Capitalist Criticisms Critiqued
The following text is a summary of the Youtube video which can be found at <https://www.youtube.com/watch?v=4QJlTnOAx-I>. You can subscribe to the Liberty Man Van YouTube channel at <https://www.youtube.com/channel/UCIb4k41f3A1lftMXivcvj5g>.
Liberty Man Van: Today we will hear from a Marxist professor professor being interviewed. He is quick to criticize capitalism and equally quick to praise socialism. We will listen to his arguments and then discuss their flaws. Here we go:
Marxist professor clip: Every capitalist is either trying to make more money or either survive competitively by saving on labor costs. One capitalist does it by substituting machines for working people, automated, getting a computer to do what he used to have 50 people do, etc., etc. Another capitalist tries to do it by hiring cheaper workers in place of more expensive one- hiring women to do the job, if they are cheaper, than they used to hire men for, hiring immigrants rather than domestic workers, moving to another part of the world where wages are much lower. We all know that. So capitalists are always trying to save on labor costs because they can make a better profit if they do that. But here comes the contradiction. If all capitalists are reducing the number of workers they pay or reducing the pay they give the workers what will happen is that the working people have less and less money and if they have less and less money they can’t buy what the capitalists are producing to sell. The capitalists, therefore, are destroying themselves but they have no choice. They have to save on the labor outlay and then that comes back and bites them in the rear end because there is no demand. If you have become so successful becoming rich as a capitalist you’ve killed yourself.
Liberty Man Van: The professor makes three claims here:
1) If business owners reduce wages the workers will have less money to spend. We need to make a distinction here between real wages and nominal wages. Real wages take inflation into account. If a worker makes 1% less in wages but general prices decrease by 2% then his nominal wages have decreased but his real wages have increased. You have to take the full picture into account. In other words, if business owners are having to cut wages it often means that prices for products are also decreasing. Every worker is also a consumer and as a consumer will pay less for goods.
2) Lowering of wages creates less demand for products- This will be true only if wages are going down faster than the cost of goods or because of demographic shifts in the population. For example, if their is a relative increase in the number of retirees versus babies you would expect a slackening demand for diapers.
3) If you have become rich as a capitalist you have “killed yourself.” This claim has no basis in fact. In a free market the only way to “get rich” as a business owner is to provide value to people. Consumers must see a value in your product or else they will not buy it. It is ultimately consumers that will decide if you are successful or not.
Marxist professor clip: For example, when the people couldn’t buy in the 70’s they kept it going anyway. How did it do that? How did they keep it going when the people couldn’t buy enough from their wages? The solution? Credit. We loaded the world up- house payment, that’s your mortgage; car payment- nobody buys a car except through credit. Credit cards that didn’t exist until the 1970’s for anyone except traveling businessmen, and only small number of them. And when that was not enough we loaded up, for the first time in history, students who can’t get a degree without loading up with tens of thousands of dollars of debt.
Liberty Man Van: The attack here is on credit. Who decides whether to borrow or not in a free economy? People do. The existence of credit is not a failure of capitalism; it is an expression of people’s freedom to choose. Would the professor outlaw credit? Creditors extend credit to individuals on the basis of their ability to repay a loan. If a person is a bad risk they will pay a higher interest rate for the loan. The high interest rate is also a signal that maybe that person should curb spending rather than borrow. Some people use credit responsibly; others irresponsibly.
The student debt he refers to in this clip is not a capitalist failure but a result of government intervention into the student loan market. That is another subject and we won’t get into it here.
Marxist professor clip: People could buy stuff, even though their wages couldn’t pay for it, by borrowing. And in 2008 the predictable happened. It turns out that your fix only lasts for a while.
Marxist professor clip: Question: The housing crisis, the crisis of overproduction, the fact that we have more houses than homeless people. But because we have this crisis of overproduction…
liberty Man Van: These clips refer to the housing bubble that burst in 2008-9. The bubble was caused by cheap money and the lowering of mortgage lending standards. Cheap money was the result of Federal Reserve monetary policy; this central bank was created by the government. The lowering of lending standards also created more demand for houses; these lower standards were encouraged again by government policy. The housing bubble and bust is a good example of how a problem is created by government intervention in the markets and business gets the blame when it goes sour.
Marxist professor clip: They realized that in the West: North America, Western Europe, Japan. Two hundred years of capitalism have built up impressive factories, offices, and stores. But they were built up in the places where capitalism was born. That’s where they have built everything. They had drawn up workers from the countryside to become the industrialized working class. And along the way the working people, noticing how productive capitalism was since they did the work, demanded for themselves an increasing standard of living. From 1820 to 1970, particularly in the United States but elsewhere, wages rose. Over that time capitalists were doing so well they could raise the wages of their workers and still make out like bandits. So it was a system in which the people began to get the idea that capitalism works- it delivers the goods because it raises wages. You had to not look at what was happening to wages where most of the world lived- Asia, Africa, Latin America- because for them the situation was horrible.
liberty Man Van: Wow! The professor here acknowledges the tremendous wealth in the world that capitalism has created. The wealth went not just to the business owners but to workers as well. Consider the automobile as an example. When they were first produced they were produced by craftsmen one at a time. They were toys of the super wealthy. Then along came capitalist Henry Ford, the factory, and division of labor. The car, once a plaything of the wealthy, became a good that normal people could afford. This happened not just in the auto industry but in many other industries as well. People could afford to have more than one pair of shoes, more than one coat, more than one loaf of bread. The arrival of the industrial revolution along with capitalism produced a degree of wealth previously only dreamed of to ordinary people everywhere. Today we take many goods for granted that previously only kings owned. Today we have become so wealthy that we can afford to pay Marxist professors to produce nothing of value and still get paid.
Bernstein graph of wealth per capita exploding with the industrial revolution.
Marxist professor clip: But if concentrated on where capitalism was born you could fool yourself into thinking “Wow! This is a system that works.” And the capitalists and the people that liked it of course celebrated that. But then in the 1970’s the capitalists had this eureka moment. They said to themselves “Wait a minute. We are in North America, Western Europe and Japan where the wages are very high. Workers are very happy, but why are we here?” In the rest of the world, which has been savaged by the growth of capitalism in those privileged areas, wages are very low. So in this eureka moment capitalists said “What are we doing here in Western Europe, North America, and Japan. It’s much profitable if we produce in China, India, and Brazil.” And there begins what we are still in the middle of- the exodus, the abandonment of the places of origin of capitalism by the capitalists. So there is a massive move to China, India, Brazil, and all those places. Producing what? Well, what every capitalist wants- to make a bundle. So they make big factories imagining that they can sell all this stuff like they used to. But they forgot something. If you go from high wages in the US to low wages in China, the bottom line is that the people earning wages are earning a lot less than they used to. They can’t buy back what you are building. They can’t consume what you have the ability to produce.
Liberty Man Van: Again, the professor considers only part of the equation. He wants to focus on workers that have lost their jobs to cheaper wages overseas. But he ignores the millions of consumers that now have the choice of buying less expensive goods.
Marxist professor clip: They came up with the following idea. The problem with capitalism is twofold. First, that private individuls own the means of production. They own the land, factories, stores, machinery. And that the owners are a small part of the population: 1%, 2%, 5%, maybe even 10% but rarely did it get that high. So the vast majority of people are never a part of the owners.
Liberty Man Van: Let’s address the two “problems” with capitalism he mentions in this clip.
1) Private ownership of the means of production is bad. This is THE biggest flaw in his thinking. Why is private ownership better than public ownership of a business? Let’s say you borrow some money and purchase a car. You have every incentive to take car of the car and keep it well maintained to preserve its value. You clean the inside and outside regularly. You don’t drive too fast in order to preserve the engine and transmission. What if the car belonged to the community as a whole? Would you treat it as well? Probably not. The same goes for a business. If you had to buy it yourself you are much more likely to attend to the details that will make it succeed. And what must a business owner do to succeed? He must provide VALUE to other people. That is the beauty of capitalism. A business owner must provide value to others in the market place. He must convince others, without the aid of a musket, to purchase his good or service.
2) Business owners are a small part of the population- This is because there are risks involved in starting or buying a business and most people don’t want to take on that risk. Your business can fail. You can lose your investment. If you DO want some ownership in a business you can buy stocks. You don’t have to be rich to share in the profits of a company.
Marxist professor clip: So the socialist idea was this is fundamentally unjust, fundamentally undemocratic. This is what’s wrong with capitalism and how do you solve it. You have collective ownership, not private. The society as a whole should own the means of production- the factories, the offices, the stores- so that they are good for everybody, so that what they produce is distributed roughly equally. The influence and decision are made social- that is why it is called socialism. It is the society that should own. It focuses on the workplace. It’s idea is the way you make sure the government never again becomes an instrument over the people but simply an instrument of the people. Making sure that at the base of society where the people live and work the wealth and the productive capability is in their hands. If you want the slogan of 21st century socialism it’s this: democratize the enterprise. End this process where there is a handful of people who make the decisions.
Liberty Man Van: Democratize the enterprise? We have that already. They are called stocks and people who don’t own them directly often do indirectly through their pensions.
Marxist professor clip: In most American corporations, and corporations are the bulk of the business, are a tiny group of major shareholders. They select the board of directors. One percent of Americans own 75% of the shares- it’s highly concentrated. How do you run a corporation? At the top is a board of directors, usually 15-20 people. How do you get on the board of directors? There is an election every year to get on the board. The way the election works is if you have one share you get one vote, if you own 100 shares you get 100 votes, if you own one million shares you get a million votes. There is no pretense of democracy. Since a handful of people own the bulk of the shares they control everything. They decide what the company produces, how the company does it, where the company is located and what is done with the profits.
Liberty Man Van: He complains that people who own more shares in a stock get more of the decision making opportunity. What he doesn’t mention is that they also share more of the risk; they have more “skin in the game.” Would it be fair to expect a person who owns one share in the company run the company? Not unless you wanted everyone to lose money when it went “belly up.”
Marxist professor clip: If workers took over a co-op and decided what to do with the profits do you think they would give executives 25 million dollars so that they had more money to do with while everybody else has to borrow money to send their kids to college? It’ll never happen. You think a collection of workers, say 400 in a factory, considering you could make more money if you move production to China, will vote to get rid of their own jobs? It’s not gonna happen. They are not going to destroy their community by having an empty factory. They are not gonna deprive their local government of the tax revenue to run the local schools and the hospital. And they won’t deprive themselves of jobs. So what we’ve had for the last forty years, all those jobs leaving, would never have left if it were a collective decision of the workers where this production will take place.
Liberty Man Van: There is a major flaw in the professor’s utopian co-op factory vision. The factory must create products that are competitively priced in the market place. If the workers all give themselves a big raise and it causes the price of the widgets they produce to cost a lot more than competing widgets they have a problem. No one will buy their more expensive widgets and the workers will get to share in the profits- zero! Now no one gets paid but at least it’s fair!
Marxist professor clip: I wanted you to counter another argument I hear frequently- “I earned it.”
Marxist professor clip: The best way to describe this is to go back to Karl Marx and his analysis of capitalism so that we all understand what earning is about. Let’s imagine that you are looking for a job and I’m an employer that you’re looking to get hired by. So you come in and fill out the application form and I look at you and I describe what work I will have you do. You’ll work 9-5 M-F and you’ll sit over here and do this kind of work, etc. And then we get to that big question of what you will get paid. We talk back and forth and we agree on $20/hr. At this point Marx enters with a smile on his face. And he’s going to show the readers of his books that something is going on that you actually know but you don’t want to face. But I’m going to show it to you. When I hire you for $20/hr I know that for every hour that you work for me I will have more stuff to sell and the end of the day because you are added to my work force. You’re going to help me produce more goods or services or better quality goods and services than I could before I hired you. So I’m gonna say to myself “hmm… I going to give Abbey $20/hr. What will I get out of her?” I will have the output that Abbey adds by her labor. So that has to be more than $20. The only way I will hire you for $20/hr is if you earn more in that hour than I give you(said with a sinister tone of voice).
Liberty Man Van: Wow! Sounds like these workers just made a deal with the devil.
Concert video clip: Charlie Daniels playing the devil’s fiddle solo from “The Devil Went Down to Georgia.”
Liberty Man Van: Again, the professor only wants to look at the profit side of the equation. He never mentions that maybe the business owner saved like a miser for twenty years, took those savings and then borrowed some more money to open the business. It’s called risk and no one in their right mind will take on risk without the hope of some reward. In the socialist mind I guess that reward will come in heaven for being “fair.”
Marxist professor clip: He just ripped people off. The way corporations work is that four times per year they take the profits they’ve made in the preceding three months and they distribute a portion of them to their shareholders and these distributions are called dividends. So if you own a lot of shares- say you inherited them from your grandma, or you stole money and bought them on the stock market. There are lots of ways of getting them. But if you have them, then four times per year you go to your mailbox find a check for your share of the profits of the company. For rich people this is millions of dollars. They have all that money. What did they do exactly to earn that money? Nothing. Those people are going to tell me they earned it? Earned what? Did they ever set foot in the factory? No. Do they have any idea what this company does? No. They don’t care!
Liberty Man Van: In his mind only undeserving, lazy people can own any shares. What if he is a school teacher and saved money out of each paycheck to invest in shares his whole life. Now he is retired and living off the dividends from the shares he owns. When he dies he passes the shares to his only child who has a great job. The child doesn’t need the extra cash so she takes the dividend proceeds and give them to the homeless shelter across town. These types of people don’t seem to enter the professor’s cerebral cortex.
Marxist professor clip: Let’s now do a little logic. If there are people like shareholders who get a lot of goods and services they didn’t produce then there must be someone else in that system who produce but do not get. If we allow this it means that some people get more than they produce and others produce more than they get. For Marx, he stands up and says “I rest my case. This system sucks.”
Liberty Man Van: The last time I checked workers who produce do get something. It’s called a paycheck. But wait. In a socialist system the worker would have to share that paycheck “for the common good.”
Marxist professor clip: Famous socialist Rosa Luxembourg once that that it is either socialism or barbarism. Here we are 100 years later. In what ways have you seen that play out today? The 62 richest people in the world, most of whom are Americans, have more wealth than the bottom half of the world population- roughly 3.5 billion people. That is beyond obscene; I don’t have an adjective that captures it. If you look at the statistics of the world health organization, the bottom half of the population are people who die way earlier than they need to. Their diets are no good, or they don’t have enough food to begin with, or they can’t get to a clinic to treat little health problems that are easily solved.
Liberty Man Van: Barbarism? Has the professor heard of the Union of Soviet Socialist Republics? It was in this socialist dystopia that farmers starved to death or were forced onto collective farms. Citizens waited in long lines to get the basic necessities of life such as a loaf of bread. Soap was a luxury. The only well off people worked for the communist party. They kept the wealth for themselves while regular people starved or were exterminated in concentration camps by the tens of millions. Tens of millions. That is not a typo. No thanks professor. In the words of the singing poet Billy Joel “If that’s movin’ up then I’m movin’ out!” Private property is all that stands between us and tyranny. I will keep mine. How about you?