Capitalism is a great theory but not a reality in the US

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April 18, 2010


Capitalism is a great economic system, especially if you are one who has benefited by it. Most people have a reverence for it that is almost religious. Unfortunately this reverence is similar to the reverence that used to be given to the Bible by those who put it in a safe place in the house, not to be touched or read.

            What Adam Smith described in the Wealth of Nations in 1776 is a free market that mostly consisted of many small entrepreneurs providing a product or service. Often the family was integral to the operation of this business. In this system workers were respected for the talents they had because capitalism was undergirded by high moral principles and values. Excessive profits were a detriment to the smooth operation of capitalism according to Smith. Shortly after Smith published his book the industrial revolution exploded. More and more small businesses were replaced with larger ones until today the vestiges of the small family entrepreneurial operation hardly exist. Even though most of the jobs in this country are provided by small enterprises, our economic system is dominated by the large multinational corporations that do not even resemble the capitalism Smith described in his book.

            This industrial revolution changed the whole manner of competition, employment, and ownership. In 1886 the US Supreme Court ruled that a corporation was a legal person, using the 14th Amendment as its basis for such an argument. (1) The corporation had existed for many years but this decision allowed wealthy people to engage in business ownership with limited liability and risk to their own wealth. In the process corporations became very entwined with government and capitalism, as envisioned by Smith, never came to exist.


            Capitalism derives its name from the capital (wealth) which owners use to start and maintain a business operation. Employees are an integral part of any business unless of course the business is a one person operation. Employees are people, not a resource like steel, oil or inventory. They need to be treated with respect and dignity. They take a risk when they choose to work for a particular company, expecting to receive the rewards of decent wages, benefits, and security in exchange for their work and commitment to the company.  This part is sadly overlooked or ignored in our economic discussions. This is the reason for the emergence of labor unions.


            Jim (not his real name) and I had several email exchanges regarding capitalism. He challenged me to come up with a better system than capitalism since I was critical of its operation. Then he wrote about the good life capitalism has brought him after retiring from Dow Chemical. He has enjoyed a good home, vacations, and now “I am pretty much self sufficient and I do enjoy Social Security and Medicare benefits.”

I responded,  “Capitalism did not provide you the benefits you listed – your employer did that…. the owners of business control what they do, how much they pay themselves, and how much they pay their employees..” His Social Security and Medicare are of course from the government, not his employer.

Jim wrote, “the company is bound, through collective bargaining with the union, to perform in an agreed upon system! They cannot arbitrarily fire anyone without cause!”

I replied that he made my case very well that capitalism and the free market do not work for the benefit of employees. Unions are not part of capitalism. They were formed and legally supported by government to force companies to be fair! A better system than capitalism is a combination of capitalism and government involvement. That’s what we have. Fine tuning the relationship is always necessary.


            Jim is a person who has railed against candidate and now President Obama while touting the benefits of Social Security and Medicare as if they were products of his own work and not government programs. He wrote he was a “self sufficient man” without recognizing the benefits guaranteed through his labor union. None of these sources of his security and self sufficiency he praises are aspects of capitalism but rather government regulation of capitalism. It is important to understand our economic system if we are to move forward without being hampered by ignorance.



quote from that site:

In 1886, . . . in the case of Santa Clara County v. Southern Pacific Railroad Company, the U.S. Supreme Court decided that a private corporation is a person and entitled to the legal rights and protections the Constitutions affords to any person. Because the Constitution makes no mention of corporations, it is a fairly clear case of the Court's taking it upon itself to rewrite the Constitution.

          Far more remarkable, however, is that the doctrine of corporate personhood, which subsequently became a cornerstone of corporate law, was introduced into this 1886 decision without argument. According to the official case record, Supreme Court Justice Morrison Remick Waite simply pronounced before the beginning of arguement in the case of Santa Clara County v. Southern Pacific Railroad Company that


          The court does not wish to hear argument on the question whether the provision in the Fourteenth Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporations. We are all of opinion that it does.

          The court reporter duly entered into the summary record of the Court's findings that

          The defendant Corporations are persons within the intent of the clause in section 1 of the Fourteen Amendment to the Constitution of the United States, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws.

          Thus it was that a two-sentence assertion by a single judge elevated corporations to the status of persons under the law, prepared the way for the rise of global corporate rule, and thereby changed the course of history.

          The doctrine of corporate personhood creates an interesting legal contradiction. The corporation is owned by its shareholders and is therefore their property. If it is also a legal person, then it is a person owned by others and thus exists in a condition of slavery -- a status explicitly forbidden by the Thirteenth Amendment to the Constitution. So is a corporation a person illegally held in servitude by its shareholders? Or is it a person who enjoys the rights of personhood that take precedence over the presumed ownership rights of its shareholders? So far as I have been able to determine, this contradiction has not been directly addressed by the courts.