Tuesday, November 5, 2019

The Psychology of Capitalism

Portabello Road Market, London


Capitalism is an economic system dependent on a free marketplace where people buy and sell good and services. The system involves two main groups of people: owners and workers.

Capitalism is the dominant economic system in today’s world. For the most part, bartering systems have disappeared and feudal systems were upended. The beginning of modern Capitalism is often attributed to the English cloth industry in the 1500s (Britannica). Following the two world wars, the U.S. became the dominant world economy.

Features of Capitalism

Investopedia identifies five features of capitalism, four of which fit my understanding of the concept so, I’ll refer to four of their features.

1. There are generally two classes of people in capitalism systems, which are often represented by different political parties. The capitalist class are the owners of the corporations that produce and distribute goods. The working class sell their labour to the capitalist class for wages.

2. Capitalism is driven by greed (see the Psychology of Greed). The corporations (interestingly considered like persons in some laws), seek to acquire more and more resources. They buy other businesses, land, and the “best minds.” Many American corporations have budgets larger than some nations. For their part, workers, greedy for higher benefits, market their skills to the highest bidder, which can drive up wages for certain skill sets such as information technology, medicine, and management of a multinational corporation. Skill sets that many people easily acquire with little education result in cheap labour.

3. Capitalism thrives in free markets. That is, markets free from government regulations. In the 1800s, the minimally regulated American economy led to the rise of the class known as “Robber Barons” who acquired fabulous wealth, which sometimes included the houses their workers lived in. Since those days, government regulations gradually increased to protect the well-being of workers. Pure capitalism does not exist.

4. Free markets are a key to capitalism. If one major corporation acquires all the wealth in one important industrial sector then it has a monopoly and controls the pricing. Unregulated monopolies are greed gone wild. Competition is a key to successful capitalism.

Human Nature and Capitalism

Several aspects of human nature appear to fit well with capitalism. We seek to acquire resources important to survival, we form groups, we organise ourselves into hierarchies within our groups, and we have a sense of fair exchange.

1. Acquiring Survival Goods. The drive to acquire what we need to survive make sense. We obviously need food and seek shelter. We acquire territory for ourselves, our group, and our store of goods that we keep in reserve against bad times. A modern society is very much like an extension of a blend of hunter-gatherer and agrarian groups existing near each other and exchanging goods.

2. Forming Groups and Organising. Human groups grow by mating, raising children, and eventually multiplying into large groups of “us” and “them.” Within our groups we recognise leaders and followers. Skilled leaders help groups thrive and are recognised by group members as worthy of high status.

3. Territory, Storage, and Ownership. Those who first acquired a "working area" or territory passed it along to their descendants. Those without territory for various reasons work for owners in exchange for wages. 

4. Fairness. A sense of fairness results in penalties against both owners and workers who cheat when there is sufficient social pressure to insist on a culturally defined fair exchange. Of course, that does not always happen, but in many societies, revolutions have taken place to oust monarchs, royals, and dictators whose treatment of the working class was extremely exploitative.

Humans also have emotions and the capacity for perspective-taking important to empathy, and an inhibition against hurting family members. In combination, these serve as breaks on excessive greed that would destroy owners and workers. Empathy can lead to compassion for workers who lack goods because they are unable to work for wages. But compassion does not extend to those considered able but unwilling to work.

Of course, people are not perfectly rational thus, there are continual battles between owners and workers for a fair share of the wealth produced by the workers.

For related writings see chapters in Living Well on Generosity and Love.

Government and Capitalism

 Strictly speaking, government plays little to no role in a capitalist society. However, most examples of capitalist societies include some degree of government control over a nation's land and other resources. In western cultures where governments tax people to provide public education, roads, libraries, and some degree of help for those with limited resources, it is hard to think about life when workers were totally dependent on a wealthy person's charity. Consider the capitalist model for several common goods and services.

In a capitalist society, education is a commodity available in the market place for those who wish to purchase it. If an enterprise owner needs skilled labor, the owner will need to teach the worker those skills, but the worker may be in debt to the owner for the cost of the education. There is no role for government in education. According to wikipedia, the Christian church in Europe mandated in 1179 that cathedrals provide free basic education to boys who could not afford the fee. Public education was provided by the Church of Scotland in 1561 and later supported by a tax in 1633.

Health Care
Owners need healthy workers. When healthy workers are plentiful, the owners need do nothing about safety and health care. When workers are too few then, owners may need to offer incentives to attract healthy workers. Healthcare may be one benefit offered to attract workers. There is no place for government in healthcare. Europeans were among the first nations to provide health care coverage for some of their citizens such as Germany in 1883 (Sickness Insurance Law) and Britain in 1911 (National Insurance Act). Gradually, Europeans and some other capitalist countries expanded coverage for all citizens.

Private companies build roads as needed. They may charge a fee for others to use their roads. There is no role for governments in building roads in a capitalist society.

Books and reading material are available in the market place for those who can afford such things. Wealthy people may amass large holdings. There is no role for government in providing libraries for the general public in a capitalist society.

Parks and Beaches
Most of us enjoy parks and beaches, but in a capitalist society, land is in private hands and may be developed by owners wishing to charge fees for enjoying time in parks and by the seashore. In capitalist societies, there is often a mix of private and government owned parks and beaches. The first U.S. national park was Yellowstone created in 1872.

You can probably think of other examples where private ownership of resources, good, and services have changed in the last few hundred years toward an increasing role of government to provide services to the public who could not otherwise afford such luxuries. In theory, in a democracy, the people pass laws creating publicly owned lands and resources and demanding taxes to pay for good and services, which the majority of the people desire.

Related Posts

Psychology of Altruism

Psychology of Compassion

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