Some people say that they haven’t been treated very well by the capitalist system. They look at others richer than themselves and feel unblessed by the system of capitalism. Oh really? To such people I would ask: Do you use the convenient services of shopping centers to buy your desired goods? Are you not able to go to a store and choose from an astonishing variety of products for every conceivable need? Do you have a television, a personal computer, or a cell phone? Do you drive a car? Do you have a house with electricity, internal heating or air conditioning? Do you own multiple options of attire to wear in your wardrobe? Do you have enough leisure time in your life to do things other than just working, like watching a video presentation about capitalism? If the answers to any of these questions are yes, then I would say that capitalism has treated you very well indeed.
The Miracle of Capitalism Part III: Capitalism and Prosperity
The previous video presentations have discussed what capitalism is and why it is by far more moral than its alternatives. This part three in the miracle of capitalism series is called “Capitalism and Prosperity,” and will cover how following the principles of capitalism to a greater or lesser extent is responsible for the widespread prosperity and abundance around the world, and will discuss specifically how capitalism does this.
The Genesis of Capitalism
Before the birth of capitalism in the modern world, the standard of living for mankind was very poor indeed. During medieval times and up until the 15th century, the feudal system prevailed, wherein commoners, the peasants, did not own land, but for a fee lived on the land owned by a lord. There was no economic progress under this dismal system which constrained private property. Since the medieval times professions were organized into guilds, which were societies that consciously controlled the commerce relating to each profession, by suppressing competition within and between communities, and instituting price controls. In addition to this, the prevailing thought with reference to international trade, which was referred to as mercantilism, prescribed high tariffs on imports and advocated eliminating trade deficits (i.e. countries believed that it was more important to export goods than to import goods, as it was better to have more gold than to have the goods traded for them). People’s standard of living was low, life expectancy was low, and except for royalty and noble classes people were almost universally greatly impoverished.
Then, in the late eighteenth century, a light broke forth. Eternal truths about the laws of economics were being discovered. This was the era of the classical economists, led most notably by Adam Smith, who advocated free trade and a laissez-faire free enterprise mode of commerce. They had discovered the eternal truth that private enterprise and the invisible hand of the market was the most efficient means of allocating resources among the children of men. In 1776, Adam Smith published his seminal work The Wealth of Nations, which had a profound influence. The Western world soon entered an era of pro-capitalism, and commerce and trade restrictions were removed. The effect was an unprecedented explosion of innovation and production. It led to the Industrial Revolution, wherein machines began to mass produce goods to such an abundance that soon even the poor people could afford them.
Today collectivists like to spread lies about the success of the Industrial Revolution, or they choose to focus on the shortcomings of the times, and refuse to see instead what a vast improvement the Industrial Revolution represented to the people of the world. No one was forcing people to leave their farms and come to the city to work in factories. People chose to do this, because it offered for them a better alternative than the one they were in to begin with. For the first time in history, the masses were being lifted out of poverty and into more comfortable lives.
Other times collectivists make a big ado about child labor that occurred during the Industrial Revolution. But as Ludwig von Mises wrote: “It is a distortion of facts to say that the factories carried off the housewives from the nurseries and the kitchens and the children from their play. These women had nothing to cook with and to feed their children. These children were destitute and starving. Their only refuge was the factory. It saved them, in the strict sense of the term, from death by starvation” (Ludwig von Mises, Human Action, Pocket Edition, p. 615). And it was only through the progress of capitalism that women and children of the lower class could eventually for the first time in history both live in comfort and actually not work! In time, children had the ability to go to school, and the women could stay at home and be supported on the income of their husbands. Child labor cannot be ended by government decree; it may only be ended by reaching a high state of production and development made possible through capitalism. There are no shortcuts to this state of being. The great abundance that we see today could not have come about were it not for the Industrial Revolution, and the Industrial Revolution could not have come about were it not for the principles of capitalism.
Journalist and economics expert Henry Hazlitt noted:
“But aside from the notorious fact that the condition of the masses is enormously better than it was two centuries ago, just before the Industrial Revolution (i.e., the birth of modern capitalism), there is the still more notorious fact that the population of the world since then has increased three-fold or four-fold. It was capital accumulation that made this possible. This means that at least two out of every three of us owe our very existence to the savings and investments of our forebears…and to the capitalist system. What assurance has any of us that he is the one person in every three or four that would have come into the world anyway, without this capital accumulation?”
(Henry Hazlitt, The Failure of the “New Economics,” p. 246).
Ludwig von Mises wrote the following about the true effects of the Industrial Revolution:
“The history of capitalism as it has operated in the last two hundred years in the realm of Western civilization is the record of a steady rise in the wage earners’ standard of living. The inherent mark of capitalism is that it is mass production for mass consumption directed by the most energetic and far-sighted individuals, unflaggingly aiming at improvement. Its driving force is the profit-motive the instrumentality of which forces the businessman constantly to provide the consumers with more, better, and cheaper amenities. An excess of profits over losses can appear only in a progressing economy and only to the extent to which the masses’ standard of living improves. Thus capitalism is the system under which the keenest and most agile minds are driven to promote to the best of their abilities the welfare of the laggard many.
“…Capitalism, says Marx…has an inevitable tendency to impoverish the workers more and more. The truth is that capitalism has poured a horn of plenty upon the masses of wage earners who frequently did all they could to sabotage the adoption of those innovations which render their life more agreeable. How uneasy an American worker would be if he were forced to live in the style of a medieval lord and to miss the plumbing facilities and the other gadgets he simply takes for granted!”
(Ludwig von Mises, Human Action, Pocket Edition, p. 611, 612).
The collectivists of today seek to take the abundance that exists and redistribute it. They take the abundance completely for granted, with no care or thought to how such abundance is created and achieved. Go to the store. Take a look around. Look at all the abundance of products and services available for our enjoyment. Where do collectivists think this abundance has come from? Do they think that it simply dropped from the sky, or that it simply appeared one day? No it did not, but it was only by following the principles of capitalism that they have become reality. Abundance requires production. And production requires capital. Capital is supplied by investors. Yet, it is such very people who create businesses and are successful that the political left seeks to demonize. They bite the hand that feeds them. They bite the invisible hand, which has been so good to them by providing them with their present living standards.
How Wealth is Created
How did the Industrial Revolution make the West richer? How does this process work? How is wealth created? What is wealth?
Simply having jobs does not make a nation wealthy. The government could employ the entire currently unemployed population in digging ditches aimlessly, and thereby reach full employment, but where would be the value? How would this create wealth? Of course, it would not. Employment is a means to the ends, not the end in itself.
For the government to simply print money does not make a nation wealthy, either. If the money in every person’s wallet were to magically double one day, this would not make anybody any richer than they were the day before. Things would just cost about twice as much.
Wealth is simply to have an abundance of goods and services that make life easier or more comfortable. Therefore, wealth is increased when standard of living is improved. And standard of living is improved with a greater abundance of goods and services. The key to the whole question of wealth creation, then, is production. An abundance of goods and services can only appear by being produced by someone. And the only way for a wide range of goods and services to become as abundant as possible, is for investors and entrepreneurs to own private property, and have free enterprise with their property.
With the incentives private enterprise instills, entrepreneurs are then in a position to fulfill the needs of the masses by acting on their own self-interest. Those who do an exceptional job of fulfilling the wishes of consumers become rich, and the world is itself richer for having the goods or services created and provided to it. Those who do a poor job of providing for the desires of consumers suffer losses and go out of business. The resources which were wasted on their unwanted enterprises are then freed up to go into supplying other goods and services that are closer to the wants of the consumer.
The division of labor, the exchange of goods, and mass production all combine to enrich not just a few, but all whose lives are touched by them. As supply increases through production, prices drop and availability widens. Then the voluntary exchange of people’s money for the goods and services they desire leads everyone to a better condition than they were in previously. As Frédéric Bastiat observed, “By virtue of exchange, one man’s prosperity is beneficial to all others” (Frédéric Bastiat, Economic Harmonies, par. 4.110).
The divine pattern of wealth creation through capitalistic means is demonstrated in the Book of Mormon. It records:
“And they [the Jaredites] were exceedingly industrious, and they did buy and sell and traffic one with another, that they might get gain.
“And they did work in all manner of ore, and they did make gold, and silver, and iron, and brass, and all manner of metals; and they did dig it out of the earth; wherefore, they did cast up mighty heaps of earth to get ore, of gold, and of silver, and of iron, and of copper. And they did work all manner of fine work.
“And they did have silks, and fine-twined linen; and they did work all manner of cloth, that they might clothe themselves from their nakedness.
“And they did make all manner of tools to till the earth, both to plow and to sow, to reap and to hoe, and also to thrash.
“And they did make all manner of tools with which they did work their beasts.
“And they did make all manner of weapons of war. And they did work all manner of work of exceedingly curious workmanship.
“And never could be a people more blessed than were they, and more prospered by the hand of the Lord.”
(Ether 10:22-28).
The Book of Mormon also verifies that following the principles of free enterprise made the Nephites and the Lamanites rich because of their industrious production:
“And behold, there was peace in all the land, insomuch that the Nephites did go into whatsoever part of the land they would, whether among the Nephites or the Lamanites.
“And it came to pass that the Lamanites did also go whithersoever they would, whether it were among the Lamanites or among the Nephites; and thus they did have free intercourse one with another, to buy and to sell, and to get gain, according to their desire.
“And it came to pass that they became exceedingly rich, both the Lamanites and the Nephites; and they did have an exceeding plenty of gold, and of silver, and of all manner of precious metals, both in the land south and in the land north.
“…And behold, there was all manner of gold in both these lands, and of silver, and of precious ore of every kind; and there were also curious workmen, who did work all kinds of ore and did refine it; and thus they did become rich.
“They did raise grain in abundance, both in the north and in the south; and they did flourish exceedingly, both in the north and in the south. And they did multiply and wax exceedingly strong in the land. And they did raise many flocks and herds, yea, many fatlings.
“Behold their women did toil and spin, and did make all manner of cloth, of fine-twined linen and cloth of every kind, to clothe their nakedness.”
(Helaman 6:7-9, 12-13).
Likewise, the Anti-Nephi-Lehies, because of an atmosphere of freedom had been established (as described in Alma 23:2-4), had become an industrious people and opened trade with the Nephites. The text reads: “And they began to be a very industrious people; yea, and they were friendly with the Nephites; therefore, they did open a correspondence with them, and the curse of God did no more follow them” (Alma 23:18).
Also, in the book of Mosiah, we read about how, because of equal rights and honest work by laboring for themselves, God prospered the Nephites and they became wealthy. It says:
“And there was a strict command throughout all the churches that there should be no persecutions among them, that there should be an equality among all men;
“That they should let no pride nor haughtiness disturb their peace; that every man should esteem his neighbor as himself, laboring with their own hands for their support.
“Yea, and all their priests and teachers should labor with their own hands for their support, in all cases save it were in sickness, or in much want; and doing these things, they did abound in the grace of God.
“And there began to be much peace again in the land; and the people began to be very numerous, and began to scatter abroad upon the face of the earth, yea, on the north and on the south, on the east and on the west, building large cities and villages in all quarters of the land.
“And the Lord did visit them and prosper them, and they became a large and wealthy people.”
(Mosiah 27:3-7).
Capitalism in America
Nowhere can one find a better example of the success of the capitalist system than in the history of the United States of America. Here we find a nation starting from scratch, so to speak, as a brand new nation full of possibilities and perils. The Founders who framed the Constitution made free enterprise, in the tradition of Adam Smith, an integral fundamental to their governmental system. It was the first nation to try free market capitalism to such an extent, on such a grand scale, and for such an extended period of time. What were the results?
The very largely unhampered free market in America soon transformed the little rag-tag nation of rebels into the most prosperous nation under heaven. As W. Cleon Skousen wrote:
“By the end of the nineteenth century, [the Founding Fathers’] formula [of the Constitution] was beginning to give Americans the highest standard of living in the world. With less than 6 percent of the earth’s population, they were producing more than half of just about everything. This was all made possible because Americans had a Constitution which allowed them to be the first nation to practice the free-market principles set forth in a famous book by Adam Smith entitled The Wealth of Nations.”
(W. Cleon Skousen, The Making of America, p. 203).
Ludwig von Mises wrote,
“The truth is that capitalism has not only multiplied population figures but at the same time improved the people’s standard of living in an unprecedented way. Neither economic thinking nor historical experience suggest that any other social system could be more beneficial to the masses than capitalism. The results speak for themselves. The market economy needs no apologists and propagandists.”
(Ludwig von Mises, Human Action, Pocket Edition, p. 850).
Since the beginning of the twentieth century, however, America has been drifting steadily away from its capitalist roots, to where it no longer has a free market economy. It is in this fact that lays the root of all of America’s grave troubles today. Many American Presidents are highly responsible for this deterioration. Some of the notable offenders include Woodrow Wilson, who signed the Federal Reserve Act into law and led America needlessly into a World War; Franklin D. Roosevelt, whose big government interventionist policies of the thirties served to prolong the Great Depression, and left a lasting legacy of dependency on government and government interference; Lyndon B. Johnson, who instituted the misguided “Great Society” sweeping welfare programs; George W. Bush, who despite claiming to be conservative, greatly increased the size and power of government, and instituted bailouts for select corporations; and Barack Obama, who likewise bailed out corporations, handed out tax payer money in a nonsensical and failed “stimulus package,” and who is generally a powerful advocate of big, intrusive government. All of these policies have led to disaster, and those who would seek to defend them must resort to half-truths and distortions.
Conclusion
There can be no doubt about the success of free market capitalism in raising the standard of living for all people privileged to live under its influence. The facts speak for themselves. The many comforts you enjoy today are a direct result of the fact that your forebears followed the principles of capitalism, and that to a more limited extent, those principles are still being followed. Under capitalism, those who are successful find themselves in that situation because they have become expert at providing the masses with their wants and desires. Those who feel that they have not prospered under capitalism, rather than blaming the system, should look inward for the answers of why they failed.