4 Common Capitalism Myths Debunked

4 Common Capitalism Myths Debunked

by James Davenport

One of the most disappointing things I face as a college professor is the lack of understanding most students have regarding capitalism. The simple fact is, despite its importance to our daily lives, relatively few people have a strong grasp of what causes economic growth and why markets are so central to continuously rising standards of living.

In my teaching, I have encountered several myths or misperceptions about capitalism from students as well as individuals outside the classroom. Dispelling these myths has become a focus of much of my teaching.

Myth #1: Capitalism Was “Created”

One of the most pervasive misunderstandings about capitalism is the idea that it was created by someone. Some of this can be attributed to the language used to describe Adam Smith’s role in explaining the market process. The common reference to Smith as “the father of modern economics” can lead people to assume that he in some way created the market system. It is also not unreasonable to conclude that, since socialism is generally reliant on planning, many would assume that capitalism is as well.

Markets arise out of our human qualities. 

However, as Friedrich Hayek explained, the market system is not really “created” as much as it is a system that evolves out of human interaction and discovery. Similar to language, the market economy was not created by a single individual or group but evolved over a long period based on the interactions of many people. The rules and institutions which support the market economy arose from these interactions.

This notion of a spontaneous order emerging out of the individual actions of millions of people, and the discovery of rules and institutions that will facilitate the continual progress of this order, may be the most important aspect of capitalism. It succeeds because it arises out of humanity itself.

Unlike socialism, which attempts to impose rules and institutions regardless of their conformity to human nature or desires, markets arise out of our human qualities. And the rules and institutions that facilitate the ability of markets to perform are discovered as we discover ourselves and in the way we interact with one another.

Myth #2: Capitalism Creates Poverty

This may be the most pernicious of all the misunderstandings I encounter regarding markets. The idea that absent market capitalism would create greater shared wealth within society continues to permeate the thinking of a great deal of people. This is despite mounting evidence that, as markets are used by more and more countries, global poverty is steadily decreasing.

All developed countries have market-based economies.

Importantly, the evidence is clear that this decline in poverty has happened as countries have come to embrace market capitalism as the way forward – especially China and India. As other countries see the success of these two previously very poor countries and begin following their lead, we can expect to see poverty in the rest of the developing world significantly reduced as well.

In the Wealth of Nations, Adam Smith explained how markets, by continuously expanding the range of goods and services to an ever-increasing number of people, would produce what he called “universal opulence.” However, since Karl Marx & Friedrich Engels first launched their frontal assault on capitalism, many intellectuals, entertainers, and even politicians have embraced the idea that capitalism causes poverty, or at least prevents people from escaping it, and more disturbingly, that socialism leads to greater prosperity for the masses.

It’s not surprising, then, that these ideas filter down to the public-at-large. But this idea that capitalism leads to poverty for the masses while socialism leads to their prosperity is exactly opposite to all the evidence we have.

All developed countries have market-based economies. Those developing countries seeing the greatest growth have adopted market principles. Contrast this with countries that have fully adopted socialism, such as Venezuela or North Korea. It is troubling that incoming students do not understand this.

Myth #3: Capitalism Is about Capital

The underlying foundation of capitalism is human freedom.

The term “capitalism” was coined by Marx as a pejorative towards market-based economies. The term stuck and has led to some confusion about why markets actually work. As economic historian Deidre McCloskey has noted, people at all times have attempted to amass capital (land, resources, and money). But those collective attempts didn’t lead to the type of society-wide economic growth we have seen since 1800.

The underlying foundation of capitalism is human freedom. As Adam Smith recognized, when individuals are permitted to pursue their self-interest through markets, they are amazingly good at finding ways of bettering not only themselves but society as well.

Equally important, as economist Joseph Schumpeter explained, out of this freedom arises a continuous process of improvement – what he called “creative destruction.” It is this constant innovation – discovering and bringing to market new products and services, finding ways of improving existing products and services, and finding more efficient ways to create these products and services – that truly drives economic growth and increases standards of living.

The fact is, while the accumulation of capital is a feature of a market economy, it’s certainly not exclusive to it. It is individual freedom and the innovation that arises from it that drives the engine of capitalism.

Myth #4: Capitalism Creates “Winners” and “Losers”

While it is true that some individuals and firms succeed while others do not in capitalism, this also is hardly an exclusive feature of markets. All economic systems have some individuals who succeed and others who fail in one form or another.

Over the long run, society in its entirety benefits as a result of markets. 

However, capitalism is different in this regard in two important ways. First, capitalism increases the number of “winners.” Unlike other systems, capitalism reduces the barriers to entry into market activity for larger numbers of individuals. The resulting competition provides greater opportunities for success (both great and small) than in any other system.

Second, over the long run, society in its entirety benefits as a result of markets. This is because markets, as mentioned above, bring more goods and services within reach of more people than any other system.

Markets also produce products and services that improve our lives in ways that our ancestors could never have dreamed. Just consider all the things that exist today, that didn’t a mere thirty years ago. The simple fact is that today even the poorest modern Americans have more goods and services at their disposal than kings and queens did just two hundred years ago.

So, although individual firms may fail, and individual people may not gain great wealth, the fact is that, over the long-run, we all win by enjoying better living standards than previous generations.

We Need Better Education

If the United States is going to continue to see its economy grow and the living standards of its citizens improve, it is important that students are taught the basics of the economic system that has allowed them to experience Adam Smith’s “universal opulence.” Without this basic knowledge, they’re easily led to believe the myths I’ve mentioned and to vote for politicians and policies that will ultimately undermine the very system that has made their lives significantly better than their ancestors, as well as better than most of their contemporaries across the globe.

James Davenport

James Davenport

James Davenport is an award-winning professor of political science at Rose State College and has also taught economics at the University of Central Oklahoma. You can find him online here.

This article was originally published on FEE.org. Read the original article.

Customer Support

Customer Support – yes, you CAN get help!

Customer support can be pretty maddening when you need help, especially if you have a “situation” going.  Has this ever happened to you?

Here’s my experience. This is actually very typical when dealing with customer support with many companies.  

Today… I finally got a Customer Support Manager. Have you ever had a tough time trying to get help from Customer Support?  Yep.  From many companies, you’ve probably noticed it can be a bit frustrating.  Or maybe a lot frustrating.  Are you feeling it?

Be patient! Here’s exactly how it works. I can tell you this from many years of experience dealing with customer support for MY customers. Plus, I’ve also been seated in the Customer Support chair. I understand what they go through, too.  Have you worked in Customer Support?  It can be pretty thankless!

Customer Support is a crazy busy job. I Continue reading

Blogging for Profit

Blogging for profit – is it possible?

Blogging for profit is something many people are curious about.  In fact, so many people ask about making money blogging, that it became apparent that an article dedicated to the subject would be quite valuable.  Blogging for profit doesn’t have to be all about business;  in fact, adding a little joy and humour (Canadian for ‘humor’) can make it all the more successful.
The first question to be answered is how blogging for profit is even possible to start with.     

  1. Where does the money come from?
  2. What do I sell?
  3. Do I need to sell anything?
  4. Would someone pay to read my blog?

Continue reading

Ask for the referral

Ask for the referral when you make the sale!

Ask for the referral every time you make a sale.  There is no better way to find your next client.  Referrals are what salesmen call “hot prospects.”  That’s because, unlike so-called “cold calling,” you have an “in” with a referral.  It’s almost like being introduced at a meeting or party…

Build lifetime customer value. Ask for the referral

Let’s face it.  No matter what anybody tells you, selling can easily be hard work, whether you’re doing affiliate marketing on the internet, or network marketing, or selling woven cedar baskets by the side of the road.

You need to get your product or service in front of people who are looking for your product or service or who you can convince they need your product or service and are willing to pay money to get it. Continue reading

Tackling the Trash

Tackling the Trash – getting rid of things that clutter up life and slow you down

Tackling the trash is the kind of chore you don’t enjoy, but the consequence of not doing it is hard to forget!  If you have a business, whether online or off, the time is going to come when you have to deal with the trash.   tackling the trash

In business, trash can be defined as anything that appears on or near or attached to your premises and/or business that is not valuable for the company purpose, which boils down to its ability to earn income. Continue reading

Ad Network Schemes

Ad Network Schemes – why Ad Networks don’t work

Ad network schemes are everywhere. While not necessarily illegal, how ethical are they? When something is advertised as being extremely cost-effective and effective as an advertising tool, should it not deliver?

What is an ad network? Simply put, it is a system, designed in much the same format as a network marketing program or worse, a pyramid scheme or ponzi. They are sketchy in their legality, sneaking under the radar mainly because they aren’t directly charging or promising money.Ad Network Scams pyramid scheme

The similarities are very strong in every other way. They promise that if you join their HUGE network, you will be able to advertise your wares, service or business opportunity to thousands upon thousands of people. Continue reading

Non-converting Traffic

Non-converting Traffic – like deer tracks to the hunter

by Dave Cottrell

Non-converting traffic is about as valuable as deer tracks are to a hungry hunter.

A hunter friend of mine once made the following observation:

non-converting traffic tastes like dirt

Deer tracks aren’t very filling and they taste like dirt.”

His point was that when you’re out hunting for deer, simply finding lots of tracks is no good. Unless you find a deer standing in them, you’re going to go home empty handed.

Visits to your ad or website (hits) on the internet is just like those deer tracks. Unless someone actually BUYS something from you, all those hits mean very little.

For example, I can literally show you how to get thousands and thousands of hits to your website, without you doing anything, real hits defined as when your website opens in a computer browser somewhere in the world, but without a single sale or even a click on one of your ads!

Don’t be fooled by those who try to sell you “Amazing NEW software” that will generate thousands and thousands of hits. Don’t get conned into spending big bucks on hits. These people are simply selling tracks that aren’t very filling and taste like dirt.

Every good hunter knows that what you need to do when you go out is not to spend all your time looking for tracks, but to spend your time looking for the creature MAKING the tracks!

That means you have to anticipate where it will be and be there to intercept it. You have to understand how it thinks, what it likes, what it needs, where it eats, where it sleeps, where it drinks, and be able to be there waiting for it.

Similarly, you need to know your target market when you are advertising, and you need to be there where your buyers are. You need real eyes on you ads looking for your product or service, or you will be doing little more than chasing tracks.

Remember, they aren’t very filling and they taste like dirt. What part of your “hunting” are you going to change, today?