Capitalist Economy

June 21, 2020


Living in the West, we have for the most part been conditioned to believe that capitalism is the most just and logical economic system.  We are taught that capitalist societies fuel hard work, creative innovation and spark a  desire to always improve.  While perhaps these notions are true, have these ideas been glorified to some degree in order to rationalize the glaring gaps in financial equality in capitalist countries?  


Capitalism rewards those who work the hardest 


It is tempting to believe that one’s financial success is directly tied to the effort one puts into his or her work.  And in some cases, this ideal does hold true.  But perhaps the greater truth is that capitalism can reward those who work the hardest, but that does not in turn mean that simply working hard will lead to a financial gain.  To try and establish a direct link between work effort and financial gain negates several key factors in society.  


Equal opportunity 


The idea that we are all born into this world with the same breadth of opportunities is a fallacy.  Some of us grow up to parents who are high income earners who can support us financially, while others are born to parents who struggle to make ends meet.  


If your parents are wealthy, you can spend more time focusing on school and getting involved in extracurricular activities while growing up.  Your parents might be able to afford private tutoring if you are struggling in school, and later on, they might cover your costs for SAT and postgraduate standardized test courses.  


In contrast, if your parents are struggling to put food on the table, then you might have to get a job at a younger age to help your family.  This means devoting less time to your studies and likely foregoing any competitive advantage in overly emphasized standardized tests.  


If you look at a law school or medical school, it is naïve to think that it is filled with the students who worked the hardest in high school and university.  Yes, it takes great effort and mental fortitude to get into a competitive postgraduate program, and those who wind up in such programs deserve to be credited for their effort.  But let’s not pretend that as long as you put the effort in, all opportunities are available to you.  For someone who has no financial support from their parents, they very well may have had to focus their efforts on paying their way through college by working several jobs.  They were starting at a different baseline, where more work was required just to afford their university classes, let alone to achieve high grades in said courses.  


There is no way to equalize everyone at birth.  Even if there were some magical way to ensure that every child was born into the same financial situation, there would still be differences in social situations, from varying parenting styles to different communities, which would all influence a child’s trajectory.  But perhaps a starting point would be to at least acknowledge this reality, that we are not all born into the same circumstances, and that while capitalism does reward hard work, it does not mean that hard work automatically translates into financial success.  


Capital income 

The wealthiest people in society typically don’t make the bulk of their money from their annual salaries.  Rather, it is people’s returns on investments in the stock market that yield the greatest wealth.  Yes – in order to have the money to put into the stock market to generate that capital income, one must work for that salary.  But as you then put more and more money into the stock market, the opportunities for growth increase exponentially.  


Let me be clear - I am not saying that capital markets are necessarily a bad thing.  But it does refute the argument that the richest make their money exclusively by working the hardest.  Perhaps you can argue that they make their salaries by working hard, but beyond that, it is the combination of wise investing, compound interest and laissez faire capitalism that generate the gigantic profits for the wealthiest members of society.  So perhaps we should call a spade a spade; part of the monies people earn are directly correlated to the effort and time of their work, but in a capitalist market, that is really only true up until a certain point.  


So is capitalism really what we think it is?  

I am not an economist, nor do I have strong opinions on capitalism, socialism, liberalism or the many other economic systems in existence.  But I do think it behooves us to at least question the economic system in which we live and try to understand it for what it truly is.  It is convenient for the financially successful to believe that they deserve everything they have earned.  That makes it easier to rationalize the lavish life one lives by solely correlating it with effort.  


But let’s be honest with ourselves.  Hard work is often a prerequisite for making money, but not always.  Hard work does not guarantee financial success, unless it is nurtured in the right context.  Achieving high grades in school does reflect a strong work ethic, but failing to succeed academically does not mean one lacked such a work ethic.  There are many factors at play.    

Listen to the preconceived podcast as we continue to challenge the paradigms by which we have been conditioned to live our lives.


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