Capitalism as an Ideology or a Tool

John I think Holly Wood has quite a number of fair points, the issue here is how she labels the problem. But this is a problem both for the proponents and detractors of capitalism.

I used to make exactly the same arguments as you do, having read my fair share of Adam Smith, David Ricardo and Milton Friedman. A free market economy on a theoretical basis is a fine thing. Likewise most of the wealth created in the world can be attributed to free market economics.

This is not the issue, and not really what Holly argues against. The problem today is that among many, in particular on the political right in the US, capitalism has become increasingly an ideology, or perhaps it always is was. In my view capitalism ought to be primarily a tool and not an ideology.

Capitalism is not a goal onto itself. Ultimately we strive towards creating happiness and freedom in society. Creating the wealth to handle the needs of the population can be accomplished by utilizing the free market system. That is why I think countries similar to my own, Norway, have been so successful in creating a good society. We utilize the market extensively and are big proponents of free trade, however we also reckognize the limits of the market and solve many problems largely outside the market such as health care, education, policing, fire departments and social security.

The problem with Capitalism as an ideology, is that many American self proclaimed advocates of Capitalism, make an aweful lot of of false assumptions about what Capitalism is about:

  1. Advancing the interests of the rich and companies means you are pro-capitalism.
  2. All deregulation is pro-capitalism.
  3. Unions are bad and don’t belong in a capitalist society.
  4. Wealth or income redistribution is bad and anti-capitalist.
  5. Greed and pursuit of self interest is a good thing which should be celebrated.
  6. The rich are all job creators, which should be celebrated rather than criticized.

So when when people like Holly, put the blame on things, which are strictly not part of capitalism, that is not odd, because self-proclaimed proponents of capitalism, tend to advocate for a lot of things which has nothing to do with capitalism. For these people Adam Smith is their big hero, yet they can’t possible have read his books.

Adam Smith made it abundantly clear that he was no fan of capitalists, businessmen and the rich:

With the greater part of rich people, the chief enjoyment of riches consists in the parade of riches, which in their eye is never so complete as when they appear to possess those decisive marks of opulence which nobody can possess but themselves.

He had e.g. no illusion that capitalists given the opportunity would always seek to conspire against the public.

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty or justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.

There are plenty of examples of this in modern day America. Within broadband, utilities and telecom there is a prevailence of monopolies and duopolies overcharging their customers. Any attempt to regulate this is dismissed with the argument that regulations is anti-capitalist and that the market works best left to its own devices. While in Nordic countries, the Netherlands and many other European countries one decided to regulate these sectors to create competition. For instance requiring companies owning infrastruture to allow other service providers to utilize them.

So Nordic countries often dismissed as socialist created a free market for electric power in the early 80s. Any power provider could offer their power to any consumer at market price, rather than letting the company connecting the customer to the grid retain a monopoly.

Market Power Imbalance Between Employers and Employees

It is not just in prices of good but also in the price of wages. Smith had no illusions about the power imbalance between employers and employees when deciding on wages and conditions. This contrasts with self proclaimed advocates of capitalism, who frequently dismiss workers demands for fair wages, by stating they can simply change jobs. Adam Smith was clearly not in agreement:

It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily: and the law, besides, authorises, or at least does not prohibit, their combinations, while it prohibits those of the workmen. We have no acts of parliament against combining to lower the price of work, but many against combining to raise it. In all such disputes, the masters can hold out much longer. A landlord, a farmer, a master manufacturer, or merchant, though they did not employ a single workman, could generally live a year or two upon the stocks, which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year, without employment. In the long run, the workman may be as necessary to his master as his master is to him; but the necessity is not so immediate.

That capitalists conspired against workers to keep their wages down, was self evident to Adam Smith:

We rarely hear, it has been said, of the combinations of masters, though frequently of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and everywhere in a sort of tacit, but constant and uniform, combination, not to raise the wages of labour above their actual rate. To violate this combination is everywhere a most unpopular action, and a sort of reproach to a master among his neighbours and equals. We seldom, indeed, hear of this combination, because it is the usual, and, one may say, the natural state of things, which nobody ever hears of. Masters, too, sometimes enter into particular combinations to sink the wages of labour even below this rate. These are always conducted with the utmost silence and secrecy till the moment of execution; and when the workmen yield, as they sometimes do without resistance, though severely felt by them, they are never heard of by other people.

This is no different from today. Companies all over make secret or tacit agreements with each other even in liberal silicon valley. Consider e.g. the secret agreement among top silicon valley companies to not pouch talent from each other. That is essentially a secret conspiracy to keep wages down. Self proclaimed-capitalist today however will tend to defend such actions, as they seem to think being pro-capitalism means always siding with the interests of business.

Adam Smith was hence positive to labour unions as he recognized the power imbalance, which had to be countered:

Such combinations, however, are frequently resisted by a contrary defensive combination of the workmen, who sometimes, too, without any provocation of this kind, combine, of their own accord, to raise the price of their labour. Their usual pretences are, sometimes the high price of provisions, sometimes the great profit which their masters make by their work. But whether their combinations be offensive or defensive, they are always abundantly heard of. In order to bring the point to a speedy decision, they have always recourse to the loudest clamour, and sometimes to the most shocking violence and outrage. They are desperate, and act with the folly and extravagance of desperate men, who must either starve, or frighten their masters into an immediate compliance with their demands. The masters, upon these occasions, are just as clamorous upon the other side, and never cease to call aloud for the assistance of the civil magistrate, and the rigorous execution of those laws which have been enacted with so much severity against the combination of servants, labourers, and journeymen. The workmen, accordingly, very seldom derive any advantage from the violence of those tumultuous combinations, which, partly from the interposition of the civil magistrate, partly from the superior steadiness of the masters, partly from the necessity which the greater part of the workmen are under of submitting for the sake of present subsistence, generally end in nothing but the punishment or ruin of the ringleaders.

Again this is in stark contrasts to say republicans who pride themselves on being pro-free markets but whom frequently push for reforms severely limiting labour unions.

I could go on with an awful lot of quotes from Adam Smith, but the bottom line is that Adam Smith never fought for the Gordon Gecko like kind of capitalism which is being advocated by so many self proclaimed fans of capitalism today. Adam Smith spoke out against rent seekers, high profits, low wages and championed wealth redistribution through higher taxes on the rich. Yet if one are to advocate any of these ideas today, you quickly get attacked as a socialist, and comparison to east block countries and Venezula are quick to follow.

For this reason, advocates of Capitalism should stop being suprised by attacks on Capitalism by left wingers like Holly. They have made themselves a target for that sort of criticism by the very policies they have advocated, and championed as integral parts of Capitalism.

Capitalism, Socialism and the Environment

When champions of capitalism cry wolf as soon as someone tries to limit pollution or impose environmental regulations, it ought to be obvious that many of the left will then conclude that capitalism itself is the enemy of the environment.

It is somehow intellectually dishonest to claim that socialism is terrible for the environment and capitalism is great by pointing to the environmental disasters of the east-block countries. That glosses over a lot of important details. First of all that the east block, socialist countries were dictatorships. China today is largely a free market economy, however it is an environmental disaster. Capitalism in other words have made little difference in this regard. The problem exists because China is a dictatorship surpressing any activism in favour of environmental policies. Fortunately they are starting to change on their own according, but only through a top down approach.

Meanwhile western capitalist societies improved on the environment and reduced polution in great part due pressure from left wing groups commonly dismissed as socialists. The green movements have tended to be left wing and not conservative. Of course this come in different flavours those favouring more socialist policies to deal with the problem and those favouring more liberal and free market oriented solutions such as taxing polluters, or trading in emission quotas.

Nordic Mixed Economies, Bernie Sanders and Venezuela

One of the problems discussing Capitalism, with its self-proclaimed adherents is the tendency to shift goal posts and definitions and lesuire, to suit their arguments.

The debate around social democrat Bernie Sanders comes to mind as an excellent example of this. He calls himself an advocate of democratic socialism, and has in his own words compared and described his policies as the same as those employed in Nordic countries such as Denmark or my home country Norway. From our perspective we would hence call him a social democrat. That is what his policies sound like to us, and something we have decades of experience with.

Yet he is frequently denounced as seeking to take America down the parth of East-block socialism or something similar to Venezuelan socialism. You must admit that is intellectually dishonest.

Somehow these people never seem to agree on what Nordic countries actually are. If policies employed by Nordic countries are discussed such as free health care and education, then that is dismissed as socialist and dangerous for the economy. On the other hand if the economic success of Nordic countries is mentioned, then that is excused by the fac that Nordic countries are capitalist. You can’t have it both ways.

Nordic countries are successful precisely because they combined the best of capitalism and socialism. Pure systems seldom work very well. Neither utopian capitalism or utopian socialism has ever been proven to work.

That Nordic countries have engaged in economic liberalism in many areas over the last decades, is not an argument that socialist policies don’t work. In comparison to most other countries Nordic countries still have higher taxes and far more generous welfare programs. One must remember that the size of the welfare programs has not really changed considerably in Nordic countries. The most significant change has been that the economy was overregulated in many areas. In the 70s houses was e.g. not sold at market prices but at government specified rates. Buying cars and phones was something you had to apply for. In essence there was a lot of meddling in the markets themselves in the past. This is the main problem in countries such as Venezuela today. Nordic countries however have largely abandoned such approaches.

However there seems to be an assumption that the welfare state has been slashed and cut down. That is frankly not true. Quite the contrary welfare programs have continued to expand in the very same period and still do. Maternity leave is much longer today than when I was a child in the 80s. Subsidized child care and pre-school is far more prevailent today than in the alleged socialist past.

One would also be wrong to assume that economic liberalization from the late 80s was exclusively positive. It brought its own problems. The banking sector e.g. collapsed and caused a big economic downturn. It could probably be debated who is to blame for that. But it is interesting to note that the exact same story played out in Iceland in 2008 following their economic liberalization. I don’t think that is a coincidence.

My Economic Beliefs

I do believe in free market economics, but I regard capitalism as a tool, and I believe that is how we have managed largely to treat it in Nordic countries. When markets fail we find regulations that can create competition such as in the energy, telecoms and broadband sector.

My wish is however is that we get some more honesty in this whole debate. It must be possible to criticize capitalism without being labeled an east-block socialist.

A policy can’t simply be labled good because it is more capitalist than another. It has to be proven to work better. And proving doesn’t mean starting to make comparisons with the Soviet Union.

As Adam Smith, I don’t think capitalism is for the capitalists. As he points out in well functioning markets, competition will drive profits down to a minimum. A free market economy is hence not in the interest of the capitalists, as that will hurt their profits.

the rate of profit does not, like rent and wages, rise with the prosperity, and fall with the declension of the society. On the contrary, it is naturally low in rich, and high in poor countries

That is why they seek to avoid compeition by focusing on expanding patents laws, copyrights and use ads to make your products seem entirely different. E.g. have you noticed how you often can’t compare prices of products at different electronic chains, because the model numbers are always different?

Capitalism is for consumers and the common man, so if the rich and capitalists advocate for a policy in the name of capitalism, I think one should be highly sceptical. In particular if they represent entrenched interests.

If one listens to actual professional economists, in particular ones like Paul Krugman and Joseph Stiglitz today it is clear that by those who actually believe in free markets and understand them there is no tacit agreement to the interests of business as often championed by repbulicans.

Written by

Geek dad, living in Oslo, Norway with passion for UX, Julia programming, science, teaching, reading and writing.

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