The 'Utter' Simplicity of Capitalism and Job Creation

Why is it that Capitalism seems to be getting a bad rap these days.
I cannot understand why but I have come to believe
many simply do not understand what true capitalism is, how
it works, and why its beauty lies in its relative simplicity.

It is my understanding the capitalist system is
the only way to increase our standard of living and has
done so since the founding of this nation. Where else in
the world are the poorest people able to afford cars, the
latest cell phones, flat screen television sets, cheap food,
hundred dollar sneakers, etc.? It is due directly to the
results of Capitalism.
Capitalism simply promotes free trade between
parties. One party or entity creates a product to sell and
sets a price. Another person, party or entity may need the
product and is willing to pay a certain price. If the price
is agreeable, the trade occurs and both parties are happy
and move on. If the seller sells the product for more than
it cost to produce the product, that is the profit. The
profit is where the capital in Capitalism is formed. If he
cannot sell the product for more than it cost to produce
it, he is out of business or needs to improve his ability to
produce the product at a lower cost. It is as simple as
that.

This capital created from the profit is then used to
improve the business by researching improvements
making the product better and more attractive to buyers
creating more sales of the product. This expands the
operation which leads to more jobs for more people.
This still is a good thing is it not? Is this the evil of
Capitalism? Also the capital or profit allows the product
through research or streamlining to be made cheaper and
thereby sold for a cheaper price. This makes it more
affordable to a greater number of people which improves
standard of living. It gives a person’s income the ability
to purchase more goods which may have in the past been
luxury items, for example, the flat screen televisions of
today. Remember when flat screen televisions first
appeared at costs to a buyer of tens of thousands of
dollars and in 2009 could be purchased for hundreds of
dollars? Is this the evil of Capitalism or consumerism?
Why is being free to buy or consume what you want bad
and who gets to decide what is bad?

I also hear Capitalism is bad because it hurts
workers. I did mention above how it creates jobs but let
me hit on one other critique of Capitalism. I will admit
in my previous example, the streamlining I mentioned
does sometimes mean streamlining the production of the
product which leads to the elimination of jobs. This is
not a fault of Capitalism. It is part of it which is not
understood and is thought of as unfair, especially when it
is your job which is cut. When that job is cut however, it
frees up more capital which can then be used for the
aforementioned reasons or to create an entirely new
product. The new product will require new and different
skills to produce it. A new factory may be needed to
manufacture the product and a new sales force must be
created to market the product. This is what is known as
the creative destruction part of Capitalism. It is not evil
but necessary for companies and our country to grow
and support a growing population.
It does however present a problem for those who
resist the changing job requirements needed to grow in a
capitalistic society. This is the problem I see as inherent
in the company and union relationship. The companies
need a work force that can change with the needs of the
company to compete and thrive. Unions it seems to me
are determined to resist transitions and want to focus on
maintaining current positions and status. Catering to a
competing interest within your organization is not a
productive use of resources.
Some seem to believe Capitalism exploits the poor
through low wages for workers. This is not true and is
used to attack the system shouting exploitation as the
problem. If one understands the Capitalist system, it is
understood that wages for labor should be set by the
market where employers have a job and a wage for a job.
The wage is determined by the cost to produce the
product. If the wage is too high and the product cannot
be sold at a price which allows the company to cover
expenses and a reasonable profit, it will not or should
not be produced at all. To do otherwise is a destruction
of capital which eventually leads to a decline of our
standard of living.

When a government mandated minimum wage is
thrown into the mix, this in some cases eliminates the
company’s ability to produce the good and sell it at a
reasonable price and thereby eliminating the need for an
additional employee. This is why having a minimum
wage or increasing the minimum wage can hurt business
but it also hurts the worker more by possibly eliminating
his very job completely. Instead of earning a market
wage agreed to by him and the company, he receives no
wages at all due to the government mandated minimum
wage. This then leads to the person with no job available
to then fall back on government assistance which will
basically pay him less than he would have received at
the job the government had a direct hand in eliminating
due to the minimum wage. Instead of his money coming
from the company where his work is needed, his money
comes from the U.S. Citizens at the so called
benevolence of the federal government. What sense does
this make? Now tell me, is this the evil of Capitalism?
No, it is the evil of government intervention in private
affairs.
 
Just to mention one more thing regarding
government intervention into business, we cannot forget
about the corporate tax. This tax is levied on business
profits which again takes potential capital away from
business preventing its use for capitalistic purposes in
lieu of governmental and state purposes and programs. It
handicaps Capitalism. The corporate tax is a punishing
tax not on the corporations but on the people and the
U.S. economy. A higher corporate tax on businesses
means the business has to keep prices higher than
necessary to pay the taxes and stay in business. So where
does the company get the money to pay taxes? They get
it from us, the people. We buy products at inflated prices
with our money left over after federal withholding is
deducted from our paychecks. Corporations pay taxes
with the money they get from our purchase of their
product or service. So who does it sound like to you that
really pays taxes in this country? You and me, that’s
who. Corporations do not pay taxes; they in essence
collect additional taxes from us, the citizens, and pass it
on to the government. This is nothing more than double
taxation of the people.
 
Profits or capital is the fuel for the engine of
Capitalism. If the fuel is taken away or reduced, which is
what the corporate tax does, it directly hinders the
capitalist system. It kills jobs and hurts the livelihoods of
citizens. The engine will not run without fuel, i.e. the
capital that comes from profits or investments by people.
Finally, one last thing which needs to be said about
the corporate tax and how it and the minimum wage are
a danger to the United States economy and jobs: These
two government mandates on business are two of the
prime reasons companies outsource their jobs to foreign
countries. They are two of the reasons why America
does not have a manufacturing base any longer. These
additional costs placed on business by politicians keep
prices high and take jobs from Americans by forcing
business to find ways to stay operating and competitive.
My question is when companies are looked at as un-
American because they take their jobs overseas, why are
these factors so easily brushed aside? Why is blame not
placed on the political policy and those who support it
which causes the company’s action instead of the
desperate action by the company to merely try to stay in
business? This is attacking a symptom, not a cause and
is an easy tactic used by politicians to attack business,
big or small. Seems to be a reasonable thing to ponder
when we are talking about the evils of Capitalism,
doesn’t it?

What is the role of the average U.S. Citizen in
Capitalism? We the People can also be a source of
needed capital in our free capitalistic system by
investing our savings for a reasonable rate of return. We
have just gone through a time in U.S. history where the
saving rate was negative. This meant we spent more than
we made. This is not good for governments, not good for
us, and not good for an economy based on capitalism.
When we save part of our income instead of spending it
we will encourage the economy to prosper based on
saving instead of spending. When we spend, we do
create more demand for products and services but many
times this is done through the use of carrying excessive
debt. So not only did we spend everything we made but
we have to pay interest on the debt as well. Good for
bankers, go figure, but not for us or our nation.
The better and more sound way to encourage
economic activity is through saving more. It may be
slower but I believe we will be better off in the long run.
When we invest our excess dollars by either putting it in
a saving account, or buying a CD or bond, we are
allowing others, both individuals and companies to
utilize our capital in exchange for a return on our money.
We can choose high risk or low for our money. Then our
capital is used in the economy to again create new
products and operations, open new plants or facilities,
build more schools, etc. It is a wonderful thing if we
would just allow it to happen and get government out of
our way. These actions all create more jobs and more
permanent jobs while increasing our standard of living
through the use of available capital, i.e. money. Now I
ask again, is this the evil of Capitalism?
 
I often hear or read regarding Capitalism that there
are those who get rich off an unsuspecting public due to
companies or people cheating in the Capitalist system.
This may be true in a small number of cases but in the
big picture it is not. There will always be cheaters, there
always have and always will be. Nothing can prevent
someone from trying to get something for free and cheat
or scam others to do it. When caught, those companies
or people such as Bernie Madoff should be hammered
without mercy accordingly based on their crimes.
Some say Capitalism favors the rich and only the
rich get richer and the poor get poorer. I disagree
completely. I think Capitalism favors the exceptional,
the do-er. It favors those with the drive to succeed and
produce things others want. I will admit, for those who
remain fence sitters and refuse to better themselves
through education, working harder, being more
productive and always trying to make things better, a
capitalistic system will be difficult for them. The
capitalist system is fitting for an ambitious and self-reliant
society. It rewards those who use exceptional
traits. 

Does Capitalism favor the rich? No, it favors the
innovative and those who can move forward despite the
odds. Those who can as Norman Schwarzkopf said at a
lecture I attended, “When in charge, Take charge.” This
quote has really stuck with me over the years. If you are
this type of person I believe you are likely to become as
rich as you desire to be. Now rich is a subjective term
depending on the individual and their definition of rich.
To me, rich means earning enough money to have a
decent home, take care of my family, and have some fun
now and then. That’s it for me. Is that selfish? Do I not
have the right to pursue happiness in this fashion without
someone else deciding what is best for me or whether
my definition of rich is unfair to them or someone else?
 
Capitalism forces you to take chances and
continuously improve; you cannot get comfortable for
too long, else you fail. Perhaps this is why so many
dislike the capitalist system. Capitalism is based on
results instead of good intentions. You can have all the
good intentions in the world but a good intention has
never accomplished a single thing without a decision and
the drive to take action and see what happens knowing
the potential for consequences or mistakes. I have heard
people say successful people are just lucky. That is
probably true on rare occasions but I think it to be the
exception rather than the rule. I see this kind of
statement as a way for fence sitters to attempt to
discredit all the work it took for the successful person to
get where they are. It is a way to allow the fence sitter to
simply stay where they are, in permanent stagnation.

This U.S. Citizen

I’m a great believer in luck, and I find the harder I
work the more I have of it
-Thomas Jefferson