Posted on by Ray

How Capitalism Enriches The Poor And The Working Class

When portable radios first appeared in American stores, the average American worker had to labor 13 hours to buy one; today he or she toils for about 1 hour.

In the 1920s it took 79 hours of work to buy a nice men’s suit; today it takes less than half that.

At the beginning of the twentieth century the average American family spent three-quarters of its income on food, clothing, and shelter; today it spends about one-third on those items, and spends and even greater proportion on taxes (source).

That principle is the exact principle whereby capitalism enriches any and every society that implements it.

The insidious myth that capitalism “exploits the workers” while a few capitalist pigs get rich at the workers’ expense is a canard that’s been bunked a billion times.

But there’s even more:

Electric light was first deployed along Pearl Street in downtown Manhattan in 1882, powered by America’s first commercial electric grid. Electric lighting initially cost much more than gas lighting (the dominant form of lighting at the time) and was available only to multi-millionaire JP Morgan and a handful of businesses in New York’s financial district. By 1932, however, the price of electricity had fallen to one-third its former level, and 70 percent of Americans had electricity. Within fifty years of Edison introducing the electric grid, gas light was all but forgotten, and electricity emerged as the power source for the masses. Electricity not only provided clean, odorless, and safe lighting compared to its predecessor; it also powered refrigerators, fans, heaters, irons, and ovens, and it quickly became the dominant source of motive power in factories (source).

Capitalism lowers the cost of every new technology. It does so by taking products — cars, cotton, electricity, phones, computers, it doesn’t matter — and through constant innovation and the ingenuity that free markets foster, mass producing these items, which lowers and lowers the costs. That is why in this country even those below the poverty level own televisions, phones, microwaves, toasters, and so on. That is why no one starves to death in the United States.

The locus of wealth is production and free exchange. The locus of production and free exchange is private property. And that is why private property is the most important ingredient to capitalism.

Consider that government cannot redistribute or spend a single penny without first either taxing, borrowing, or printing, all three of which deplete real wealth. In this way, government intervention, in any of its multifarious forms, is by definition self-defeating: It can only end in wealth destruction. It’s also why labor unions cannot, over the long run, increase real wages and living standards, and only advances in technology can.

“Historically, real wages (wages adjusted for the effects of inflation) rose at about 2 percent per year before the advent of unions, and at a similar rate afterward” (Morgan Reynolds, Power and Privilege: Labor Unions in America, 1984).

Says Dr. Dilorezo:

If labor unions were responsible for the historical rise in wages, then the solution to world poverty would be self-evident: unionize all the poorest nations on earth. [And yet] private-sector unions reached their peak in terms of membership in the 1950s, when they accounted for about a third of the workforce. Today, they represent barely 10 percent of the private-sector workforce. All during this time of declining union memberships, influence, and power, wages and living standards have risen substantially. All of the ‘declining industries’ in America from the 1970s on tended to be the highly unionized ones, whereas the growing industries, especially in the high-technology fields, are almost exclusively nonunion. At best, unions can improve the standards of living of some of their members, but only at the expense of other, nonunion workers, consumers, and others. When unions use their power to go on strike, or threaten to strike, and succeed in increasing their members’ wages above what they could earn on the free market, they inevitably cause some union members to lose their jobs.

The reason? When wages rise, it makes labor more costly; therefore, to keep turning a profit, employers simply cannot employ as many workers.

23 Replies to “How Capitalism Enriches The Poor And The Working Class”

  1. Ray, you forgot to mention that in your capitalist utopia, corporations demean and dehumanize people, women and minorities in particular, and that in your ideal world, corporations would be the new god.

  2. Capitalism opens up the marketplace for an almost endless number of businesses — not just corporations — which is why mom-and-pop businesses flourish even amid corporate juggernauts in every American city. It’s fashionable, I know, to demonize so-called corporate coffee and Starbucks, while conveniently forgetting the fact that were it not for Starbucks, the coffee culture (and all the goes along with it) wouldn’t exist. Starbucks created that market, back in the 80’s, thereby opening up countless small, independent coffee shops, which continue to flourish to this day, often outstripping Starbucks.

    But, yes, Alice, we have it so bad these days in our corporate work environments with all that pay and all those benefits packages — which corporate work environments, by the way, you’re free to quit at any time. It’s such a shame that we can’t just return to the good ol’ days prior to industrialization when every man, woman, and child labored from sun-up to sundown just to put bread on the table, often succumbing to disease, drought, pestilence, fire, and any number of other things in the process simply because there wasn’t the technology and the wealth back then.

    Please. That’s when you know you’ve been spoiled, Alice — and spoiled, moreover, by capitalism.

  3. My biggest problem with you Ray is that you’re a broken record.
    Why does anyone listen to this blowhard?

  4. I had a chat with Ray the other day, and pointed out that there are definite inequities in the workplace. Specifically, there are “good ol’ boys” that rise to corporate power and take far more than their fair share of compensation, and they do so on the backs of people like me that actually produce the goods and services sold by the corporation. “In a way,” I said, “the liberals are right to demonize this kind of corporate greed and exploitation.”

    “Yes,” he said, “but the difference is that you can quit any time you want.”

    This, my friends, is the heart of the matter. I already knew this, and work in my off hours to create a product I own and can sell without them. One day I hope to be in position to walk away from them, rather than relocate to another corporation and more Putt’s Law.

    What seems to be lost on the liberals is that they can choose to patronize Starbucks or not. Starbucks cannot force you to buy their product, so they are no threat to your freedom of choice. On the other hand, the liberal agenda is to force us to abide by their vision of utopia, where the government decides what rights you have, what’s your share of cost and benefit. Politics will decide who deserves and who doesn’t: it is good ol’ boy on a grand and inescapable scale. Liberals support pro-choice: do as they say, or face the consequences, i.e. fines, imprisonment, or both.

    Now, these liberals bristle when you describe their actions as socialist or Marxist. Ok, liberals plan to force people to pay for something they may or may not want, and liberals will tax the producers so that the government can [theoretically] provide for the non-producers. This is clearly not capitalism. So, dear liberals, what exactly is it, so we can use the politically correct term in the future?

  5. All the liberals I know love Starbucks but maybe that’s because they’re big “L” Liberals. I suspect that we are still working with a “confusion of tongues”, when we use these kinds of labels. Just saying………..

  6. Liberals are liberals, first and foremost. They seek to enforce their ideology through ever-expanding government, they demonize capitalism and profit, their laws crush all capitalistic incentives, and they whine like little babies when anyone states they are socialist, Marxist, or communist. Since we are expected to worship their wisdom and greatness, the least they could do is state what kind of economic system it is they promote, whether they like Starbucks or not.

    Perhaps another way to ask the question is how much government does a liberal consider too much? 20% of GDP? 50%? 80%? 100%? Just what would they permit private citizens to own? Remember, they seized banks and car companies, and are in the process of confiscating the health care industry. I have no doubt that’s not the end of their aggressions, so let’s just have one little squirt of honesty, and declare where they think the line is.

  8. You know you’re asking the right question(s) when liberals won’t answer them. Is it a lack of integrity, or shame?

  9. Last time I looked, banks (and car companies) were still privately owned, giving multi-million dollar bonuses after taking government bailout money and whining about paying it back. Capitalist, when you come down off your crack high and want an honest conversation, we’ll know because you aren’t spewing bullshit.

  10. Hi Alice

    You write

    Ray, you forgot to mention that in your capitalist utopia, corporations demean and dehumanize people, women and minorities in particular, and that in your ideal world, corporations would be the new god.

    Actually, I believe in Ray’s utopia, you would be free to worship any God, or none at all.

    When you speak of Demeaning women and minorities, and say that corporations do it in particular, I can think of some other things that do the same.

    Christianity – all sects
    Judaism – all sects
    Islam – all sects
    Socialism
    Fascism
    Corporatism
    Femi-Nazis
    Environmentalists(they demean all humans)
    Men
    White Men
    Black Men
    Racists
    Self-hating women
    aboriginal tribes
    Animal rights activists(demeans all humans again)

    At least in a coporation there would be a sexual harrasment policy, an anti-discrimination policy and an HR representative to complain to. Discriminating against anyone is very much against the financial interests of a capitalist – who is to say which one is the most proficient salesperson? Man or Woman, Black or white?

    Ludwig Von Mises put it this way

    An employer or an employee entrusted with the management of a department of an enterprise is free to discriminate in hiring workers, to fire them arbitrarily, or to cut down their wages below the market rate. But in indulging in such arbitrary acts he jeopardizes the profitability of his enterprise.

    Alice – since we are speaking of utopias here, can you please describe to us your vision of UTOPIA?

    Best regards

    Redmond

  12. Hi Bedazzled Crone

    I think what you have to do is define what kind of liberal you are. If you indeed are one.

    are you a

    classical liberal?
    neoliberal
    A member of the Liberal Party of Canada
    Are you in favour of “Social liberalism”?
    Do you believe in Liberal Christianity?
    Did you recieve a “Liberal arts” Education?

    By the way – I am guessing that Capitalism is American, and I know that you are Canadian, so liberal has a very different meaning in our two countries.

    Regards

    Redmond

  13. Let’s review, and ask again:
    What economic system do liberals support?
    This innocent question is designed to understand what we’re allowed to call you, since we know “socialist” and “Marxist” offend you.
    How much government, in terms of GDP, is too much?
    This innocent question is designed to understand where you would draw the line.

    When considering “how much government”, remember that the Feds forcing states to pay for something the states did not legislate is still government and additional taxes and debt.

    Here’s another: name the precedent for forcing people to buy something, and identify where in the Constitution it is permitted?

  14. Dear Capitalist,

    Question: What do you include in Gross Domestic Product? Do, for example, you include women’s (or men’s) unpaid labour in the household? Now, I know that for many of you single men & women this may be irrelevant. However, the majority of women do spend a good proportion of their lives “Married with Children” and do not have any major outside “real income”. This work is necessary in any society, unless you do not wish to have reproduction. I am also well aware that many men do an equal or close to equal share of household work in two income families. However, it is still predominantly women’s unpaid labour that is not included in the GDP.

    Question: What do you believe is the obligation of persons to one another? Do you ascribe to the belief that one does have an obligation to at least to some extent, to support the less fortunate – and in the economy as it stands, there are many who are less fortunate than you are?

    Question: What do you believe are the basic needs of human beings? I believe that all people have the right to basic health care, basic shelter, food to survive and the right to basic education, as examples. “Life, liberty and the pursuit of happiness” are awfully fuzzy “rights”. One has to more clearly define what is meant by basic needs and therefore, basic rights, then determine how, in a complex society, those needs can be met by all, not just the few.

    The answers to those questions better explain where one stands on the “labelling” spectrum.

    For myself, I have no problem with a mixed private and public economy and holding my government responsible for ensuring that people have their basic needs met. I accept that part of my obligation to other human beings is that I will have to pay taxes. I may not particularly trust my government, but I trust people whose prime goal is to make money even less. There are many more examples of exploitation and commodification of human beings by the “money-makers” than there are by, at least, my government (I will not speak for the American system of government – as it has been pointed out by Redmond & in other comments on this blog, I am Canadian). Von Mises may say that exploitative capitalists will be held to account – that has not been the history of capitalist economies to date. A lot of Von Mises’ theory appears to me to have been structured (in the Weberian sense) as an Ideal model. Ideals are like messiahs and heroes and such – in the real world, they just don’t work as well as they looked like they would on the drawing board. Human beings are far too complex for Ideal models.

    To answer the GDP question. I live in a country with a graduated taxation system. I happen to pay approximately 17% of my gross income in federal and provincial taxes, and add to that probably another 1% (of GI) in municipal and education taxes, which are paid separately on my municipal tax bill. I smoke and I drive a car – add about another 2% of GI in consumption taxes. For this, I have clean water coming into my house, I have the snow cleaned off of my streets in the winter, I can go to the doctor any time and give them my health card and walk out after I have seen the doctor, I have highways so that I can visit my children and friends whenever I want. I can collect employment insurance whenever I am out of work, I will have a basic pension when I turn 65. My money also goes to support social systems that I hope I will never, ever have to use. However, should I have to depend “on the kindness of strangers”, it is nice to know that it is there – as imperfect as it is (& it is plenty imperfect).

    If I end up with a larger income (mine suits my needs – I have plenty of time to do stuff that I like), and I have had more GI at different times in my life, then I will pay more in taxation. I do believe that people who make money from the work of other people have an obligation to “give back” – in decent wages, in paying their fair share of their taxes, or in supports to their employees – and they seldom are willing to do this without some form of coercion, I am sad to say. Few are like Hershey, who kept his employees on salary through most of the depression, to his financial detriment. I guess he believed that his relationship with his employees was like a marriage – for better or worse.

    Now that doesn’t exactly answer the question of “How much government, in terms of GDP, is too much?” It is the personal answer. The answer to your question is that it depends on the economic situation at the time. Sometimes it needs to be higher; sometimes it should be lower. There should be no such thing as a definite “rule”.

    If that makes me a socialist in your book, damn it all, I guess I’ll just have to live with that label, along with all the other labels people attach to me. It is how I label myself, that matters.
    The best I can come up with is (Sing it Peggy Lee!)

  16. Many of the banks in this country are still private in name but they’re regulated so tightly–more so under Obama than Clinton and Bush combined (I work for a local bank and have for over two decades)–that they are not private. I think that is what Ray means (correct me if I’m wrong) in Leave Us Alone when he says price and wage controls are an indirect way of controlling private property, which is how socialism operated under Mussolini and under the nazis. That said, the big boys that got all that bailout, Fanny and Freddie, Lehman Brothers, and so forth, are outright government run banks. And we’ll save The Federal Reserve discussion for another time. As for car companies, when you have the president of the free world firing the CEO of General Motors, you cannot really say the car industry is private any longer, and anyway it’s been run by the union for decades (Ray, do you have the transcript of the talk you gave on GM?) There’s more regulation of the auto industry than that–seat belt laws, CAFE standards, emissions control, ethanol…

  17. Crone seems a reasonable fellow. I agree that greed in private industry is hardly a basis for trust (read Putt’s Law as an example). However, how quickly some forget offenses committed by politicians, and are giddy to trust their acts and intentions. Two quick examples:
    – Because liberal politicians think everyone should have aright to home ownership, they passed laws forcing banks to make bad loans. This led to a far-reaching financial meltdown, demonizing capitalism, and more “liberal” government. Fanny Mae and Freddie Mac are shell games bankrupting America.
    – When years of bad labor contracts made car companies insolvent, 200+ years of bankruptcy laws out the window, secured debtors to the back of the line, executive fiat to pass taxpayer money to labor unions (who, obviously, pay that executive huge sums of money).

    We don’t need to redefine GDP, any more than we need to redefine unemployment. These measures have been around for a very long time, but in the interest of “transforming America” there are those that want to create new immeasurable measures (yep, oxymoron, just like the word liberal implies liberty, which it is anything but) so liberals can proclaim the supremacy of their schemes. Meanwhile, the debt soars, the spending explodes, our rights discarded, our incentives lost. Ray would strongly disagree, but I find ~15% of GDP going to government ok. However, spending money we simply don’t have and constantly changing the rules and increasing the tax burden is what is causing unemployment, not the greed of some capitalist.

    The reason I would limit government as a percentage of GDP is so that government would be limited. That is the primary point of our Constitution, whose Bill of Rights provided guarantees far less ambiguous than “life, liberty, and the pursuit of happiness.” Among those rights my private property (money included) is supposed to be protected, as is that of my children, from whom trillions are now being stolen by politicians who lie so grandly it is breathtaking.

    Think about it. Liberals decried Bush spending, but have more than quadrupled it, and will double-down again with this latest shell game of generational theft. They demonize doctors and insurance companies, while waving off the impact of tort. Oh, that’s right, the lawyers also pay them off like the unions do. No reason to distrust that.

    In a free society, “all people have the right to basic health care, basic shelter, food to survive and the right to basic education, as examples.” We already have those rights. When government steps in and tries to enforce them, however, they must seize – in some fashion – the industries that provide these goods and services. Then we are no longer free, and we can look forward to the stellar results of the USSR, for example. Remember what Biden said about the insurance companies: “we will control them.” Just like they now control the banks. Are they still privately held (until driven out of business)? Sure. Isn’t that fascism?

    You see, Mr. Canadian, our Constitution does not grant the government the power to “guarantee” these basic needs. To legislate them is to ignore our founding, and “fundamentally transform” us into something else that reminds me of a socialist, fascist, or communist system. It is very clear that our rights are enumerated in the Constitution, not by the overreaching actions of a single election cycle. If these “rights” are the will of the people, they should be amended into that Constitution, at which point people like me will have no argument.

    p.s. Thanks, Hank.

  19. Redmond,

    From your self-described list of “partially nationalised (sic) companies, it quotes above the companies that received taxpayer money:
    “We’re tracking where taxpayer money has gone in the ongoing bailout of the financial system. Our database accounts for both the broader $700 billion bill and the separate bailout of Fannie Mae and Freddie Mac.

    “Below is the list of companies to which Treasury has committed money. “Revenue to Government” shows the amount that has been paid to the Treasury Department through interest, dividends, fees or the repurchase of stock warrants. Click on each recipient for more detail on the transactions.”

    Those companies came begging to the Federal government for bailout money. The government didn’t creep in in the dead of night and force these companies that freely made lousy decisions to take it.

    If you want to be a capitalist, be a capitalist. Don’t come crying to the government and taxpayers that you need money to stay solvent. I’m a liberal. I don’t think the government should have ever given that money away. But you can’t whine that the government is taking over when the companies are holding their hands out for money. A bank will repossess your car if you don’t make payments. Why should this work any differently?

    I see no consistency in argumentation here.

  21. Hi ShyButIntrigued

    Actually the Treasury forced banks to take the money, even if they did not require it.

    http://www.businessinsider.com/uncovered-tarp-docs-reveal-how-paulson-forced-banks-to-take-the-cash-2009-5

    There is another way to do deal with bank failure, and the failure of any other business.

    Let them fail.

    The US government is merely trying to inflate the bubble again with all of the fiat currency they are printing.

    Interestingly enough, Sweden of all places is not bailing out failing companies.

    the Swedish government has responded to Saab’s desperate financial situation by saying, essentially, tough luck. Or, as the enterprise minister, Maud Olofsson, put it recently, “The Swedish state is not prepared to own car factories.”

    http://www.nytimes.com/2009/03/23/world/europe/23saab.html

    For the full article.

    As well, you may be interested to know that at one time the American Government was willing to let the free market take it’s course – read the following piece of Ray’s.

    http://rayharvey.org/index.php/2010/02/depression-before-the-great-depression/

    Let me know what you think!

    There is a day of reckoning coming for the American Economy – it has been one bubble after another for almost 20 years…

    Look to Japan and it’s Zombie Banks for a glimpse of what is to come.

  22. Crone, I am happy to see you take interest in Ray’s blog. I used to share many of your same views. After three years of reading Ray’s writing and hundreds of questions later I am nearly 100% in agreement with Mr. Harvey.

    I encourage you to continue to ask questions as well as challenge your own opinions when they seem to contradict these blog posts.

    Happy learning,
    ..g

  23. Greg, if what you say is true, you have made my day. I really didn’t think it possible for a liberal to change stripes. Thank you, and welcome aboard. BTW, I don’t always agree with Ray, but I know his philosophy will never threaten my freedom or my pocketbook, unless, of course, he writes more books I just have to buy.

    One thing that bothers me about the bailouts is that huge sums of taxpayer money were given to companies that were mismanaged by “greedy capitalists”. Oh yes, there is such a thing as greedy capitalists that are corrupt, manipulative, and the basis for liberal attacks on capitalism. (Perhaps that’s why corrupt manipulative liberal politicians rewarded them: to sustain that basis.) Anyway, if those companies were allowed to fail, those who mismanaged would be out, creating opportunity for others. In other words, if those companies provide a real and needed service, bankrupting them would create (expose) a demand, and someone other than the current crop of good ol’ boys would get a chance.

    Instead, the corrupt take our money to fund the corrupt, and use that as an excuse to retain the corrupt so they can demagogue them while accepting campaign funds from them.

    America’s greatest success stems from our freedom to succeed, and our freedom to fail. Why on Earth does our government reward failure?

    Anyone who thinks “Hope and Change” got us transparency, fairness, and that the swamp has been drained needs to stop bogarting and pass it around.

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