In my opinion, capitalism works because it is based on the built-in incentive of capital. In capitalism, capital itself is an ever-present motivator. Producing capital is rewarded with capital, which inspires more capital to be produced. This is a feedback loop that drives the production of capital and the accumulation of excess capital.

TIP: Capital is the medium of exchange used in the trade of commodities. Generally, this is currency, but it is not limited to it (see types of capital; ex. human capital, resources used in production, etc).

A capitalist will always strive to accumulate more capital. It is the self-interest of the capitalist to participate in capitalism… and not just to participate, but to constantly become a better and more effective capitalist and to produce excess capital.

Scams aside, the only way to accumulate more capital is to produce more capital. To produce goods and services of a higher quality, quantity, or at a lower cost allows for more capital to be produced beyond what is needed. This creates excess capital. A capitalist can pocket or reinvest excess capital. That is how capital accumulation works.

Thus, a capitalist won’t just strive to produce capital but will strive to produce more and more excess capital by creating higher quality, more quantity, and at a lower cost.

There is no need for duty to the state, moralism, or threats from a commissar; the carrot on a stick to produce capital is capital.

Every lofty text can be replaced with a mark on a ledger.

No real explanation is needed, points representing a value that can be traded for more capital just need to be awarded via the system for it to work (in capitalism they are awarded through capital acquired via wages and capital acquired via trade).

Capital inspires a person to become skilled, produce jobs, reinvest capital, etc. It inspires the market to produce quality goods when quality is demanded, quantity when quantity is demanded, and jobs and technology so that demand can be met efficiently (so more excess capital can be produced).

In simple terms, the desire to accumulate excess capital inspires the production of commodities (which generally require labor to produce).

People will work hard at a hobby for no pay, but there are many jobs that wouldn’t get the focus, attention, and commitment needed if it wasn’t for the incentives of a system like capitalism.

This isn’t to say that other systems don’t work, or that capitalism doesn’t work better if you inject in aspects of another system like socialism (for example, if you supplement the vaccination delivery market to ensure herd immunity to a deadly disease)… it only means that at its core capitalism works on a very fundamental level because it constantly doles out rewards to participants for being better capitalists.

Labor, goods, and services in abundance is a side effect of capitalism, in the mad rush to get more and more marks on the ledger, capitalism produces a bustling economy. Humans trade every tangible thing we see around us for a record of figures (essentially a points system where points are redeemable for goods and services which all equate to prestige). It is very effective.

Still, this isn’t to say that capitalism doesn’t create a vast array of problems, it does in my opinion.

For example, a capitalist will seek to create capital at the expense of morality, the state, the environment, their fellow man’s well-being, their own well-being, and even the well-being of capitalism itself (to the extent that it can even be “its own gravedigger” as they say)!

If the job does not produce the capital, then the capitalist has incentive to devalue the job. Thus, the job of being a mother is far below the job of a hedge fund manager in rank when it comes to a pure capitalist society that knows no nuance… but that said, the problems of capitalism (of which there are more than that) are an aside to the point.

The point here is this, capitalism for all its problems when taken alone and pure, nonetheless works well in many ways. Its success I think can primarily be chalked up to its ends, means, motivators, etc all being the same darn simple very natural broad class of things, “capital.” The quest for capital, and specifically excess capital, produces an abundance… because humans will commit many hours to production and trade in exchange for numbers on a bank ledger.

Thoughts: I think we all know the above in our guts and logically. For example, I know it in many ways, one way being my experience with creating sites like this. If this site made much more money, I would spend much more money on it, I would hire more people to work on it, I would make a better product, it would be more useful to more people, more companies would advertise on it, they would sell more products and services, people would buy more products and services, etc. It would “produce more capital as a side effect of my quest for acquiring more capital.” You could say, “well, you must work harder, invest more time into, etc.” However, you see, this site doesn’t seem to scale well with the effort given the current standards of living in the US (i.e. if I only worked on this site, I couldn’t also pay my bills), and I don’t have the capital to throw at others for their hard work on this, so in fact what I do is focus on other ventures that make more money. In this way capitalism has spoken, the site is what it is, not what it could be in a different system… but is that for the best? I’m not sure, but capitalism is working. Yet, what if this was Communism… then I don’t create this site or get paid for it (for sure not getting paid for fact-checking the government, right?) You get the point. Things aren’t so simple, but capitalism is far from without merit. At the end of the day, it does incentivize me to work on this site knowing it isn’t just a hobby, it may not be a great trade-off, but money does trickle in, and it does trickle a little faster when a job is well done. Just one of many examples.

"Capitalism Works Because Capital is a Built-in Incentive" is tagged with: Capitalism, Money

What do you think?