Myths, Fallacies, and the History of Capitalism

I know that I should not be surprised that most people have little knowledge regarding the history of capitalism. Our schools certainly don’t teach it, and everybody “knows” that capitalism leads to all sorts of evils, such as abuse of employees by employers, “predatory” lending, and “dog-eat-dog” competition. These myths and fallacies are repeated by the media and most Americans with alarming frequency. As an example, I recently received an email that contained the following statement:

A study of history makes it clear that corporations are not interested in protecting their employees unless forced to by law.

Actually, history shows the opposite. For example, in 1869 George Westinghouse implemented a nine-hour work day (ten hours was common) and also instituted “welfare” programs for his employees. In 1914 Henry Ford doubled the daily wage of his workers and reduced the hours worked per day. Ford, who called his policy “enlightened self-interest,” later described the results:

In 1914, when the first plan went into effect, we had 14,000 employees and it had been necessary to hire at the rate of about 53,000 a year in order to keep a constant force of 14,000. In 1915 we had to hire only 6,000 men and the majority of these new men were taken on because of the growth of the business. [Henry Ford, My Life and Work, (Garden City, NY: Garden City Publishing Co.) p. 119.]

When Ford’s profits soared, other companies began emulating his policies. Ford, Westinghouse, and others, did not have to be forced to “protect” their employees. They simply needed to be free to act as they judged best.

Another statement from the email:

The housing crisis is another example of an unregulated market… Banks are only interested in getting the deal done. Shareholders are only interested in profit, and the CEO knows that he will be replaced if the bank isn’t profitable. Regulation provide a mediator between the company and the consumer.

Many others have pointed out the myth that the mortgage market is unregulated, so I will not repeat those points here. I will point out that John Allison at BB&T was interested in more than getting the deal done, and his company has been very successful. Nor was he replaced by stockholders.

Further, regulators are not “mediators.” They are dictators who impose their will on businessmen. Regulators force businessmen to act contrary to their own judgment. When a businessman is free and makes a poor decision, he (and those who voluntarily associate with him) suffers the consequences. When a regulator makes a poor decision, everyone suffers.

Finally, one last statement from the email:

The trick is finding a balance between competition and cooperation. While I favor individual freedom, we can’t go to the extreme of Social Darwinism. We need some regulations to protect the masses.

This claim is loaded with too many myths and fallacies to address in a single post. Those myths and fallacies are founded on a false alternative: We must choose between “competition and cooperation.” Freedom is viewed as “survival of the fittest.” According to this view, success can only be gained at the expense of others.

Again, history (and the contemporary world) provides a different picture. Prior to the advent of the “entitlement” state, mutual aid societies  were common throughout the United States. These societies were voluntary, cooperative organizations that provided health care, burial insurance, and other benefits to members. As one example, in Tampa, workers in the cigar industry formed five different mutual aid societies.

Contrast these voluntary, cooperative endeavors with the competition for “entitlement” benefits. Seniors demand that Social Security be protected from budget cuts. Advocates for the poor lobby for more programs to help the needy. The unemployed call for an expansion of unemployment benefits. Supporters of these programs, and others like them, compete for the “privilege” of plundering their neighbors.

In a sense, we must choose between competition and cooperation. But cooperation is only possible when individuals are free to act on their own judgment, when they are free to associate as they choose. “Cooperation” at the point of a government gun is worse than a contradiction. It sets up a competition of warring interest groups, each seeking to extract money from taxpayers.

As these few examples show, the myths and fallacies regarding the history of capitalism are not only untrue, they are the exact opposite of what actually occurred.

  • Brian Wright

    Good article. One of the problems I see is that a mass of people see many businesspeople as shysters, con men and grifters and have little confidence in them. I worked on Wall Street when I was younger and what I saw and experienced was a horror. These so-called representatives of capitalism would appear in Atlas Shrugged as the enemies of competent businessmen. Look what George Bush–the so-called “free market guy” did to set the table for Obama.

  • mkkevitt

    No, the schools don’t teach the actual contents of capitalism, indiv. rights, initiatory force v retaliatory, empowering the retaliatory, or peaceful culture (relations established w/o initiatory force). In human relations, they teach, basically, one thing (and they teach that only implicitly): initiatory force. They teach that action by private entities is initiatory & bad, and that action by the public entity, commonly called gvt., is also initiatory, but good. In human relations, they teach, basically & implicitly, initiatory force, meaning: crime. It’s bad when done by the private, and good when done by the public. They teach, in any event, that all human relations, private or public, are initiations of force.
    The schools, viewing all private action as initiatory force, label their worst perceptions of it as ‘capitalist’. So, all human actions & relations that aren’t crime, are viewed and labeled as crime along with actual crime, without further analysis, capitalism being the worst, except, perhaps, for murder. Crime is ok when done by the public, and not ok when done by the private. Thus, they obliterate the actual contents of capitalism, and of law & gvt. That’s what students learn in the schools, from kindergarten on up.
    I validate all this by hanging my hat on one word, or any form of the word: IMPLY. So, in my view, the 1st. paragraph of your acticle stands, & the rest of it logically follows.
    What kid today has any inkling that there was ever any such thing as a mutual aid society? How many adults today acknowledge any difference between competition & combat, thus, between cooperation & forcible service? Keeping them from acknowledging the difference between choice & force, between retalliation & initiation, is perhaps what might keep ‘good people’ from pushing for legislation mandating a period of civilian and/or military nat’l. service. Such a mandate might come too close to persuading adults to acknowledge the difference, thus making it harder to control their behavior and to make them accept ever more control.
    I oughta know. I entered my prime (such as it was) during the 1960’s. What a time. The draft, Vietnam, and all. Mike Kevitt