So in part one, I tried to clear up some misconceptions on the definition of capitalism and its effects on the economy, because there seems to be a lot of confusion on the topic. Capitalism, most simply defined, is an economic system where the private market controls the economy rather than the government.
In other words, you cannot blame economic woes which result from government programs or interference on capitalism. And you have to look at the primary source and cause of events, not merely the players.
If you insist that it was businesses which caused the problems by taking advantage of these government events, I would respond to you that you've fallen for the "no true scotsman" fallacy. See, if you define capitalism as "any economic activity which involves the private market at any level" then there is nothing else in existence. All economic events are capitalistic in that definition because all involve the private sector at some level.
And if you define socialism as being any economic event which at any level is influenced by government activity, then all economic events are socialistic because the government is inevitably involved at some level, if though nothing other than taxes. So the key is who was the primary force in causing the event. Was it free enterprise business or government interference? Was it due to businesses acting on their own or government involving its self through regulation, manipulation, and intimidation?
Would the markets have done what they did without the government being involved? And in the end, that's how I make my call on events like the 2008 housing and finance crash: it was governmental interference and manipulation of markets which drove the fall, not free market activity.
Just understanding this helps clear up a lot of myths, but there are plenty more than need to be dealt with. Here are just a few:
Pro business and anti-consumer: this belief comes from the idea that without government control and regulation of business, then consumers are left helpless before the wiles of dastardly corporations and business owners. Naturally those who are wealthy will abuse and crush their workers to squeeze every last penny out of them, it is presumed.
Actually, capitalism provides the consumer with more power and protection than other systems. In socialism you have to hope the government protects you, but in practice it tends to protect the most powerful businesses (I'll explain that more below). In capitalism, the market pressures will tend to force businesses to compete. And competition means that these businesses will be forced to try to attract consumers rather than abuse and crush them.
A business that is bad to its customers and abuses them is a business that won't last long... unless its propped up by government bailouts, regulations, and cronyism.
A system which steals from the poor: The idea here is that people get rich in capitalistic economies by abusing those less wealthy and fortunate, by crushing those beneath as you climb to the top. This idea assumes two things which are simply not so: first that there's a limited amount of money in the world and those who get rich are preventing others from having their share of the pie; and second that poor people have anything whatsoever for the wealthy to steal from them.
Capitalism is actually the system by which everyone has the greatest opportunity to achieve and grow as wealthy as their ambition, ability, and fortune allows. It is true that the wealthy tend to get wealthier in capitalism, but that's true in every economic system in the world that has ever been created. The difference is how and why: is it due to government influence and pressure or due to personal ability?
The truth is, wealth is open ended; if there's an absolute level of wealth, we're nowhere near it, and there's a whole universe of resources to take advantage of. As people get wealthier, they're adding to the pool, not taking it away from others. The way this works is a bit complicated, but its not hard to find online. Here are a few examples:
Results in uneven distribution of wealth: This is true, but not the way that people mean it. When people say this, they mean it in an unfair sense. Its not fair that some have so much and some have so little. Not everyone earned their money, some got it from their parents or further back in their family earning money. This is related to the "zero sum game" fallacy of believing there's only so much money in the world.
The truth is, capitalism - like every other system in the world - results in an uneven distribution of wealth. Socialism does too, in practice, as does communism, feudalism, fascism, and any other economic system. Its just a matter of how and why this uneven distribution takes place. Capitalism rewards ambition, luck, talent, skill, and effort with wealth, generally speaking. The other systems reward a closer relationship with those in power.
Leads to Crony Capitalism: As I've pointed out many times in many places, this label is trash. There's absolutely nothing capitalistic about cronyism. It is far more fascism than anything else, with business working hand in hand to control the economy with government. Cronyism is when the government has enough power to control the economy so much that business finds it attractive and useful to cozy up to the ones in power.
In a system where the government has minimal influence and affect on the economy, there's no need or desire for cronyism. Because the government doesn't have the power to help or affect a business. In other words, the more capitalism you have, the less cronyism you have. And the more cronyism you have, the less capitalism.
Big business loves capitalism and hates socialism: Tell that to I.G. Farben or Bank America. This comes from a misunderstanding of the basic concept of free markets and business. Big businesses hate competition and hate small businesses getting bigger. They love the status quo, they love being the big guy on the block. If a megacorporation has a choice between being innovative, competitive, and working hard to keep customers... and using the government to stop others from being competition, they'll choose the latter every single time.
That's what's behind cronyism, the desire to use government and law to control the market so that the biggest companies can just crush their competition and keep their market share regardless of market forces. Nobody wants your product? Get a bailout and legislation forcing people to buy it!
Suppresses art and aesthetics for money: The idea here is that bald faced greed and a stripped down lust for profit and advancement means all aesthetic concerns and beauty are left behind. However, historically, the rise of capitalism and the middle class was the cause of the rise of artistic expression in painting, poetry, sculpture, literature, playwriting, dance, music, and all the arts. In fact, the finest examples of artwork we have in history came from private wealthy patrons rather than government subsidy and payment.
Is based on greed: Yes, it is. Essentially capitalism harnesses greed in a constructive manner. This is the fundamental flaw with other economic systems: they tend to try to ignore or change human nature. Humans are basically selfish and greedy. You can address that in various ways, but at our heart, that's what humans all are. That's not going to change with better education or some utopian government/economic system. Capitalism assumes this and channels this tendency toward something that benefits everyone rather than trying to avoid or change it.
Creates warfare and misery: Actually, as the free market has spread with democracy across the world, moving away from command economies, world war, poverty, and misery has reduced. Its hard to imagine these days but there was a time when war was much more constant and worldwide than today. Three hundred or more years ago, war was nearly continuous in one place or another in Europe and Asia, and the equivalent in places without such established nations such as Africa and America. As the free market has brought greater wealth and prosperity to cultures, reducing lack and famine, the pressures to cause war have reduced.
The truth is, literacy, medicine, health, peace, standards of living, and overall safety have all increased because of capitalism. The forces that make men compete and drive ambition are redirected in capitalism to personal success rather than conquest, and the result has been a tremendous benefit to the world. Wars over resources and land fade away when you can use economic forces to gain what you want instead. Literacy and health increase when people make money and personally advance by helping others be healthy and able to read, and so on.
Individualistic and against society: Capitalism isn't particularly individualistic or collective. An economic system is both and neither, at its heart. What capitalism is, is market against government. In other words, it is the free people doing their thing selling and buying, creating and using rather than government controlling it.
Leads to monopolies: Monopolies certainly can occur in capitalistic systems. They certainly do in other systems as well, because the more government controls the market the more likely it will tend to favor one business or sector than another, leading to cronyism and a greater gain of the market share.
And that means more monopolies, not fewer. Government manipulation in the economy can tend to create, not prevent monopolies, despite their best efforts.
Makes consumers powerless: In truth, some of this can happen. The more powerful business becomes, the less accountability they can have. But the truth is, the more powerful government becomes, the more big business cozies up to that government for an edge, and consumers have no hope at all of fighting it.
Yet the market can and does tend to deal with businesses that are corrupt or abusive to workers and customers. If your business treats everyone like trash, unless they're a monopoly, all you're going to do is drive people to competitors. Part of the reason Ford Motor Company became the most powerful and richest car maker on the planet in the early 20th century is because Henry Ford paid his workers more, gave them more time off, and gave them more benefits than his competitors. So they worked harder and more loyally, resulting in a better product for the consumer.
Now all that said, there are some problems with capitalism. As this is a flawed and imperfect world, no system will be without flaws or somehow manage to be perfect. And here's where I see capitalism has its problems.
It doesn't always balance out: Monopolies do arise. Competition doesn't always work. You can work your hardest and still fail miserably, and there's nothing but the well-meaning of your neighbor to help you out. It can seem, and even be, horribly unfair and unjust.
For example, Rockefeller owned and ran almost every oil producing land in America. His Standard Oil basically owned the gas business in the US. There wasn't any real competition, and where it showed up, he'd just arrive and buy or squeeze them out. If that had been allowed to continue, we'd still have just one oil company in the US, because when a commodity is so critical and specific as energy - especially gasoline - the power and wealth in it would be incalculably vast and basically impossible to break. In time, eventually, the market would correct this, but not for a very long time, and probably not until a real alternative source of energy came up.
The funny thing is, Rockefeller got richer by breaking up his monopoly than he ever was while owning it. And he got that monopoly by owning politicians, using regulations and laws to help him control the business, and buying out anyone who got in his way.
But its true that while the market will correct its self, sometimes it can take generations. And that's a real problem for the people suffering under the uncorrected market. Right now, my home town of Salem has one hospital, one newspaper, and one real internet provider. I mean, you can get other internet providers, but they suck. There's a basic monopoly in place, and the market isn't fixing it.
Back when other newspapers tried to start up, the Statesman-Journal (Oregon Statesman having gobbled up the Oregon Journal) told advertisers they'd drop anyone who bought ads in the competition. They leaned on people to not carry the paper, and the competition withered. Now, newspapers are basically dying out so the era is coming to an end, but it has lasted since 1982.
So there's a real problem with the market and its corrective ability: sometimes the government does, in fact, have to step in and deal with the market. That's why we have laws against certain things like fraud in weights and measures.
And the truth is, without an ethical and virtuous people, capitalism becomes pretty dark and awful. Socialism tries to correct this by putting bureaucrats in charge, but they need to be virtuous too. Shifting the balance of power to someone else doesn't make things any better. You have to have good folks in business or their nature affects their business practices. Greed can result in abuse of workers, waste of resources, trashing the environment, and so on.
In a similar way, when people do fail, then if there's not a good and generous portion of the people to help out, things can get pretty horrific. London in the 17th to19th centuries is a good example. There were parts of the city so awful its barely possible to comprehend. Poverty, illness, fires, crime, and dehumanization were ghastly in some portions while the rest of the city tooled along happily.
This changed largely due to the efforts of men like Whitfield and Charles Dickins, changing hearts and souls rather than laws and regulations, but it was very bad for a time. There must be more than just economics in a society to survive, capitalism cannot be the complete structure of a culture.
And finally, like I noted in the first part, capitalism tends to crest and bottom in a continuous wave of recession and growth. Its almost a regular pattern as a sector of the economy becomes overvalued then the bubble pops, then another, and so on. As technology and culture changes, some sectors become unneeded and there is a drop while the market adjusts.
Socialism works under the assumption that if everyone gives a little, then all will have enough. The problem is that this does not take into account laziness or ambition, it fails to recognize that some people will take advantage of the system in either way. So you punish ambition and effort and reward laziness and greed. Its just the greed is that of the people who want everything given them rather than those who want to work to get it.
And in the end, after a while, you can't redistribute it any more. The number and demands of the demanding greedy begin to overwhelm the numbers of ambitious who realize they're playing a sucker's game. Why work hard all day to see it given to someone else? Why not sit back and demand you're cared for as well?
So the system falls to pieces, first becoming massively in debt, then finally tumbling over completely. And when that happens... the fate of the people who are the most genuinely needy is far worse than it was without well-meaning socialism. The whole economy craters so badly there's no jobs for anyone and no wealthy to be charitable and generous to help others.
Ultimately socialism is about trying to make everything nice and wonderful for everybody, but all it does is make everyone miserable then crash making things far worse than they were to begin with. Its unsustainable and the bottoming out is far more horrible for the needy than the troughs of capitalism. And in this world, you have to choose the least damaging, best of bad options.
*This is part of the Common Knowledge series: things we know that ain't so.