4 Myths of Capitalism

There are many people who are against capitalism, there are so many who will defend it to the end. Some however, do not fully understand what capitalism is, and many believe some myths put forward by its detractors. Capitalism is an economic and social system based off of the principles of individual rights, where trade and industry are controlled by private individuals rather than by a lot of the government. There are four main myths that the detractors of capitalism believe:

  1. Pro Capitalism is Pro Business
  2. Capitalism Exploits Workers
  3. Capitalism Causes Unfair Distribution of Income
  4. Wealthy People Take from the Poor

There are many important things that have been brought into the world because of capitalism. The greatest accomplishment of capitalism, is bringing billions of people out of destitution. This fact is just undeniable and the unprecedented generation of wealth can be seen in just the past 280 years.


Pro Capitalism is Pro Business

The reason this is a myth is because capitalism does not favor particular businesses and cannot. In a free market the business that is the most capitalists will always come out ahead. This is because capitalism, at its source, promotes trade, which is the voluntary exchange of goods and services. Because capitalism focuses around voluntary trade, the business at its core must focus on providing a good or service for others. Only people and governments can be pro businesses because they have force. People have force with their dollar and governments with their laws. Governments can favor businesses by instituting laws and regulations that keep competition out that bigger businesses can afford to overcome. As much as people would like to think that pro capitalism means pro business, that itself is just a false statement and it is completely opposite of the truth.


Capitalism Exploits Workers

4 Myths of CapitalismMany people make the claim that capitalism in its nature exploits workers. The definition of exploitation is the forced extraction of surplus value from one’s labor. Slavery is an extreme example of exploitation. Some today think that capitalism is exploitative because some think people take unfair advantage of others vulnerability. However, in this country you have choices and even the option to change those choices. Only people with force can actually exploit someone because they have power over them. In the case of our country, the United States, only the government and parents can exploit people. Gov’t by threatening jail and punitive penalties, and parents by taking away video games and other discipline. Capitalism is the opposite of exploitation because it requires voluntary exchange of one’s labor for some sort of payment. Businesses cannot be exploitative in capitalism because multiple entrepreneurs need labor and will barter to get your labor. Naturally, businesses want to get the most amount of labor at the least amount of cost. The more capitalism there is, the more competition there will be, the higher the cost of labor.


Capitalism Causes an Unfair Distribution of Income

4 Myths of CapitalismThis myth assumes that capitalism is unfair. What is this fairness? Does fairness mean everybody should have the same amount of money or stuff? Does fairness mean that some people can’t have more money than others? What is too much? Capitalism is actually one of the most fair economic systems. Because capitalism is based off of the voluntary exchange of goods and services, one succeeds when they provide the most amount of goods and services to the most amount of people. A capitalists success can be measured by their Profit. Profit is a measure of a capitalist success as well as a measure of the wealth generated in the exchange. The one entity that is the most unfair is government. When government steps in and makes rules, even with good intentions, it causes unintended consequences. Every rule and regulation is a barrier that is erected. Some of these unintended consequences causes false signals in markets and they almost always favor already established businesses. Take Wal-Mart for example. If you raised the labor cost, the small business’ labor cost increase hurts more because they may have less wiggle room than Wal-Mart would have to absorb the cost increase. This increase could put a barrier that will keep the small business from expanding past a certain point. Capitalism is the most fair economic system that has ever been observed so far, because every individual chooses voluntarily where they want to spend their time and money. In a free market those who have the most income generally have been the most successful at providing individuals with goods and services that they wanted.



Wealthy People Take From the Poor

This one is almost like the unfair distribution of income, however, this one is more about the core of economics. The one reason capitalism is so successful is because economics is not a zero sum game. This means that people that become wealthy do not cause people to become poor. In capitalism people voluntarily trade, and both sides are wealthier than where they started. Wealth is not only measured in money that they have but also their hard assets like cars and houses. The most common example in economics is a pie. Some talk about having your piece of the pie. However, under capitalism people make their own pie or cause the single pie to become bigger. When you buy something from the store you for not being robbed, you are having a mutual voluntary exchange to make both parties involved better off. Someone becoming more wealthy than you does not cause you become more poor. This is probably one of the biggest and most believed myths because to understand it, one must have a basic knowledge of economics. It is easy to learn the basics of economics as long as it is taught. Capitalism in tandem with the U.S. constitution create the most level playing field for every one. The United States has a unique position of having the best income mobility. This is partially what makes America exceptional.



I am not making the claim that capitalism is perfect. In fact, there is no system that is perfect. What I’m saying is that these claims about capitalism and free markets are myths, and that capitalism is the best system that has been observed in this world so far. It is the most fair, in the traditional sense of what fair means, and creates the most prosperity the whole world can enjoy. Bill Gates isn’t worth billions of dollars for no reason. He helped create and market a product that has increased the productivity of billions of people in the world, and has helped millions become wealthy, all without forcibly taking from others. In this country anyone has the opportunity to make their own pie.

What kinda pie did you make? Tell me about your pie below!

About the Author

I am a Conservative libertarian gamer who is inspired in sharing games and political philosophy with others. I have a side love of economics and politics.

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