How Capitalism Thrives on Vice, Luck & Destruction

“Greed, for lack of a better word, is good,” said Gordon Gekko in the 1987 film Wall Street.

Gekko, for many, is the quintessential archetype of the soulless and greedy businessman. His character symbolizes some of the most despised people in finance: the stock broker who peddles risky penny stocks, the financial advisor who sells clients overpriced and under performing mutual funds, the corporate raider who tears apart companies and sells them for pieces, the trader who makes money trading financial instruments back and forth without creating anything of tangible value, etc.

While the above may be the more familiar suspects, many people view capitalism, in general, as inherently evil. For them, capitalism is the embodiment of greed, exploitation, envy, usury and any other sin or vice you can imagine. It is proclaimed by many serious intellectuals to be a deficient economic system – one that treats people and nature as commodities to be used to satiate the financial thirst of malevolent corporations. It concentrates wealth in the hands of a privileged few while everyone else has to fight for crumbs. It foments class division, disenfranchisement, disillusionment, and ultimately may precipitate a violent revolution or economic collapse, as inequality becomes more and more pronounced.

These intellectuals are right in a way; capitalism – especially its current incarnation in the West – has major flaws, and there is no doubt they are worthy of examination.

It does not make much sense to say a particular economic or political system is successful when there is nothing to compare it to. Studying human-based social, political and economic systems requires not only looking at each one in isolation but seeing how one compares to another. Otherwise, how can we measure and rank what is deemed successful?

Does the United States work? There is a functioning government, police force, prisons to house dangerous criminals, a national currency, an national flag, a system for tax collection, a functioning economy where people go to work every day, and sovereignty that is recognized by the international community.

Does North Korea work? After all, it has all those same things. But we would never rank the two countries as being equal in terms of prosperity, freedom, economic opportunity and general happiness. However, a brainwashed North Korean – with little or no concept of what exists outside the border – may believe his nation is a paradise.

Another example: Is the universe perfectly and elegantly designed? Theists would argue that it is and therefore a supreme being brought it forth into existence. But how do we know if the universe is “perfect” with nothing to compare it to? We only know of the present universe, so by definition it must be perfect because it is the only one we know of. Logically it must set the standard. What would happen in an imperfect universe? Maybe a truly perfect universe would contain life on all planets and not just one (that we currently know of).

It is probably accurate to say that capitalism is the worst economic system except for all the others. Fortunately we can compare capitalism to such alternatives as socialism and communism. These economic systems have historically been the antithesis to the democratic, free market capitalist societies prevalent in the West.

Free market capitalism seems to work better than its collectivist counterparts. The reason is that capitalism embraces the world as it is: chaotic, unfair, random, primal and sometimes destructive.

The Seven Deadly Sins and Human Nature

In Christianity there is a group of vices called the Seven Deadly Sins. They are pride, lust, greed, envy, gluttony, sloth and wrath. The Church uses the doctrine of the seven deadly sins to reinforce positive behavior in people in order for them to lead a virtuous life.

What should be immediately obvious about the seven deadly sins is practically every one has at one point committed them (and usually many times). Given that we are all human, transgression of these sins is actually normal, trivial and very much expected.

Can you imagine if the state or some other organization were to criminalize certain vices? We’d all be criminals being routinely punished under a totalitarian dictatorship. Absolute misery, poverty and suffering would result. In essence, people would be be penalized for being human.

This is precisely why anyone proselytizing for a system that seeks to “unite the people,” “redistribute the wealth” or “create equality,” should be met with suspicion, and ultimately, scorn and ridicule. Herding people against their will under the command of a large centralized state will eventually lead to disaster. Think of Stalin’s Soviet Union and Pol Pot’s Cambodia – how many suffered and/or perished for the sake of the “greater good?”

It is vital to understand that collectivists will first use nonviolent tactics in an attempt to achieve their objectives. Once reality sets it – and they realize the fruitlessness of their endeavor to create an artificial society of people willing to only work for “the greater good” – they bring out the guns, open the concentration camps and embrace violence. (remember that the Berlin Wall was built to keep people in and not out).

Tens of millions have perished in the 20th century alone because of such utopian social experiments. Perhaps this is the logical conclusion of extreme collectivism; it is in death that we are all truly equal.

Instead of trying suppress human nature, systems should be created that, to a degree, redirect the negative aspects to productive and benevolent activities. Capitalism works in this sense because it channels a fundamental human vice like greed into productive business activity that ultimately benefits everyone.

In order to make money entrepreneurs work tirelessly to create products and services that will satisfy the demands of consumers. Their greed is redirected to productive and honest work in exchange for the creation of value. If they don’t create value they are not rewarded with money and success.

In order to further create wealth entrepreneurs invest in research and development. In time, innovation in many fields occurs. The incentive to create new wealth is powerful and ever present; a healthy appeal to the ego allows for creative individuals to flourish and further enrich society.

Capitalism works better than other economic systems because it does not seek to quell something as natural as greed. It is always easier to redirect something in a positive direction than suppress it entirely.

Is Luck on Your Side?

Most people tend to underestimate the role of luck in a successful venture. They imagine people succeed and become wealthy due solely to careful planning and perfect execution of a business plan.

Nothing could be further from the truth.

Most people fail until they catch a major break. Individuals like Mark Zuckerberg , who achieved immense wealth and success at a young age, are the exception not the rule.

Success in the creation of innovative products and services occurs through trial and error and the optimal use of all of an entrepreneurs assets, which include talent, skills, time, social network, etc. When all these are utilized – along with good timing and a bit of luck – success results.

Nobody knows what they want until they want it. Nobody knew they wanted an iphone until Steve Jobs introduced one to them. People are fickle; it’s virtually impossible for a group of central planners to allocate a country’s resources in an optimal way.

The free market can be compared in many ways to biological evolution. Species evolve trough natural selection and mutation. There is no central planner – and no way to accurately predict what the results of the future will be. Evolution is a process of constant tinkering, not deliberate planning.

It is interesting that many of those who espouse very rigid collectivist political and economic systems accept evolution and reject the concept of an omnipotent, omniscient God. They reject the concept of an authoritarian deity as evil and absurd, but believe that an authoritarian state composed of flawed human beings is superior.

Waste, Destruction and Perpetual Failure

Waste and destruction pervades the free market. How many businesses succeed relative to the ones that fail? The number is very small. Capitalism thrives on “creative destruction.”

Some would make the argument that the free market does not make good use of the resources which the planet has endowed humans with. Instead of simplifying things and concentrating our limited resources on a relatively few modular and algorithmic products, the business world is given free reign to experiment and compete, creating an ever increasing variety of “useless” goods. Perhaps such a destructive approach squanders too many resources and human capital?

Maybe.

It could be that we are not using our resources in the most optimal way. After all, certain industries make religious use of government grants, subsidies, preferential tax breaks, etc. This creates distortions in the market and insulates companies from negative market signals. Corporatism and cronyism prevents the free market from punishing failing and outdated companies, thus tying up valuable capital and labour when it should be allocated elsewhere.

However, genuine destruction in the free market is a good thing. Since no one knows exactly what products and services will ultimately be valued by consumers, we have no choice but to accept a constant stream of experimentation.

Think of restaurants, cars, phones, and virtually any type of product or service; most fail, but the few that survive set a new standard for future entrepreneurs. This has the effect of elevating the standard of living for everyone as better and better goods and services are produced.

Success and failure go hand in hand. Failure must result in order to discover what works.

 

Biological essentialism is a fact of reality, despite the ravings by postmodernists and other social constructionists. Human nature ensures that people will indulge in vice and behave irrationally a great deal of the time. The human mind is not a clean slate that can be imbued with whatever the social constructionists deem to be virtuous, fair and just. Ideologies do shape aspects of human behavior to an extent, but to deny certain biological axioms is foolish.

Suppressing the innate inclinations of humans requires a dictatorship. Communism and socialism are not rooted in human biology or logic. The result is that the leaders of such systems have inflicted a great deal of human and economic destruction upon the world. Even if some of these systems function to a degree, they still produce inferior societies compared to ones based on democratic, free market capitalism.

Collectivists want justice, order, calm, fairness and equality. But those things do not exist in the world – they can only be imposed by the point of a gun.

Eventually such systems implode; the artificial cannot replicate the natural (at least for now). It is a delusional to think otherwise. And no, thinking that the system would have worked if the “right people” were in charge is not a respectable excuse. If the foundation is incorrect, the house will crumble, no matter who constructs it.

Capitalism not only accepts but embraces disorder, chaos, destruction, injustice, unfairness, and inequality. It creates natural hierarchies that put people in their respective place on the socioeconomic ladder via hard work, intelligence, social connections, tenacity, leadership ability, etc.

Envy, greed and pride drive the economic cycle – there’s no escaping that fact. But in the end we are all better off than if we had lived under systems that actively suppressed such vices.

Individualism and cultural libertarianism – the freedom to be, do, say, and think anything – creates a place for the geniuses, dissidents and eccentrics among us, allowing them free reign to create great work in the sciences, arts and business.

Constant tinkering and experimentation allows the bad to fall and the good to rise up. The nation’s resources are always being sent to where they are needed the most, without the aid of a central planner or brain dead bureaucrat.

Putting all of this together results in the emergence of a quasi-ecosystem.

I use the term “quasi” because it is not perfect – it’s individual components do not function in complete harmony (sometimes it functions in complete disarray). But it’s critical to note that it “works” relative to other systems.

It should be noted that I do not subscribe to the version of free market capitalism espoused by minarchists, anarcho-capitalists and objectivists. Completely unfettered free markets are not the answer (they may ultimately collapse a country much like their collectivist counterparts).

Some areas of concern with modern capitalism include:

  • Economic models with the assumption that humans are rational (we know they are not)
  • Corporate welfare
  • The externalization of certain corporate expenses and liabilities
  • Limited liability being used to shield corporate executives from personal responsibility
  • Lack of “skin in the game” by major business executives, central bankers and economists
  • Market bubbles
  • Market failures
  • Automation/artificial intelligence and its impact on the job market
  • Monopolies and oligopolies
  • Open borders/free trade and its effect on the nation’s native population
  • Rising inequality and stagnant wages
  • Corporate lobbying
  • The principle-agent relationship and asymmetry of information
  • Bailouts and moral hazard

These areas will be addressed in future articles.

So what do you think? Is capitalism the best economic system except for all the others? Is there a better alternative?

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