Book Cover

Capitalism,  The Way to a World of Peace and Plenty

Good vs. Bad Capitalism 1/25/2018

The attached article "The good vs the bad capitalism" is important because lack of understanding has caused a slower growth since the beginning of capitalism. Most of the culture criticizes the "bad" capitalism but have very little understanding of the good capitalism. The prevailing view of capitalism is a conflict between capital and labor. Piketty's book last year confirmed that capital had a better return than labor. He gave no reason that this was inevitable and indicated that it was because of the structure.

Capitalism is criticized because the profit motive causes the mal-distribution of wealth in a system that is not humane. Paradoxically the good capitalism maximizes wealth because the worker-owners find their potential in the work place. It provides the wealth to live well and the humane environment to live in trust and cooperation.

Robert Owen demonstrated that wealth was maximized if the environment were humane. Because he knew that the culture did not encourage trust and cooperation it required education from as early as three to produce this productive culture.

Owen also knew what bad capitalism was. He described the beating of children of both sexes under the age of eight to keep them working hard on spinning mills on the night shift.

Good capitalism has the simple requirement that money be managed for the general welfare. After the Napoleonic Wars the British "capitalists" influenced the state to manage money for the benefit of the privileged. A condition that has continued for over two centuries.

The all important education to equip citizens with an understanding of the good capitalism is aided by the study of Owen's experience a half-century earlier by Mill, Marx, and Engels. They all captured the change in the work culture that maximized wealth by the humane culture. Mill provided the democratic capitalist manifesto that is on the website, Engels provided an eloquent description of the work environment and Marx even predicted the end of war when nations instead gave priority to trade by "fully developed human beings."

Good Capitalism vs Bad Capitalism

Robert Owen (1771-1858) was one of the first democratic capitalists. Born in Wales, he left home at age ten, learned how to spin thread, and then became the manager of a factory. By age 28, he had become managing partner of a concern that bought New Lanark, a large spinning mill near Glasgow from Robert Dale, and married his daughter.

Owen spent years communicating with workers on the factory floor who gave him a confident belief that the good capitalism could maximize wealth:

The period is arrived, when the means are obvious by which 
without force or fraud of any kind, riches may be created in 
such abundance, that the wants and desires of every human 
being may be more than satisfied. In consequence, the dominion 
of wealth and the evils arising from the desire to acquire and 
accumulate riches are on the point of terminating.

Owen knew that free markets, identified earlier by Adam Smith, could improve growth and profits. He was unique, however, in his knowledge that freeing the workers to reach their productivity and innovation potential would add more substantial wealth in the good capitalism:

If due care of your inanimate machines can produce beneficial results, what may not be expected if you devote equal attention to your vital machines, which are far more wonderfully constructed. Your time and money so applied would return you not five, ten, or fifteen percent, but often fifty and in many cases a hundred per cent.

This discovery of how to maximize and distribute more wealth through the motivation and reward of the workers is not yet well understood.

When Owen toured other mills he found instead of encouraging the worker to reach potential the bad capitalism pursued short term profits in ways that instituted the negative view of capitalism that continues to the present. 

Greed of gain had impelled the mill-owners to greater extremes of inhumanity, utterly disgraceful to a civilized nation. Their mills were run fifteen hours a day with a single set of hands, and they did not scruple to employ children of both sexes from the age of eight. Overseers carried stout leather thongs, and even the youngest children were severely beaten. In some large factories one-fifth of the children were either cripples or otherwise deformed by excessive toil or brutal abuse.

The freeing of the mind in the prior century resulted in technology that simplified the spinning machine. Instead of higher wages for the workers, however, the bad capitalists used the new technology to put children to work running the spinning mills. 

After Owen verified this good capitalism producing and distributing more wealth he took it to the authorities thinking that they would be excited to find this way to peace and plenty. The authorities were, however, busy collaborating with the rich and powerful to fight inflation by putting people out of work. One of the Austrian economists, Ludwig von Mises wrote about this aspect of bad capitalism

When, after the Napoleonic Wars, the United Kingdom had to 
face the problem of reforming its currency, it chose the 
return to the pre-war gold parity of the pound and gave no 
thought to the idea of stabilizing the exchange ratio between 
the paper pound and gold as it had developed on the market 
under the impact of the inflation. It preferred deflation to 
stabilization and to the adoption of a new parity consonant 
with the state of the market. Calamitous economic hardships 
resulted from this deflation; they stirred social unrest and 
begot the rise of an inflationist movement as well as the 
anti-capitalistic agitation from which after a while Engels 
and Marx drew their inspiration. 

When the Federal Reserve was founded in the early 20th century this inflation fighting practice used the Phillip’s curve and the more sophisticated NAIRU (non accelerating inflation rate of unemployment) to determine how many people should lose their jobs to protect the wealth of the rich. 

Engels, Marx and John Stuart Mill in mid-19th century all studied Owen and reflected it in their visions of a world of peace and plenty. Along with Owen they all wrote books about the good capitalism.

Marx commented:

As Robert Owen has shown us in detail, the germ of the 
education of the future is present in the factory system; 
this education will, in the case of every child over a given 
age combine productive labour with instruction and 
gymnastics, not only as one of the methods of adding to the 
efficiency of production, but as the only method of 
producing fully developed human beings. 

Owen believed that the enormous productivity and innovation of turned-on people could be released only if built on the worth and potential of each in an environment of trust and cooperation. Owens company sponsored free education, training, clean housing, health care, and job security. He brought together upwards of a hundred children, from one to six years of age, under two guardians. They were trained to habits of order and cleanliness; they were taught to abstain from quarrels, to be kind to each other. Over a twelve-year period, out of 3,000 students not a single criminal action occurred. Owen understood that for workers to reach their fullest individual development they had to first learn how to function in a harmonious whole. Although this instinct is natural to humans it had been suppressed by thousands of years of predatory domination. Owen was criticized for these uncommon investments but he made greater profits than the Mercantilist capitalists that tried to maximize profits by suppressing wages. For the next two centuries, however, it was the bad capitalism that captured the attention of the intellectual community almost to the exclusion of any interest in the good capitalism. Most academicians had accepted Aristotle’s (344-322 B.C.) view that “ a man who lives the life of a mechanic or laborer cannot pursue the things that belong to excellence.” Aristotle learned his contempt for commerce from Plato (427-347 B C) who wrote “It is important for the state to keep its trading class as small as possible. Trade should not be made over by a class of people whose corruption will not harm the state unduly.”

Many academicians accepted this Greek contempt of commerce as it sustained their sense of superiority. It also resulted in their defaulting on their responsibility to study economic alternatives that could have led to an understanding and greater use of the good capitalism.

Ray CareyRay Carey

Ray Carey learned through managing companies for 33 years how to change the work culture to provide employees with their best opportunities to develop and contribute. This experience began as a 28 year old plant manager and later president of an electric motor company, and concluded with eighteen years as president , chairman, and CEO of ADT, Inc.

See Carey's autobiography of his work career in chapter two of his first book,

Democratic Capitalism, The Way to a World of Peace and Plenty.

For more information about Ray Carey and his advocacy of democratic capitalism, visit the pages of this website.