Given the nature of an economic system such as capitalism, it is no wonder we have such a great problem with economic distribution in the United States. The problem lies not in that the system is incapable of reaching its goals; it works very well in that regard. Rather, the problem is in the control of the distribution. This paper will show that the very nature of capitalism is unjust and examine the consequences of capitalism in this country. It will then offer a new method for economic distribution which would allow all people to benefit more fully than under our current system.
We have all heard the phrases, “The rich get richer and the poor get poorer,” and, “It takes money to make money.” Yet, many people that have heard these statements have not realized that they accurately describe the situation in a capitalistic system. The way a capitalistic system functions allows the accumulation of wealth for those already wealthy. Known as the theory wealth condensation, it explains that newly created wealth usually ends up in the hands of those who are already wealthy.
The wealthy, because they have the means and the ability to continually invest in new projects, end up being the beneficiaries of most of the wealth created by that project. This concentration of wealth in the hands of the wealthy leads to the sort of economic inequalities that we see today in our own society. And if this wealth concentration is not curbed, greater inequalities in society will result.
A recent article in Z Magazine spotlighted the question of executive pay in the United States. The article cites a report in the Wall Street Journal which states that in 1978, the typical pay for a CEO was 35 times more than the average worker. It then explains that, according to Reuters, the current rate of pay for CEO’s is an astounding 500 times higher than the average worker. This rate of increase in the pay of CEO’s is all the more exceptional when one considers that over the last 20 years, after adjusting for inflation, the wages of the average worker have only increased by 9 cents an hour.
In his article Distributive Justice, John Rawls cites what he calls the Original Position. He makes the point that rational thinking people, if they had to blindly choose how to set up a society in which they were going to live, would, in an enlightened and informed way, choose that society which seems most advantageous to them.
Because human beings are self-interested people, they would not want to belong to a group that was discriminated against within the society. For this reason, the principles this self-interested person adopted would be free of discrimination in any form. Surely, a society in which we find ourselves today, a society that allows such an enormous economic gap between individuals, would not be one in which a rational, self-interested person would willingly live.
Capitalism, as a form of economics, will gradually move in its natural way to the concentration of wealth into a few hands. Under a capitalistic system, the driving force of business is profit. As already stated, those who start with enough money, generally end up with more. Wealth, in a capitalistic society, is naturally concentrated in the form of mergers and acquisitions.
The most powerful individuals and their companies or corporations, in terms of the amount of wealth they hold, will take over the less powerful, leading to fewer individuals owning the means of production. In a system like this, in which profit is a motivating factor, workers wages will be driven down in an effort to increase profitability. This will inevitably lead to the formation of two classes, workers and owners, and the wealth gap between them will resemble what we see in our own society today.
Of course, arguments against capitalism are a minority view in the United States, but it is interesting to note what Milton Friedman says in his essay Capitalism and Freedom. In the early part of the essay, Friedman states, “Freedom is a rare and delicate plant. Our minds tell us, and history confirms, that the great threat to freedom is the concentration of power.”
Strikingly, Friedman then goes on to defend capitalism as a viable economic system for a free country. Perhaps if a country were started from scratch, and all people began as equals, it would be easier to convince people that capitalism would be a desired economic system. But when the theory is judged by the consequences that it has birthed, we see that capitalism does just the opposite of what Friedman says; it reduces individual freedom.
Interestingly, both capitalists’ and anti-capitalists’ may agree with Friedman on the role of government. In Friedman’s words, “[Government’s] major function must be to protect our freedom both from the enemies outside our gates and from our fellow-citizens: to preserve law and order, to enforce private contracts, to foster competitive markets.”
The difference between capitalists’ and anti-capitalists’ view of what Friedman says is a difference of interpretation. For the capitalist, nothing of what Friedman means about protecting freedom is untrue. However, for those on the other side of the fence, the idea that government must protect freedom coincides with the idea that it is the government’s responsibility, in so doing, to not allow the accumulation of large amounts of wealth into relatively few hands.
Ultimately, the argument comes down to a difference in values. Some people believe that all are born with the same opportunity to achieve success and buy in the “American Dream” that all one needs to do is work hard and he will be rewarded with abundant wealth. In some instances this is true, but as statistics so readily point out, many poor Americans work as many and in some cases more hours than more wealthy Americans yet receive less pay. If the capitalistic ideal were true, this would not be the case.
Other people know that what capitalism offers depends on where one resides in the economic scheme of things. Much of a person’s wealth has no bearing on how hard they have worked in life. A much more accurate description of capitalism would include the fact that those born into wealthy families will remain wealthy, and those born into poor families will remain poor. Both groups may work hard, but the amount of wealth they accumulate in life is more dependent on their economic upbringing than anything else.
To change this we, as a country, need to realize that there are some individuals making more money than they could ever possibly spend in their lifetime. Case in point is the ex-CEO of Exxon, who just left the company with a four hundred million dollar retirement package. Besides this, he still has the hundred of millions he made as CEO. And there are hundreds of thousands of people in poverty.
Just as there is a minimum wage, the government, to protect freedom, should enact a maximum wage. After all the money that can be made by one individual is, the rest should be distributed to our fellow Americans. In this way, we would rid ourselves of the injustices that unrestrained capitalism has created in our country. In the richest country in the world, there should be no homeless, no children starving, no trying to make ends meet. People should not have to worry about losing their job and having nothing to fall back on. All Americans should be able to take part in our country’s unprecedented wealth.