by Dr. Lawrence Wilson
© March 2019, L.D. Wilson Consultants, Inc.
Definitions Of the Two Kinds Of Economies
Producing the goods and services that people need is one of the most important aspects of any advanced society or nation.
Goods are solid, tangible items. Services are not tangible items and include things like medical care, accounting, legal services, business consulting, marketing services, research and more.
There are only two major ways to produce everything people need.
One system is capitalism, sometimes called the free market, free enterprise or laissez faire system of economics. (Laissez faire is French and means leave them alone). However, it is not a good description of capitalism.
The other economic system is a command and control economy. This is also called Marxism, socialism or a totalitarian economic system. It means the government controls everything from the top down.
Let us discuss these in more detail.
1. Capitalism or the free enterprise economic system is a very advanced and very complex economic system. It requires a network of institutions such as banks, wholesalers or distributors, retail outlets and advertising channels. It also requires distribution systems such as roads, railroads and air travel.
It also requires a set of laws to keep an even playing field, and a set of courts, attorneys, accountants, and other business professionals to teach, monitor transactions and settle disputes. It requires more than this, in fact, to monitor business deals and transfers of property, for example, to keep the system running smoothly.
However, it is a marvelous system that has produced and continues to produce most of the wealth of the world.
Just a few of its features are:
1. Capitalism gives the individual and company freedom to produce and sell whatever they wish. They must respect the laws of the nation and they must obey all environmental and workplace rules. However, if they do this they are free to innovate and organize their business as they wish.
This is the main reason for the success of capitalism. It encourages innovation, change, creativity and the pursuit of excellence. This is critical to understand.
To operate correctly, it must be joined with the primacy of the individual in other spheres of life, such as the political realm, and others. However, this is not quite as important as allowing companies and individuals the freedom to produce and sell goods and services in the way they wish.
2. Liberty, but not license. Liberty means that one is free to act within a framework of laws. License means you can do whatever you want.
In a capitalist economy, individuals or groups of people called companies are permitted to:
- Build factories, offices or whatever structures they need.
- Hire and fire the workers they need.
- Pay the wages or salaries that they choose to pay in order to attract the best workers.
- Offer workers ÔbenefitsŐ such as better work hours, child care, training and education, pensions, health care plans, retirement plans and more.
- Control many aspects of manufacturing, marketing, sales, distribution, research and all aspects of making and selling goods and services.
License is what occurs in socialistic and communist nations. The government does exactly as it pleases. It rewards its friends, for example, and punishes its enemies. Anyone it does not like it murders, literally, or rapes, perhaps, in order to control them.
The rulers steal factories from people and companies if they wish. This is called nationalizing an industry.
The government almost always manipulates the money supply.
Laws, if they exist at all in socialist and communist nations, mean nothing. The government does what it wants without controls. This creates an atmosphere of fear that stops businesses from building factories, for example.
Who wants to build a factory just to have it taken away by a greedy government official? This occurs all the time in socialist nations.
Who wants to hire and train thousands of workers if one knows they may all be killed or raped if they donŐt obey the orders of the government? The government may want them to make inferior products or to work more slowly, or something else stupid but they do this all the time in order to keep the people in poverty or oppressed in some other way.
3. Capitalism allows the individual and companies to retain the earnings or profit they make from selling their goods and services. This is the reward system that keeps people working hard. It is not ideal, but it works quite well to motivate people to come to work and to work diligently and carefully. This is necessary to make good products and to offer good services.
In contrast, socialist and communist economies do not allow much, if any profit for those who do the work of setting them up and running the factories and offices.
The result is the leaders of industry do not work hard. They have little incentive to do so. They simply come to work and do as little as they need to do to keep the government spies and bureaucrats happy.
Also, the fruits of their labor can be taken from them in an instant, and this occurs often in these nations, so this also prevents them from working hard. All this produces very inferior products.
Venezuela is an excellent recent example of where the government has gotten rid of the profit motive and confiscated many factories. This is just stealing! It results in very low production and poverty for everyone. The government often likes this because they do not want a prosperous people because they are harder to control. This is very important to understand.
4. In a capitalism economic system, individuals are urged to respond to the needs of the population. Those who satisfy the needs of the people the best succeed the most. If a product or service does not fulfill the needs of the people, the people will not buy it and the company or individual goes out of business. This ŇfailureÓ concept is an essential part of capitalism.
Ignorant or destructive people say that capitalism is bad because some businesses will ŇfailÓ. Yes, they must fail because they are not satisfying the needs of the population. It is not a flaw. It is an absolute necessity, especially as society evolves technologically.
For example, a man might manufacture carriage wheels used on horse-drawn carriages. As carriages are replaced by automobiles, the demand for his wheels diminishes until he goes out of business because no one wants his product. This is good. Otherwise, the world would be full of carriage wheels that no one wants and this would be a complete waste of effort.
The latter is exactly what occurs in a socialist or communist economy. In this type of economy, the government forces or mandates individuals to manufacture whatever the government thinks is needed. The trouble is that they government is not too smart and usually cannot see the future trends in technology. By the time they see that carriage wheels are not needed anymore, it is too late and many too many have been produced. So it is wasteful and stupid!
Also, bureaucrats often want their product to be made more so they will have more power. So they may continue to force companies and individuals to make products no one wants or needs just so the bureaucrats can retain their jobs supervising this or that product or service. It is a very bad system!
Another name for capitalism is the free market economic system. The ŇmarketÓ is the sum total of the needs of the people. It is always changing as peopleŐs needs change.
In a capitalist or free market economy, the individual producers or companies must respond to the market. That is, they must respond to the needs of the people.
They spend a lot of time and effort and money Ôtuning inŐ to what people want and need. It is in their interest to do so. They ask questions, send out surveys, test market products, and obtain feedback from happy and unhappy consumers. This is an essential feature of capitalism.
In socialist and communist economies, the government runs everything and they have little incentive to tune in and listen to the needs of the people. They donŐt really care very much what people want. As a result, their factories often produce things people donŐt want and donŐt need, which is completely wasteful and stupid. Socialist and communist economies are inherently stupid. This is an important concept.
Laissez faire is a phrase in the French language that means to leave it alone. It refers to one of the key features of capitalism, which is a minimum of government intervention in the economy.
Capitalism is a people-to-people system. That is, people have needs and other people notice the needs, notice their own skills, abilities and preferences, and then endeavor to satisfy the peopleŐs needs. They are rewarded if they do this correctly.
This is a very important concept. The role of the government in a capitalist economy is that of a referee, just like in a basketball or football or baseball game. They stand by and watch what is going on and they should make sure no one cheats or takes advantage of anyone else. This is not always done perfectly, but it is the role of government in a capitalist economy.
In a socialist or communist nation, the role of the government is completely different. In socialist and communist nations, the government is the ruler and controller and makes all the major decisions. In other words, they are in control of everything! The trouble with this is they are not smart enough to act out this role, no matter how hard they try.
There are a number of reasons for this, some of which we have discussed, but there are others.
- They often lack the brainpower. Smart people often do not like working in a stuffy government office their whole lives. The smart people prefer to be out on their own, making things. It is simply more fun.
- Even if bureaucrats are very smart, figuring out exactly how much of every single product is needed is very difficult and complex. Also, it changes all the time as new technologies come along, as the population grows or declines, as the seasons change, and as fashions come and go. For example, one year many people want more of something. The next year the people often want something else, often for no good reason. This is called a fashion or fad and they are real.
- Bureaucrats often live hundreds or thousands of miles away from the factories and towns where the people who need the goods live, so it is hard to monitor what everyone needs.
- They have little incentive to really govern wisely. Their jobs are secure even if they do a bad job, in most cases.
- Bureaucrats are under the control of their bosses, who have other agendas besides satisfying the peopleŐs needs. So even if a government official wants to do a good job and can do a good job, which is fairly impossible, he or she is often not allowed to do so by the real rulers behind the scenes who often want to keep the people poor and unhappy in order to control them better.
COMMAND AND CONTROL ECONOMIES
The opposite of capitalism. Often, knowing the opposite of a word helps to understand it. The opposite of capitalism is a heavily regulated or command and control economy.
This means that a large, powerful government controls and regulates most aspects of the economy. In this system, the people do not decide which products they will have access to. A central government makes most of the decisions for them.
Other words for this economic system are socialism, fascism, communism and a top-down economic system.
For example, in a socialist nation, This usually includes which products and services are offered, how much they will cost, how many workers will be hired, how much the workers will be paid, what benefits the workers will receive, who and when to hire and fire people, and so on.
In addition, in a command and control economy, the government often taxes production heavily. As a result, there is little money left over as profit for the individuals and companies that offer the products and services.
If the people and companies do not obey the rules, there are heavy fines or government police may just shut down their factories, farms and offices. Those who own the factories can be killed or raped at any time to make them obey.
Benefits to individuals. Capitalism teaches some wonderful lessons to individuals. These are:
1. Help others to get whatever products and services they need and want.
2. Learn to treat people well (if you want their business)
3. Be efficient.
4. Design good products and services.
5. Work hard.
6. Organize well.
7. Serve others and you will succeed.
These are extremely valuable personal traits that help people mature and live longer and healthier lives.
Benefits to society.
1. All the personal benefits above. This is extremely important because a society is a collection of individuals. If the people are happier, more productive and more mature, the entire society benefits tremendously. To a fairly large degree, the economic system of a society determines this.
2. Prosperity. The historical record on earth clearly indicates that capitalism leads to the greatest amount of wealth production and prosperity of any economic system devised so far.
Communism, socialism, fascism or totalitarianism have been tried in many nations and it always fails to produce wealth and happiness of the people. This truth is often withheld by the college professors who wish to mislead the students.
3. Environmental cleanliness. This is important because manufacturing, and even farming, are often primary sources of pollution.
The more capitalist nations, such as the United States, are among the cleanest nations. We say more capitalist because there are no purely capitalistic nations at this time.
Socialist and communist today and in the past are always filthier. This is the absolute truth. Just look at China if you doubt this today.
Many Americans often do not realize this, and are not taught the truth about it. In many nations, the biggest polluter is often the government. One reason is they donŐt live near the factories so they have little incentive to care about the air and water quality.
They also donŐt understand pollution, in many cases, which is a complex problem, at times. Also, in some cases the rulers behind the scenes want pollution because it weakens the people and makes them easier to control.
4. Capitalism causes greater political stability and less social unrest. This occurs because people are happier. They are also more in charge of their lives because they make more economic decisions. Economic decisions, choices about products and services, and the ability to work as one pleases, are among the most important decisions in life.
1. It is rarely allowed. This is the main problem with capitalism. Few, if any nations permit true capitalism. Instead, the economies are usually heavily regulated and often corrupt. The rulers simply do not want to give the citizens permission to have the economic freedom that capitalism entails.
2. It is not well understood. This is another problem that can contribute to problem #1 above. It is the main reason we are writing this article. Schools donŐt teach it, and colleges donŐt teach the truth about it today.
3. It is easy to ruin. Capitalism is, in fact, quite delicate. Too many regulations, too much corruption, bad laws or occasionally other factors will ruin it quite easily.
4. Unequal wealth distribution. In schools, they teach that this is a major problem with capitalism. Some are rich and some are less well off.
However, this is not a problem with capitalism. In fact, it is the motivating factor that keeps people working hard. Those that work hard and provide more value receive more compensation. It is a good feature of capitalism, not a problem!
5. Exploitation of workers. This is a problem, at times, but it occurs in all economic systems. In fact, in capitalist nations, the workers are often treated much better than in socialist or communist economies because the owners of the factories and stores want to hold on to good employees.
In a capitalist economy, workers are free to leave their jobs if they are unhappy and seek employment elsewhere. So whoever treats the workers the best wins because the will be able to hold on to workers. This loyalty saves a lot of money because finding and training workers is expensive and time-consuming.
In socialist and communist economies, the bureaucrats often donŐt care a bit about the workers unless they are rising up and burning down the entire city, which happens, at times. The theory of Karl Marx that the workers are the winners in communism is sheer nonsense.
The rulersŐ goal is control of everyone, and that includes the workers. Workers in socialist and communist economies are often not allowed to quit their jobs and move on. The rulers force workers to remain at jobs they do not like, often in work conditions they do not like.
This results in worse factory outcomes, sloppiness, sabotage and slowdowns because everyone is unhappy.
IS COMMUNIST CHINA NOW A CAPITALIST COUNTRY?
It seems like is capitalist because they are allowing American and European companies to do business there and run their own factories. However, this is not capitalism!
The dictators who run this thoroughly communist and socialistic nation are simply allowing business to flourish at the moment. They are doing this because they want to control the world by manufacturing everything in their nation.
They manipulate their currency to keep the price of everything they make very low so that the factories will stay there. That is not capitalism.
Environmentally, the nation is a filthy, disgusting mess that would never be allowed in America or Europe. They would be sued out of business immediately for this in capitalist nations where one can sue for damages that a company causes. No, China is not capitalist!
In communist China, the government can seize any business it wants at any time. This is not capitalism. They donŐt seize companies very often because if they did, all the foreign-owned companies would leave at once, but they have the power to do this.
The people of China are spied on all the time. They cannot come and go as they please and they cannot tune in to the internet the way people can in a capitalist nation. So the answer is no, communist China is not capitalist.
FREE ENTERPRISE DEVELOPS SOULS AND PLANETS
I submit that the free enterprise system is the system that develops people and entire planets the fastest. It is also a system, I am told, that describes the journey of souls as they mature. This is explained in texts such as the Hebrew and Christian Bibles. This is important because we all are souls at one level.
The free enterprise system seems cruel and unfeeling because it offers souls opportunities for learning, for failing, and for developing itself that can only come with freedom and with the freedom to fail utterly. This is the part of the equation, both economically and spiritually, that the liberals either fail to realize or just find repugnant.
Socialism, communism and progressivism or liberalism are more geared to the body only, not to the soul. The soul yearns for experiences, even if it means disease, failure, rape or death of the body.
In contrast, the body prefers comfort, sex, peace, love and dependency on others to do the dirty work, so to speak. This is a description of the promise of socialism, though not the reality because at this time, the earth is not technologically advanced enough to excuse everyone from working.
CAPITALISM OR FREE ENTERPRISE WORKS WELL
Let us be very clear about a fact. Capitalism has helped more people to be lifted out of poverty, slavery and disease than any other economic system in existence. This needs to be taught in school, and not the socialistic nonsense that corporations always abuse poor people, and so on. If abuse occurs, it is because capitalism is not practiced very often.
CRONY CAPITALISM OR FASCISM
In most nations, sadly including the USA these days, true capitalism is gone and it has been replaced, to some degree, with what is called crony capitalism. This is a corrupt system of economics in which the government passes laws that favor some companies or industries over others, and the government gives special benefits to some, and punishes others – usually it benefits those who give money to the legislatorŐs election campaigns and punishes those who do not.
However, at times crony capitalism is just a matter of ideology, which is also not capitalism. For example, the government may favor Ňgreen energyÓ companies over others, even if it makes no sense economically and just wastes money.
What the legislators fail to understand is that if someone has a wonderful Ňgreen energyÓ idea, it will be developed if businessmen are just allowed to do what they do best - research, invest, and develop new ways to help society.
Usually, if a good technology is not developed, such as using water to power our automobiles (which works), it is because the technology is not allowed by someone, such as the oil cartel in this case. It is not a failure of capitalism, as some claim. It is simply that capitalism is not permitted in many areas today.
CAPITALISM IN HEALTH CARE
Nowhere is crony capitalism, corruption and socialistic thinking more evident than in the area of health care. Natural healing works very well for many diseases. However, it is simply not permitted in the hospitals, and doctors who deviate from the dictates of their medical boards lose their medical license and cannot even practice medicine, even if they help people.
This is not a Ňmarket failureÓ, as some believe. This is a cartel ruling an industry with an iron fist.
Capitalism is the ability to garner your resources, use your head, make products that other people want, and to barter them, sell them, buy them and contract with others any way that two agree to do it by voluntary means.
Capitalism, by the way, is not just an economic system. It applies to your personal life as well. One could say it is also the freedom to contract with others to get married, have children, learn a career and practice, and so on. The principle is the same. It is the freedom to garner your resources and use your head to make wise decisions for yourself and hopefully for everyone else. This is capitalism, and this needs to be taught in school.
Capitalism works well when properly understood and when cheating is not allowed. When it is corrupted by bad laws, it does not work as well. Here are some ways this happens:
Croney capitalism. This occurs when the government, usually, picks out winners among companies and gives them generous loans that they often know will never be repaid. Usually, the heads of the companies donate money to the presidentŐs or leaderŐs campaigns to be elected, and then the leaders turn around and give public money – money collected from the people – back to their friends in businesses. This is the system of economics in communist China and in many other nations to a degree.
This is simply corruption, by the way. It sometimes goes by names such as fascism, or private-public partnerships, or non-governmental entities like Fannie Mae and Freddie Mac.
Other corporate problems in capitalism. These include simple stealing, lying, cheating, murdering your adversaries, and general corruption such as bribing government officials to pass laws outlawing your competition, forcing them to subsidize your product or service but not the products of other companies, and so on.
These are all serious problems with capitalism, but it is important to note that they are really problems with human behavior. In other words, if you get rid of capitalism, you will not get rid of these problems.
In fact, they are usually worse under socialism. Socialism, in its pure form, is government control of the means of production or factories, farms, etc.
What occurred in the former Soviet Union, and what occurs today in Red China, Russia, and other socialist or communist nations is that the government bureaucrats and technocrats who run the factories and farms are extremely corrupt. They siphon off money for themselves and their friends. They cheat, they lie, they steal, they bribe and they donŐt hesitate to kill anyone who interferes with their schemes.
Even worse, the enormous power government bureaucrats and leaders have over the economy and political power in socialist nations leads them to become militaristic in all cases. This is occurring in Red China today. They are becoming the next Hitler. They love the idea of ruling the world, as do all very powerful people.
The threat to our world is not the corporations like Monsanto, though I donŐt like their genetically modified seeds any more than anyone else. The real threat is socialism and communism. Monsanto is not building nuclear submarines and bombs at an unprecedented pace. Red China is doing this, with help from their North Korean neighbors. It is important to be very clear who and what is the real problem in the world today.
The liberals, leftists and Marxist college professors are not only mistaken. They are the problem.
We want to recommend a book called Conscious Capitalism co-authored by John Mackey and Raj Sisodia. It explains the above and a new vision for capitalism in excellent and readable terms.