mass production, capital accumulation and corporate structure. No other economic or political system can generate the inter-action between these four essentials of economic life like capitalism. The reason is that these essentials function effectively only when individuals are allowed to make their own value choices and to keep the fruit of their labor. They function erratically or not at all when governments attempt to control, for the benefit of thieves and charlatans, various aspects of this free-flowing system.

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