Anyone who knows me would find it strange that I would talk about this.  I’m a diehard capitalist, and believe heavily that it’s the absolute best system for the proper creation and distribution of goods and wealth.  Current events have not changed my beliefs that a free market system not only distributes wealth most efficiently, it also grows the system so that everyone has a bigger share.

So perhaps we’ve been asking the wrong question.  Maybe we should be asking if we are actually practicing capitalism, rather than whether it has failed us.

So let’s look at what capitalism requires in order to work efficiently:

-Businesses must be allowed to fail. The reason for this is that the market demands the most efficient solution to the production and creation of goods and services.  If a large company is too inefficient in their methods, they will be eaten alive by smaller, more nimble competitors.  Whenever the government bails out, subsidizes, or buys out the mistakes of a company, they are encouraging inefficiency, and the Capitalist system is compromised.

Therefore, the use of phrases such as “government bailout”, “subsidy”, “earmark”, “rescue plan”, “government buyout”, and “too big to fail” are symptoms that you aren’t practicing capitalism.

Such actions have another, more insidious effect.  Company failures also serve the purpose of wiping out the businesses that prey on their customers.  In a normal capitalist system, such companies are automatically weeded out whenever there’s a downturn in the economy.  This instills an incentive into the remaining companies to focus on servicing their customers respectfully.  In a system where a government acts to prevent these downturns, this weeding out process doesn’t happen.

-Under a capitalist system, the main function of government is to supply a level playing field for all competitors, without special favoritism toward any competition or the enacting of rules that only companies with deep pockets can afford to follow. This keeps the larger companies honest and customer oriented because they know that a smaller company is always waiting in the wings to take those customers should they fail to serve them in the best way possible.

In this case, phrases such as “special interest”, “bill rider”, “lobbyist”, and “campaign finance reform”, are all signs that you aren’t in a capitalist society.

A secondary effect of this is that companies protected by such legislation aren’t forced to update to the best possible practices and most efficient technology in order to compete.  In a system where there is a level playing field, a farmer importing more efficient wind turbine could conceivably out-compete a larger local utility company, at least on a smaller scale.  Get enough of them, and the utility company would have to up its efficiency to compete, or it might alternatively have to switch from being a power generator to a power carrier for the new “wind farmers”.

-Under a capitalist system, individuals, like companies, have to be able to fail. Every person is allowed to compete, but no one is entitled to anything.  Capitalism has to be a pure meritocracy for a very good reason.  When a genius enters the market, the market bestows upon him or her inordinate amounts of resources to fundamentally change things toward a more efficient model.  In this way the entire populace experiences a raise in their standard of living.  This was shown as the wave of new billionaires changed the world in the computer and internet booms.  Conversely, individuals who have minimal skills or handicaps are dependent on the kindness of others in a purely capitalist system.

And this is the hardest part of capitalism.  It’s cruel.  Someone is going to starve if we practice it to its fullest extent.  So we as a society have chosen to charge our government with helping the poor and helpless.  This was a conscious choice away from capitalism when the choice was first made, and we didn’t stop there.  We voted ourselves retirements, unemployment insurance, and health care, and charged the government, rather than the market, with protecting us.  That has been our choice, and I won’t say whether it was right or wrong, but the cost has been our taking resources away from those who can change the world for the better, and a government debt that is spiraling out of control.

So, words such as “tax hike”, “government deficit”, “entitlement”, “mandate”, and “protection agency” are all signs that you aren’t in a capitalist society.

In my opinion, we haven’t practiced capitalism for at least 75 years, and the encroachment and growth of government at our request is now threatening our economic system.  Simply put, our government has taken over more and more of the roles that our markets previously played.

Simply put, capitalism hasn’t failed us, we have failed to be capitalists.

The Rogue Economist

(Upcoming…If we aren’t practicing capitalism, then what are we practicing?)