The Sins of Adam

Much of today's criticism and disdain on governments and in particular, the economy is directed at capitalism as a cancerous economic system. There seems to be a resurgence of alternative views on how the economy should be managed so long as it is not "capitalism", usually along the lines of revisionist movements of Marxism that tend towards Communism and Socialism (words usually thrown around in support for more redistributive policies without actually understanding what they mean). 

These critics generally stress on how capitalism has resulted in too much power for corporations and too little power for the average worker. They are people who grew up witnessing environmental destruction, the declining wealth of the lower middle class, and the 2008 financial crisis; all the result of unfettered capitalism as they say. Going so far as to condemn the ideology that Adam Smith crafted due to its intense production of problems.

Though criticizing capitalism as a wholly cancerous and unvirtuous system is, to some degree, unfair (we're mostly alive and well under a system of capitalism), We can't really blame these revisionists for what they currently believe in. Because the defense of capitalism was and is mostly through the framework of neo-liberalism. Whether it be Republican Conservatives like Donald Trump in the U.S., Theresa May in the U.K., or university academics and technocrats in Bretton Woods institutions. It always seems like capitalism means Laissez-Faire, an ideology that has its virtues but is highly flawed in matters of self-regulation. 

Under these flawed defenders, capitalism has been flagged to be an ideology that skews democracy for the interest of CEOs and rich investors. A system that does not care for the needs of the many, willing to crush workers' wages and give unbelievably high mark-ups to essential products, just so the rich can make a little bit more money. Yet as flawed as this defense is, its effective because these liberalists can just point out the failures of what the opposition supports ("Socialism"), the USSR, Venezuela, Cuba, and North Korea, and by then everyone would instantly support them.

It is unfair for capitalism to only have this one highly flawed defense that disallows the critics of neo-liberalism to use it and a defense that permanently glues capitalism to laissez-faire ideology, a system that is growing repugnant, when capitalism has given us so much prosperity before. This article will not make the same mistake. This article will attempt to give a fair account of capitalism. What it represents, clarifying its usage, its virtues, and its limitations. From there, we might just rectify Adam (Smith) of his accused sins, and bring ourselves to the Eden promised by capitalism.

What is "Capitalism"?

Capitalism is an economic system where production is operated at a profit rather than self-subsistence (farm vegetables for individual families for example) or political obligation (aristocrats or central planning authorities telling you what to do)[1]. We shouldn't however confine the owners of capital or the capitalist on private entities. In the vast majority of instances they are, but other times, capitalists can also be non-private entities like countries such as is in state capitalism[2] and mercantilism (which many capitalists believe to be the precursor to capitalism)[3].

More important, is to understand the ideal condition of capitalism, to understand why capitalism was defended as a mainly laissez-faire ideology in the times of Adam Smith.

The most central tenet that made capitalists and its supporters believe that it is the most ideal economic system is the theory of supply and demand. How a free market would be able to determine an ideal price that would distribute scarce resources to individuals that need them. How " By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it."[4] This however, needs to take into account the difference in markets between Smith's time to ours.

The perfect competition (the condition that creates market equilibrium and optimum prices) as a market in Adam Smith's time was the norm. But time has flipped the conditions so that the perfect competition is a theoretical myth; while oligopoly and monopoly has become the status quo. Most of the commodities like bread, grain, pins, and clothing were sold by many sellers and were bought by many buyers roaming the streets and markets. This system really did allow for equilibrium price to be achieved without any producers or buyers having the sole price setting power. Times however have changed. We now live in a society of McDonald's and KFC as an oligopoly of fast food chains (operating in more than 120 countries worldwide) and; Boeing and Airbus, an oligopoly of the commercial airplane market owning 90% of market share. 

These firms can deliberately raise prices to get the profit they want, or colluding to not compete with each other by creating a cartel with the most famous example being OPEC (Countries that decided to make an oil cartel)[5]. We also have Amazon, Walmart, and Best Buy who are one of very few buyers in a market (oligopsonies). Together, these firms can determine which products gets to the market and which product doesn't, effectively deciding who gets what, and who gets to profit out of them[6].