Every year at Christmas time, TV stations rerun that classic Christmas genre film It’s a Wonderful Life. The principal figure, George Bailey, the protagonist in this film, is portrayed as a kindhearted, generous and selfless human being. The Building and Loan he runs is his vehicle for not mere generosity, but for a much greater kind of altruism. He invests money in mortgages to build tidy homes for his customers who sometimes have difficulty paying their mortgage payments on time, but who in the end find their pockets deep enough to bail George’s business out when his Uncle Billy absentmindedly hands $8,000 in cash to Bailey’s arch enemy and competitor, Mr. Potter. Potter pockets the money and, when the Building and Loan is about to go bankrupt and George Bailey is threatened with arrest and jail, not only refuses to help George financially but encourages the District Attorney and bank regulation authorities to press a prosecution upon Bailey and his partners.
In contrast to George Bailey, Mr. Potter, the antagonist in the film, is portrayed as a ruthless, evil, money grubbing tycoon, whose only interest is his own greed and power, and who is willing to use any and all means to accomplish his relentless goal. In fact, the intent of this contrast in personality types of Bailey and Potter is to define George Bailey as a kind of socialistic altruist and Potter as the consummate proto-capitalist. But the definitions are false, if cleverly disguised, by the circumstances of the story.
Other than chopping one’s own wood, weaving one’s own clothing and hunting for one’s own food, trade among human beings is the only way of creating wealth on the planet. People live in societies and a division of labor and of interests is what makes society work smoothly. By trading with one another, we share talents, commodities, information, wisdom and sustenance. Trade is exchange of one thing for another and as societies over millenia have developed sophisticated ways of trading, from direct barter to using money. And each person strives to better his own life and the lives of those who are important to him, his friends, family and neighbors. It is natural for people to acquire and accumulate wealth, and the basis of that wealth, in a free society, is the profit he earns from his labor.
Every action that involves the sale or trade of goods or services is capitalist in one way or another. The very act of trade is capitalist, and no matter how capitalism is disguised, explained or hidden, it is the ONLY way that wealth can be created in a modern society, since very few people live completely self-sustained lives. If you make something and sell it, you are engaging in capitalism. If you are paid to do a service, you are being a capitalist. If you buy something made by someone else and resell it at a profit, you are acting as a capitalist when you perform that act. There is no way around that fact that Capitalism takes place in every society of every kind in every place on the planet and it has existed since the beginning of man. There are no exceptions. Whether you live in a country with a free market economy, or in a country in which the government regulates the buying and selling of goods and services, and even in countries where capitalism is scorned and supposedly outlawed, it takes place. It MUST take place, because there is no other mechanism for producing wealth and wealth on one level or another is fundamental to human survival.
A savage at the dawn of time who kills an animal and takes its pelt to cover himself now possesses wealth. If he cuts down branches from a tree and weaves himself a hut, he possesses more wealth. And if he shares the flesh of the animal he has killed for its pelt, he has shared his wealth with a neighbor. He has not engaged in capitalism, because the animal received no compensation in exchange for his skin. But neither did that savage create the wealth represented by the skin of the animal. He took what already existed. Likewise for the hut, except for the labor he expended in building it. Not every expense of labor is capitalist. Capitalism exists when human beings trade with one another. The moment our primitive savage kills an animal and trades its pelt or flesh to another person in exchange for beads, or a stone ax head, he has engaged in capitalism. It is capitalism on a primitive level, but that is what it is nonetheless. And anyone telling you otherwise, is either wrong, ignorant of the truth or trying to put one over on you.
In modern, primarily non-capitalist societies, capitalism is often hidden, while being outwardly despised or even outlawed, but it is there nonetheless, even when it is isolated from the overall system that surrounds it. In Communist countries, wealth is seized and redistributed in various ways, but without some mechanism for creating and developing wealth, there would be nothing to seize and redistribute. In this respect, Communism and Socialism are hoaxes, because they use the system they supposedly disdain. In areas of China, for example, where business has been allowed to flourish, free enterprise, i.e., capitalism, has created a higher than average standard of living. Thus, where trade is freest, the economics (or microeconomics) are functionally capitalist, because, in order to develop wealth it is necessary to produce something, a good or service, that is then sold at a price which contains the cost of producing that good or service plus the addition of reasonable profit, the margin which creates the incentive to continue to produce and offer that good or service. It’s the model of simplicity, at least on the surface. If it runs correctly, capitalism is like a perfectly balanced, well-oiled machine, and when it is interfered with, it slows down or stops completely.
What is the engine of the machine of capitalism? If one observes the workings of free markets, one can deduce that it is enterprise. The motive for capitalist enterprise has been variously described as ambition, initiative and greed, with the overall goal of profit as the outcome. We know that profit is the amount above the cost of production, but what is the profit motive? By definition, profit what is left over after the producer of goods or services pays the cost of production, i.e., the initial investment of labor and materials. The profit motive, therefore, is the desire to earn said profits. Profits are wealth and they are created by capitalist action. But in an honest, free market, the underlying the desire for profit is the fundamental desire to produce goods or services in the first place, goods or services that will be of use to others who will pay for them. It is logical, and almost too obvious to state, that if the goods and services offered and provided are not useful, no one will pay for them. Therefore, the incentive for profit is itself driven by the intention to produce and sell the best good or services available. If others are selling and providing similar goods and services, the prices are also competitive and the buyer makes out well.
Some people seek gain without producing goods or services, or by producing and selling goods and services that are defective, inadequate or not useful, and to sell these at a profit. If something is worth only a nickel and you pay a quarter for it, you are being cheated of twenty cents. True profit is fair profit, thus, the nickel is profit and the twenty cents is theft. When you pay anything above fair profit, you, the buyer are actually subsidizing the defect, and this subsidy is not legitimate profit. Capitalism requires investment in the production of goods and services. This investment is the capital. In this sense, the greedy and cheating Mr. Potter is not a legitimate or true capitalist but a fraud and a thief. Think of it. He builds shacks that are almost uninhabitable, but charges exorbitant amounts for them, far more than they are worth. It is most certainly not capitalism when he steals George Bailey’s money. It is pure theft. The engine of capitalism is not the isolated desire for wealth, but the desire to create wealth, which requires production and investment for which that profit is earned and thus wealth is created.
Are there good and bad capitalists? Of course there are, but the categories are probably more accurately described as true capitalists and false capitalists, and sometimes these difficult to distinguish. Sometimes the two are even mixed. Take the example of the corporate raiders of the 80s, of which Bain Capital was an example. Among corporate raiders, the mission of their action was to make money, but not necessarily to produce goods or services that would be of value to anyone but themselves. Typically, corporate raiders made initial investments in the companies they raided, in order to acquire majority interest so that they could be unimpeded in their actions. Then, in most cases, they stripped companies of their assets. They sold off material assets and took financial assets, often depleting pension funds, leaving employees without jobs or income and without pension funds into which they had poured their own hard earned money. They hid these actions under claims that they were simply abiding by the rules of capitalism, but they were not. Corporate raiders quite often destroyed perfectly sound, if small and only marginally profitable businesses in order to liquidate them for money gain. Sometimes, the businesses liquidated were not profitable, but instead of seeking to make them so, the motive of corporate raiding was that of buzzards picking clean the carcass of a dead animal (or in some cases, one that was still alive if weak). This is also the motive of Mr. Potter in It’s a Wonderful Life.
Mr. Potter did not wish to invest in sound enterprise that could be valuable to local people, but to extract what he could from the shoddiest investment possible. While George Baily built neat and tidy housing, Mr. Potter built mere shacks. And while George Baily realized, as any true capitalist would, that the better his goods and services were, the more willingly his customers would pay and pay on time for them, with pride of ownership encouraged by capitalism, thus protecting their own investment in a decent life, Mr. Potter extracted from his customers payment for substandard goods and services, with the concomitant lack of pride in ownership of a substandard life style. What was the typical corporate raider’s investment in the various businesses it financed and in many cases liquidated and what did it produce to earn a profit? Fundamentally, corporate raiders were interested in gain, and not in profit, because in many cases it drew the capital out of enterprises. The investment was a necessary evil as an avenue to receiving what was called its “profit”. Mr. Potter stole money from old Uncle Billy and kept it dishonestly. Is this likewise an act of capitalism? By definition, only selectively could the corporate raider’s work be called primarily productive; and Mr. Potter’s was an act of pure theft. In neither case was there a definitively capitalist process involved.
George Bailey, on the other hand, was a capitalist of the kind historically known in the earlier days of America, a small businessman with honest values and the clear recognition that in the long run, honesty toward his customers is always the best, most profitable policy. There is something to be said for size in business. Bigger businesses are usually more able to provide goods and services at a cheaper price, because their capital and customer base is broader. McDonald’s can afford to sell hamburgers more cheaply than most local sandwich shops. But big businesses can also lose sight of their purpose. When corporate CEOs and their biggest stockholders are exclusively interested in the stock price and not in continuing the reasonable profitability of the company, for example by gouging customers at the gas pump instead of keeping prices reasonable and taking a slightly smaller profit, they create the very atmosphere that real competition abhors. And worst of all, when government involves itself in the profit motive of big corporations through corporate welfare, the system loses its fundamentally honest basis, which is the marketplace. Free trade is the basis of true capitalism. When trade is no longer free, capitalism no longer exists and when capitalism dies everything dies around it.
FJ Rocca is an independent, conservative writer/blogger of fiction and non-fiction, most interested in the philosophy of American Conservatism. Clarity is more important than eloquence, but truth is vital in human discourse.