Capitalism: The Orphan Idea

I learnt Economics from the Americans. The Leftists in India have made sure that nothing that contradicts Marx can be allowed to reach us. The Leftists with the saffron flags hate the money itself, so they also have signed up on the Left’s Economic illiteracy programme. Internet came, and through it I discovered Economics.

But alas, now I see that even the leading lights of American Conservativism fail to put up a proper defence of Capitalism. Yesterday I happened to see a Ben Shapiro clip in which he was answering to a boy who said that the profit was created by the workers who work the machines, but it is all appropriated by the owner because he owns the machines. Workers generate the profit, but owner takes it away all because he had the Capital. If Capital is instead owned by the workers, they will retain the profit also. Ben Shapiro said that the owner had the Capital because he or his parents had saved it, and he gets the profit because he takes the risk.

No Mr Shapiro, that is not how it is. The owner gets the profit because he has skills. He is an entrepreneur. Profit is his earnings generated by his skills, not by Capital.

1. If machines and workers generate the profit, then no factory would ever make losses. Because it has workers and machines. But daily we see factories with machines and workers run into losses and getting shut down.

2. If machines and workers create profit, then USSR, Venezuela, Cuba, and North Korea would not have gone bankrupt, because when commies seized these countries they had factories with machines and workers.

3. If workers and machines create profit, then why are India’s all public sector undertakings making losses? Are the workers being paid more than they are creating? Will the trade unions accept their own argument and accept such pay cuts which will make these undertakings profitable? Will workers in every private factory of the world which starts making losses accept such successive pay cuts which will keep these factories always profitable? Will you, comrade? Will you? Com’on man, be true to your own words.

Actually comrades will do nothing like that. Because in their hearts they know that they are living a fraud. These thugs know that they are living a lie.

Anil Ambani had same Capital as his brother. If Capital created profits, he would not have been bankrupt today with zero net worth, instead he would also have been sixth richest person in the world like his brother is as per today’s, 14th July’s, rankings. Their father, son of a school teacher and with zero Capital would not have become the biggest industrialist of India. Same for Mark Zuckerberg. Same for countless others. And nobody with Capital, no owner of factories would have ever gone bankrupt if it were machines and workers who created profit.

Profit is a result of the entrepreneur’s skills. He makes calculations based on all inputs, including CAPITAL, that if he transforms all inputs together into something else, inputs which include labour of a worker, then he will sell the output at a price which will be greater than the cost of all inputs, including the cost of Capital, of machines, and of labour. So long as his skills enable him to make these calculations correctly, he continues to make profit. The day his skills reach their limits, or are rendered obsolete because of market conditions which are always, continuously, changing, and he fails to acquire new skills in time, he starts making losses, inspite of all the machines and workers being where they were: in his factory shed.

And this is all about Capitalism. It is nothing but a system in which men are free to exercise their skills. A large number of men are continuously making these calculations, some get it right and make profits, some get it wrong, and lose everything. Some get Capital, even half of the wealth of Dhiru Bhai Ambani, and taking the Leftist seriously that Capital and workers create profit, start setting up factories and soon lose everything. Only machines are left rusting in their sheds.

Capital is not something available only to those who saved it or whose parents saved it. It is available to all of us, unlimited, right now. Go to market, Capital has a cost, pay it and get as much of it as you want. You do not have the price to pay for it? No problem, no down payment is required. Just demonstrate to your fellow men that you will be able to pay for it in the future. How will you demonstrate? Well, start by selling somosa, or chat, or paan, and create a profit. If your fellow men see you generating profit, they will rush to invest in your samosa stall. Soon you can own all the samosa stalls of the world.

Fact is that profit is reward of the entrepreneur. Capital is just one of the inputs the entrepreneur assembles together, and creates profit. And no, having money, even half of Dhiru Bhai’s wealth, doesn’t make you an entrepreneur. Profit is not even a reward of the risk taking. If that were so, the folks in circus walking on the wire without the net below, thus risking their lives itself, would have been the richest folks in the world. Or the matadors who stand before a raging bull, they would have been the richest, but they are not.

And no, even the inventors do not make profits, because they are inventors, not entrepreneurs. Tesla created AC electric system on which entire world runs today, but he died a very poor man. Goodyear, ho invented vulcanized rubber, died in abject poverty because he also thought that inventor is also an entrepreneur. No, inventors, scientists, engineers, MBAs, CAs are not entrepreneurs, though they all like to think like the workers of Marx, that they create profit which the “owner” misappropriates. If they fancy themselves to entrepreneurs, they can also start with a samosa and paan stall and see if they can sell even a single samosa or paan by the evening. Do not believe the lies of the Leftist thugs just because the lies nurse your ego: “Mukesh Ambani is rich because he had Capital, how unjust I did not have that Capital. World is indeed unfair. It is controlled by moneyed.” If you believe these lies, you will remain and die poor, and so will your children. If not for yourself, for the sake of your children at least, learn Economics, save something and invest in the stock market if you do not have the skills to make even samosas. Your money will only grow if you do not get too greedy.