IN DEFENSE OF CAPITALISM
Giving the Free Market a Fair Shake
"What I did, when I did it, was honest; now, through changed conditions, what I did may or may not be called honest. Politics demand, therefore, that I be brought to trial; but what is really being brought to trial is the system I represented."
-- Samuel Insull, co-founder of Edison General Electric
In 1881, a young English clerk named Samuel Insull sailed from England to America and took a low-paying job as a private secretary for a determined inventor named Thomas Edison. Insull worked hard, coming in before his boss in the morning and staying until long after Edison, who wasn't exactly lazy himself, had gone home at night.
Over time, Insull's hard work and loyalty did not go unnoticed. He was promoted several times, eventually winding up in charge of Edison's business affairs.
After twelve years absorbing as much knowledge as he could, Insull finally left to pursue his own American dream. He moved to Chicago, took out a personal loan for $250,000, and built the largest power plant in the world.
At the time, electricity was like private jets are today -- grossly expensive and available only to those who don't spend much time worrying about their bank account. But Insull had a dream that electricity could be produced on a much larger scale and used by the masses. By developing revolutionary ideas, like variable pricing and inexpensive home wiring, he turned electricity from a luxury into a virtual commodity.
Before long, Insull's new company was servicing over ten million customers in 32 states and had a market value of over $3 billion (somewhere around $66 billion in today's dollars, which is about the size of Amazon.com and Kraft Foods, combined). Insull also benefited personally. At one point, his net worth was estimated to be $100 million. Time magazine even celebrated his success by putting him on their cover in 1929. He was a true American success story -- a foreigner with virtually nothing to his name who had made it big through hard work and innovation.
Then the world changed.
As the Roaring Twenties morphed into the Great Depression, Insull's business struggled. The debt and equity he'd financed his company's growth with had become virtually worthless, leaving over a million middle-class Americans who'd invested in his stock in financial straits. The public outrage was palpable.
In the matter of a few short years Insull had gone from hero to villain; from the poster boy for everything great about American capitalism to the poster boy for everything wrong with it.
The government, seizing on the public's fury over their lost wealth, charged him with fraud, and though he was acquitted at trial, it didn't matter -- the damage was done. Insull was the most hated man in America, the Dick Cheney of the 1930s -- and all he'd done to deserve it was to build a remarkable company that, like so many others, suffered during the Depression.
In 1938, Samuel Insull, who'd fled America for France (oh the irony), died of a heart attack in a Paris subway station. He had eight cents in his pocket. It was a sad and lonely ending for a man who exemplified the American dream by bringing affordable electricity to millions.
Like O. J. Simpson, our free-market system seems to be put on trial at regular intervals. People love it until it stops working the way they think it should. Then it becomes the villain.
Wall Street was loved; then it was hated. Alan Greenspan was idolized; then he was demonized. People envied those who flew in private jets; then they despised them. It's amazing how quickly opinions can change, especially when people are looking to blame someone else for their problems.
The truth is that capitalism is neither good nor evil, it just is. Capitalism can't get you a job, a bigger house, or a better retirement -- you have to do all of those things for yourself. But what capitalism can do is foster an environment where those with the will to succeed have a better chance of achieving their dreams.
Do hardworking people still fall through the cracks? Absolutely. Are there peaks and valleys as excesses in markets are worked out over time? No doubt. But I defy anyone to show me another system that has done as much to quickly raise the standard of living and quality of life of a country as capitalism has for America.
You can't, because it doesn't exist.
In 1949, someone who worked minimum wage over the summer would have enough money to buy the following items from that year's Sears' catalogue:
A Smith-Corona typewriter; Argus 21 35mm camera; Silvertone AM-FM table radio; and Silvertone 3-speed phonograph.
In 2009, that same person, working the same number of hours at minimum wage, would now be able to purchase:
A Dell laptop computer; HP color ink printer, scanner, copier; Canon 8 megapixel digital camera; portable GPS system; 32" LCD HDTV television; 8GB iPod Nano; GE microwave; Haier refrigerator/freezer; Toshiba DVD/VCR combo; RCA home theater system; Uniden cordless phone; RCA AM/FM radio; Camcorder; Sony PlayStation 2; and about seven other things, but I think you get the point: Capitalism promotes innovation and competition -- two ingredients necessary for producing things that get progressively better even as they also get progressively cheaper.
The truth is that a minimum-wage worker in America is still one of the wealthiest people in the world. Does that preclude us from trying to make things even better? Absolutely not -- but those who favor throwing away the system that made us the envy of the world are either dangerously naive or they have an agenda. You can probably identify which group they belong to by whether they make idiotic arguments like...
"YOUR PRECIOUS FREE-MARKET CAPITALISM HAS FAILED."
Capitalism hasn't failed, greed has failed.
Think about it like this: You're a doctor with 50 sick patients, all of whom have the exact same symptoms: 20 of your patients are women, the rest are men. Ten of your patients are Asian, 5 are Arab, 5 are Mexican, 5 are African-American, and the rest are Caucasian. They have varying hair colors and are all different heights and weights. Some smoke and drink, some do neither.
In other words, these fifty people seem to have nothing in common, yet they all have the same disease.
Look around the world right now -- virtually every country is sick. Communists, socialists, capitalists, and everything in between, it doesn't matter -- the global recession infected everyone. Yet we look at all of these countries, with all of their different styles of government and different views on economic freedom, and we come to one nonsensical conclusion: Capitalism has failed.
How can that be possible? The only thing those countries have in common is that they all fell victim to the idea that returns could be had without risk. Or, to put it another way, they all succumbed to greed.
If you could trace the economic crisis back to one seminal event, you'd probably point the finger at the collapse of the U.S. housing market. But was that collapse triggered by a failure of capitalism, or by an abuse of it by the government?
Under true free-market capitalism, the government would have no involvement in homeownership whatsoever. They wouldn't encourage it through artificially low interest rates, Fannie and Freddie, tax breaks, or a "Community Reinvestment Act," but they wouldn't discourage it either. Rates would be set by market participants, based on risk, reward, and a clear understanding that making bad loans would result in bankruptcy.
But we've done the complete opposite of that. The housing market is manipulated by the government every step of the way. So while some may argue that we need more regulation to prevent these future "excesses," I would argue that it's the existing regulations that created those excesses in the first place. In other words, what has failed isn't the idea of free markets, it's the idea that a market can be free when it's run by an increasingly activist government.
"SURE, IT'S ALWAYS THE GOVERNMENT'S FAULT. LET'S PLAY YOUR LITTLE GAME AND GET THE GOVERNMENT OUT OF EVERYTHING -- WHO WILL HELP THE POOR? WE HAVE AN OBLIGATION TO TAKE CARE OF OUR WEAKEST, AND ONLY THE GOVERNMENT CAN FILL THAT ROLE."
Great, we (kind of) agree on something! "We" do have an obligation to help...but I think I have a different definition of "we" than you do.
The kind of capitalism that has failed is "soulless capitalism," because success without compassion results in greed and excess -- and we had plenty of both. But that soullessness didn't come out of nowhere, it was bred by a government that continually tries to step in to do the jobs that individual Americans should be responsible for.
We have never solved problems efficiently from the top down; we solve them from the bottom up. In countries with strong central governments, the people with the money and power are the politicians instead of the businessmen. Are those politicians selfless and charitable? Of course not, they're greedy and corrupt -- and the poor are even worse off than they are here.
My point is that capitalism itself is just a vehicle -- we're the drivers. Any economic system will inevitably fail if individuals stop caring about the welfare of others. But which economic system is more likely to drive people out of poverty, one that cherishes the slogan "from rags to riches" or one that aims to help the poor via government bureaucracy? If you're struggling to answer that, consider what happened in the aftermath of Hurricane Katrina.
Less than one month after the hurricane, private donations surpassed the $1 billion mark, most of which went to private aid organizations that quickly provided relief. Meanwhile, FEMA handed out $6.3 billion in taxpayer money, with nearly a ...
--This text refers to an out of print or unavailable edition of this title.