When the founders of our country wrote the Constitution, they ensured that the people of America would have a say in governing it. America was not to be ruled by a monarch dictating everyone’s affairs but was to reflect the voice of the people. The founders recognized that a government was wrong to rule without the consent of the governed because it violated their individual rights. Ever since, we have governed our country from the inside-out, in accordance with the principle that people generally act in their own best interest. I contend that this principle ought to be enacted not only in the political sphere, but in the economic as well. This means the economy is driven into prosperity when we insert personal liberty in a system of free production and exchange, wherein people enjoy the rewards of their labor. In other words, capitalism is designed for success.
Just as our system of governance trusts the well-being of the many into the hands of the many, so should our economic system trust the well-being of the many to themselves by giving them control over the market. In this system, the people have the right to produce, distribute, buy and sell their own products at their own prices and make profit. In doing so, the system incentives competition, and thus effort, ingenuity and economic prosperity.
Our economics professor Steven Efremov referenced history as a vindication of capitalism.
“The last 200 years since the free market economy has really gotten going, [it’s] led to a pretty widespread eradication of poverty throughout the world,” Efremov said. “The poorest people have gone from having one pair of clothes and one pair of shoes to having a TV and an air conditioner.”
Why has capitalism been so successful? The free market has the population as its participants. Within the free market are smaller markets in which businesses compete over something specific, whether apparel or automotive repairs. Because the sheer size of the population gives birth to many businesses competing in the same market, consumers have a wealth of options from which they can choose. Thus, the success of the business is dependent upon the consumer’s choice, making its best interest to please the consumer.
Businesses do this through raising the quality of goods and services or dropping cost. Therefore, this interaction benefits producers acting in their best interest to make money as well as consumers acting in their best interest to get the best deal.
Then what becomes of those businesses who must close because they fail to please the consumer? When this occurs, there is a minor loss in the market as a few employees lose their means of income. But far from flaunting the free market’s failings, these temporary cases of unemployment are symptomatic of economic progress as other businesses excel in pleasing the consumer. Everyone is benefited besides the closing business’ employees, who themselves are now free to employ their labors in other parts of the free market. In this way, the overall population’s economic progress greatly outweighs a few workers’ temporary unemployment.
This phenomenon in economic progress can be explained with the model of the five economic sectors, which may be briefly summarized as (1) gathering natural resources, (2) manufacturing finished products from those resources, (3) selling those products, (4) intellectual and research jobs and (5) executive positions such as those in business or government.
As time progresses, a society wants to advance through moving the bulk of its workforce out of the primary sector – such as farming – into the secondary – manufacturing – and then even the tertiary – retail – and quaternary sectors (such as practicing law or medicine) – a process capitalism is engineered to complete.
The self-interested desire of farmers to make more by manufacturing or selling goods provides a better life not only for them, but also for those buying those goods. Such entrepreneurship not only puts people into sectors two and three but also expedites the process of farming, so less labor is required for the same outcome. Other farmers eventually hop on the entrepreneurial bandwagon, while the farmers whose business clings to outdated arrangements must leave their jobs and employ their efforts in the second and third sectors too. While the smaller percentage of farmers still produce the necessary amount, the additional work inserted in the other sectors benefits the whole society, ultimately leaving everyone better off.
This is why capitalism’s effect on people, as professor Efremov expresses, can be described as the “rising tide lifts all ships.”
