The Reason I’m A Capitalist
By Melvin J. Howard
Since the global financial meltdown and now the stock
market I have been reading a lot lately that capitalism is dead and that
socialism is the way to go. I disagree with that theory. This is not to be
confused with crony capitalism which success in business depends on close
relationships between business people and government officials. Which often
times exhibits favoritism and corruption in the distribution of legal permits,
government grants, special tax breaks, or other forms of state intervention.
That type of capitalism should be wiped out completely. But up until a few centuries ago,
the main sources of wealth were mines, slaves and serfs, land, and cattle, and
the only ways to acquire these rapidly were by inheritance, marriage, conquest,
or confiscation. Naturally wealth had a bad reputation. Two things changed the
first was the rule of law. For most of the world's history, if you did somehow
accumulate a fortune, the ruler or his henchmen would find a way to steal it.
But in medieval Europe something new happened.
A new class of merchants and
manufacturers began to sprout up. Together they were able to withstand the
pressure from the local king or Mayor. So for the first time in history, the
bullies stopped stealing the merchant and manufacturers wares and goods. This
was naturally a great incentive, and possibly indeed the main cause of the
second big change, industrialization. The Industrial Revolution was born part
of the success of that era was.
Conditions were made that people who made fortunes be
able to enjoy them in peace. One piece of evidence is what happened to
countries that tried to return to the old model, like the Soviet Union, and to
a lesser extent Britain under the labor governments of the 1960s and early
1970s. Take away the incentive of wealth, and technical innovation grinds to a
halt. Starting your own company is, economically: a way of saying, I want to
work faster, smarter and harder. Instead of accumulating money slowly by being
paid a regular wage for fifty years, I want to get it over with as soon as
possible. So governments that forbid you to accumulate wealth and tax you
toward the heavy side are in effect decreeing that you work slowly.
They're willing to let you earn $3 million over fifty
years, but they're not willing to let you work so hard that you can do it in
two. They are like the corporate boss that you can't go to and say, I want to
work ten times as hard, so please pay me ten times a much. Except this is not a
boss you can escape by starting your own company. America is one of the leading
technological countries in the world. Microsoft, Oracle, Apple, Facebook well
you get the jist.
The problem with working slowly is not just that technical
innovation happens slowly. It's that it tends not to happen at all. It's only
when you're deliberately looking for hard problems, as a way to use speed to
the greatest advantage, which you take on this kind of project. Developing new
technology is a long drawn out process. It is, as Edison said, one percent
inspiration and ninety-nine percent perspiration. Without the incentive of
wealth, no one wants to do it.
Since it became possible to get rich by creating
wealth, everyone who has done it has used essentially the same recipe:
measurement and leverage, where measurement comes from working with a small
group, and leverage from developing new techniques. The recipe was the same in
Florence in 1200 as it is today. Understanding this may help to answer an
important question why Europe grew so powerful back then. Was it something
about the geography of Europe? Was it that Europeans are somehow racially
superior no, was it their religion no. The answer may be that the Europeans
came upon a powerful new idea allowing those who made a lot of money to keep
it! Wow what a concept who would have thought.
Once you're allowed to do that,
people who want to get rich can do it by generating wealth instead of stealing
it. The resulting technological growth translates not only into wealth but into
military power. The theory that led to the stealth plane was developed
by a Soviet mathematician. But because the Soviet Union didn't have a computer
industry, it remained for them a theory; they didn't have hardware capable of
executing the calculations fast enough to design an actual airplane. In that
respect the Cold War teaches the same lesson as World War II and, for that
matter, most wars in recent history. Don't let politicians and special interest
squash the entrepreneurs and capitalism.
The same recipe that makes individuals
rich makes countries powerful. Let the founders of companies and the nerds that
create new technology keep their lunch money, and you rule the world. A company
will be maximally profitable when each employee is paid in proportion to the
wealth they generate.
It is probably no accident that the middle class first
appeared in northern Italy and the low countries, where there were no strong
central governments. These two regions were the richest of their time and
became the twin centers from which Renaissance civilization shined. If they no
longer play that role, it is because other places, like the United States, have
been truer to the principles they discovered CAPATILAISM.
