THE FREE ENTERPRISE ECONOMIC SYSTEM

(former article title was Capitalism)

by Dr. Lawrence Wilson

© January 2020, L.D. Wilson Consultants, Inc.

 

Contents

 

I. INTRODUCTION

Definitions Of Economics, Goods And Services

Definitions Of The Two Kinds Of Economies

 

II. THE FREE ENTERPRISE ECONOMIC SYSTEM

 

III. THE SOCIALIST ECONOMIC SYSTEM

 

IV. RELATED TOPICS

__________________________ 

 

I. INTRODUCTION

 

DEFINITIONS

 

Economics.  This is the complex system within every society that is concerned with the manufacture or production, distribution and sale of all the goods and services the citizens of that society require.

 

Goods. In economic terms, these are solid, tangible items that citizens buy and sell such as cars, houses, books, chairs and millions of other items.

 

Services.  These are items that not tangible.   They include medical care, accounting, legal services, business consulting, marketing services, research, and more.

 

ECONOMIC SYSTEMS

 

There are only two ways to produce all the goods and services needed in every society.  These are:

- The free enterprise economic system.

- The  socialist or command and control economic system.

 

Definition of the free enterprise economic system. This is the ability to garner your resources, make products that other people want, and to barter them, buy and sell them, and contract with others any way that two agree to do it by voluntary means.  It requires political liberty and much more.

Other names.  This system is also called capitalism, free market economics, and an older term is the laissez faire system of economics.

 

Definition of the socialist or command and control economy.  This is an economy in which the government controls most or all of the economy and make most of the decisions about which goods and services will be produced, how much they will cost, who can buy them and more.

Other names.  This older system is also called monarchy, oligarchy, and more recently it is called Marxism, socialism, communism, or a totalitarian economic system. 

Let us discuss these in more detail.

 

II. THE FREE ENTERPRISE ECONOMIC SYSTEM 

 

            The free enterprise economic system is a newer, more advanced and more complex economic system.  It requires a network of institutions such as banks, wholesalers, distributors or ÒmiddlemenÓ, retail outlets, marketing and advertising.

It also requires a strong set of just laws to maintain an even playing field between various people who produce, distribute and sell goods and services.  This involves the services of just courts, attorneys, police and other aspects of the legal system. 

It also requires accountants, inspectors and other business professionals to monitor the system.  It also requires mediators, arbitrators and others who settle disputes and keep everything running smoothly.

It also requires a sound money system, something that many nations do not have. 

It also requires private ownership of land and careful record-keeping to check on the ownership of property. 

It also requires individual rights and political liberty. 

Without all of the above and more, it does not work and does not really exist.  However, when all the above is in place, it is a marvelous system that is unrivaled in its ability to produce excellent quality goods and services and spread joy and prosperity to millions of people.

This system produces almost all of the goods and services in the world.  Unfortunately, it has been corrupted in all nations of the world so it does not work nearly as well as it could.

 

MORE DETAILS

 

The free enterprise economic system is based upon the following:

1.  People have the right to own land and other property, and this right is protected by just laws.  This means that the government or other people cannot just seize a personÕs property.  Buying and selling of property is allowed and exchanges of property are voluntary.

The right to own property also must include the right to use and dispose of oneÕs property as one sees fit.  However, there must be laws to protect the environment to prevent pollution of the land, for example, with toxic chemicals or other pollutants.

2. There must be a stable and transparent and not too corrupt monetary system.  Goods and services are traded for money or by barter (exchanging one good or service directly for another).  Money is a more advanced system involving a medium of exchange.  It is much more flexible than barter.

People are allowed to earn money by making a ÒprofitÓ.  Profit is the difference between what you buy something for and what you sell it for. 

For example, let us imagine that a person has a vegetable stand.  He buys carrots from a farmer for $1.00 a bundle and sells them for $2.00 a bundle.  The profit is one dollar per bundle.

With this profit, the person pays all his expenses such buying products and repairing the vegetable stand.  Hopefully, he has some money leftover with which to buy other goods and services he and his family need in order to live. 

3. People are allowed to keep most of what they earn.  They usually pay some of what they earn in taxes, but they are generally allowed to keep most of their money.  If taxation becomes heavy, the free enterprise system will break down and fail.

4. Information about products and services is made available freely, and not censored by the government.  This is most important and called a marketplace.  It is the way that people can make rational decisions about what they need to buy.  Laws are required to make sure that advertising and marketing is based on true information.

5. Liability. Each citizen is also liable for any problems or illegal activities that arise from their business.

6. The role of the government. The role of the government in a free enterprise economic system is to be a ÒrefereeÓ to maintain a level playing field for all business activity, to make laws to maintain that level playing field, and to catch and bring to justice anyone who violates the basic laws against fraud, misrepresentation, robbery, rape murder and other crimes.

The laws are there to protect the right of each person to do his business as he sees fit, as long as each person does not violate the laws of the nation and the economic and political rights of anyone else.  This is very important today to understand.

The government is NOT to be a provider of goods, services, welfare, subsidies, favors and other things that are subject to political whim and power groups.  This is part of the older and much more primitive economic system that today is called socialism, communism, monarchy, fascism and totalitarianism.

In other words, in the free enterprise system, the government must not favor one person or producer or company over another.  All should be treated equally.  Also, the government must not Òbail outÓ anyone or any company.

Also, there should be no government welfare system.  The people should be allowed to start agencies and groups to help the poor, the disabled, the sick, the elderly, children and others who cannot work.

7. 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.

8. 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 free enterprise 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 and yet make a profit.

- Offer workers ÔbenefitsÕ such as better work hours, child care, training, pensions, health care plans, retirement plans and more.

- Control all aspects of manufacturing, marketing, sales, distribution, research and other aspects of making and selling goods and services.   

 

License is what occurs in socialistic, communist, totalitarian and in nations called monarchies.  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 ÒnationalizingÓ an industry but it means stealing.

In socialist nations, the government usually manipulates the money supply to enrich some and impoverish others.

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 donÕt obey the orders of the government?  The government may want them to make inferior products or to work more slowly, or something else in order to keep the people in poverty or oppressed in some other way.

9. Profit is the reward system that keeps people working hard.  It is not an ideal motive, but it works quite with many people to motivate them to come to work and to work diligently and carefully.  At this time, it 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.  This produces many fewer products and 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 once prosperous nation has been reduced to abject poverty.  Rogue governments like this because prosperous people are much harder to control.  This is very important to understand.

 

              10. In the free enterprise economic system, those who produce goods and services must respond to the needs of the people (their customers) in order to succeed.  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 ÒfailureÓ concept is an essential part of the free enterprise system.  Anyone who tries to eliminate it is secretly a destroyer and enemy of the people.

They say that capitalism is bad because some businesses will ÒfailÓ.  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 rarely can 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, in socialist nations, government workers often have a vested interest in their particular product or service.  They want more of it made 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!

 

THE MARKET

 

Another name for capitalism is the free market economic system.  The ÒmarketÓ is the sum total of the needs of the people.  It is always changing as peopleÕs needs change.

In a free enterprise 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 inÕ 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 donÕt really care very much what people want.  As a result, their factories often produce things people donÕt want and donÕt need.  In this regard,  socialist and communist economies are inherently stupid.  This is an important concept.

 

PEOPLE TO PEOPLE

 

The free market economic system is a people-to-people system.  That is, the people have needs and other people notice the needs, notice their own skills, abilities and preferences, and then endeavor to satisfy the peopleÕs needs.  They are rewarded if they do this correctly.

The government is to stand by and watch what is going on and they should make sure no one cheats or takes advantage of anyone else.  This cannot be done perfectly, but it must be done fairly well for the free market system to succeed.

            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, creative people usually do not like working in a stuffy government office their whole lives.  They 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 impossible.  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 reasons that are difficult to assess.

- 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 for them to monitor what everyone needs.

- Government workers have little incentive to govern wisely.  Their jobs are usually secure even if they do a bad job.

- Bureaucrats are under the control of their bosses, who have other agendas besides satisfying the peopleÕs needs.  So even if a government official wants to do a good job and can do a good job, 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.

 

BENEFITS OF THE FREE ENTERPRISE SYSTEM

 

            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 donÕt live near the factories so they have little incentive to care about the air and water quality.

They also donÕt 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. The free enterprise economic system causes much 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.

 

PROBLEMS WITH THE FREE ENTERPRISE ECONOMIC SYSTEM

 

1. It is rarely allowed.  This is the main problem with capitalism and free market economics.  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 donÕt teach it, and colleges donÕt teach the truth about it today.

3. It is easy to ruin.  The free enterprise system is quite delicate.  Too many regulations, too much corruption, and passing bad laws can ruin it quite easily.

4. Other problems.  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 can be serious problems with a free  enterprise economic system.  However, they are really problems with human behavior and they are usually much worse in command and control economies.  In other words, if you get rid of capitalism, you will not get rid of these problems.

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 donÕt 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 real threat to our world is not the corporations like Monsanto, though we donÕt 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 – another command and control economy.  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 wrong, as are most of the American, European and Asian media.  They are rogue-controlled and are destroyers.  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.

 

Exploitation of workers.  This is a problem in all economic systems.  In fact, in nations with a free market economic system, 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 free enterprise 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 donÕt 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 rulersÕ 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.

 

FAKE PROBLEMS OF THE FREE ENTERPRISE ECONOMIC SYSTEM

 

Unequal wealth distribution.  This means that some citizens have more money than others. Schools and universities often teach that this is a major problem with the free enterprise system. 

However, it is not a problem and occurs intentionally.  Some people work harder than others, or longer hours.  Some people are more creative than others. This is reality and it is allowed.

In fact, the difference in wealth is a mojor motivating factor that keeps people working hard.  Those that work hard and provide more value receive more compensation.  It is a good feature of free enterprise economies, not a problem!

 

Caring for the poor, disabled and elderly.  Schools and the media also teach today in a free market economy, no one cares about the poor, elderly and disabled people and the government must take care of them.  This is another lie. 

The free enterprise system does not operate in a vacuum.  It is always coupled with a moral code, such as that in the Bible that commands people to love their neighbors as themselves, and to care for others.

In free enterprise systems, private welfare systems always arise to care for those who cannot work such as children, elderly or disabled people. 

Whether organized by churches or other civic groups and associations, groups spring up everywhere to care for the poor, the sick, the old, the disabled and others who cannot produce economically.  This fact is not taught in schools, but is the absolute truth.

The idea that the poor will just languish on the streets without government intervention is a complete lie that is repeated endlessly on television and in the universities today. 

In fact, private welfare, private hospital care and private old age care tend to assist people to develop themselves spiritually much more than the Ôentitlement mentalityÕ found in socialist nations.

This topic is discussed in another article on this website called What is Compassion? What is Charity?

 

III. THE SOCIALIST ECONOMIC SYSTEM

 

            This is an older economic system in which a small group of bosses or elites control most aspects of the economy.  The elites can be a king or queen, a dictator or a group or political party such as the Communist Party in communist China, or socialist parties of some nations.

In this system, the citizens have less control over which products they will have access to.  A central government makes most of the decisions for them.

For example, in a socialist nation, the central government decides which products and services will be 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, how the products will be advertised, who can buy them and more.

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.  This reduces the incentive of the citizens to work hard and efficiently, and to innovate.

In most socialist and communist nations, there are no property rights, few individual rights, a corrupt legal system, and the money system is corrupt and run by the government for their benefit, not that of the citizens.

 

IV. RELATED TOPICS

 

IS COMMUNIST CHINA NOW A CAPITALIST COUNTRY?

 

It seems like it 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 a free enterprise nation where one can sue for damages that a company causes.  This is not permitted in communist China.  No, China is not capitalist!

In communist China, the government can seize any business it wants at any time.  This is not capitalism.  They donÕt 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.

 

THE FREE ENTERPRISE SYSTEM IS THE ONLY WAY OUT OF POVERTY

 

Let us be very clear about a fact.  Capitalism or the free enterprise system 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 lie 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 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.

At times, this is called Òindustrial policyÓ.  It is not free enterprise and it usually does not work well.  What the legislators fail to understand is that if someone has a wonderful  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 Òfailure of capitalismÓ, as some claim.  It is simply that capitalism is not permitted in many areas today.

 

CRONY 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 work, even if they help people.

This is not a Òmarket failureÓ, as some believe.  It is the result of a monopoly that rules an industry with an iron fist.  For details, read The Case Against Medical Licensing.

 

FREE ENTERPRISE IN OTHER AREAS OF LIFE

 

The idea of free enterprise applies to oneÕs personal life as well.  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. 

 

THE WEALTH OF NATIONS

 

The principles of free enterprise economics were first elaborated in detail by Adam Smith in his famous book, The Wealth Of Nations.  Dr. Smith studied the most successful nations and realized that all shared these basic principles of commerce.  He put the whole thing together and coined a lot of the terms we take for granted today in economics.

One of the most famous of his ideas was that of the Òhidden hand of the marketÓ.  It is actually quite brilliant.  It is the idea that if there is any good or service that is needed in society, people will pay more for it and this will attract people he called entrepreneurs into this business, no matter what it is.

The good or service could be garbage collection or dishwashing, for example.  But if it is needed, the price will go up and more people will begin to offer the service, until the price comes down and then others will not do this, but will choose another line of work where the demand is greater.

The concept of the hidden hand of the marketplace means more than this, however.  It is a simple phrase to describe the entire self-regulating quality of a marketplace and its ability to balance itself and work for the good of all.

This is actually a whole systems concept in which the whole is greater than the sum of the parts.  It means that one cannot predict the behavior of the marketplace, even if one knows all the players.  (This same principle is used in development science, which is another whole system approach to living.)

This concept works beautifully, but some people have trouble trusting it, or simply do not like it because they cannot control it.  Governments, in particular, often like to meddle in the marketplace by favoring certain industries or certain companies.  This always causes problems, but governments persist in this because they, or their friends in industry or academia or elsewhere, want to control the nation for their own gain, rather than allow the economy to work for the good of the people.

In this regard, capitalism is a very complex, self-regulating economic system.  Few people understand this, so they are always trying to meddle and ÔfixÕ what seem to by ÔsymptomsÕ of problems with it, such as how to care for the poor or ill, or what to do about pollution, for example.

 

THE SEEMING HARSHNESS OF THE FREE ENTERPRISE SYSTEM

           

Exploiting the workers.  Karl Marx wrote about the Òexploitation of the workersÓ by the capitalist bosses.  They rode around in fancy carriages, while the workers toiled in the factories for low wages.  This is one aspect of the harshness of capitalism. 

However, Marx did not explain that the workers had few other choices.  In other words, they could work just as hard or harder on the farms, perhaps, for even less money, or they could be beggars and have an even worse life. 

Factory life, while certainly not ideal, offered the working people more, so they flocked to it by the millions and are still doing so all over the world for exactly the same reasons.

The harshness of allowing a business to fail.  It seems so harsh, so inhuman, some would say, to allow a business to fail.  It puts thousands or more out of work, for example.  The resources must be sold off at auction prices and sometimes the creditors of the business are the seeming victims as well.  They may not get paid for their services and they might fail as well. 

The public seems to lose out, too, if an important type of business like a bank or General Motors fails.  Depositors at the bank may lose their money, for example.  People who have bought General Motors cars might not be able to have them serviced properly if the company fails. This is one seeming type of  harshness and inhumanity of free market capitalism. 

The response to this criticism must be understood clearly.  It is that 1) all economic activity has risk.  One cannot simply deny the risk by bailing out every failure.  If one does this, failure becomes the new standard and no one will try very hard to succeed.  This is exactly what has happened with our banks, today, and with General Motors today.  They have much less incentive to try hard to do a good job and earn money because they believe they will be bailed out, also called Ôtoo big to failÕ.  This is, in fact, nothing but corruption at high levels of government. 

In a free enterprise economy, if banks or anyone cannot act responsibly, they should fail and others would buy up their assets at bargain prices and do a better job.  That is the way things are done in market economies, and it works well if one leaves the system alone.

Only corruption causes bailouts.  I am familiar with the arguments that our national security and all depend on big banks and big car companies.  We think this is mostly lies told to the public. 

Once again, the principle works that if one company fails, others will buy up their assets and continue their production, if it is economically viable.  If it is not viable, then it should fail because why produce products and services that no one wants?

 

POLLUTION

 

Another criticism of the free enterprise economic system is that it causes irresponsible pollution of the air, water and everything else.  However, if you look around the world you will quickly see that the most polluted nations are the socialist and communist nations such as China and North Korea, not the free enterprise nations of the Western world.

In a truly capitalist or free enterprise economy, companies are totally responsible for their property and any damage they do the property of others.  Thus, if they pollute the air, water or land, they are totally responsible.  They should be sued out of business for polluting the property of others. 

Sadly, environmental laws have been passed that exempt corporations from this responsibility, in many cases.  As a result, companies are allowed to dump a certain amount of waste products, for example, without consequence. This is one cause of pollution in many cases, and is the result of corruption, not capitalism.

            Another aspect of pollution is that in a capitalist nation, new technology that is cleaner will always win out over older, polluting technology, providing it is cost effective.  If this does not occur, it is due to bad laws that prevent innovation. 

An excellent example of this today (2020) is the fuel and motors for our automobiles.  Much better technology exists, but it is not allowed.  For details, read The Regulatory State.  Rule by regulations is pure socialism, not free enterprise.

 

 

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