- Why study US history, government, and civics?
- US History Overview 1: Jamestown to the Civil War
- US History overview 2: Reconstruction to the Great Depression
- US History overview 3: WWII to Vietnam
- Appomattox and Lincoln's assassination
- When Capitalism is great and not-so-great
- 20th century US capitalism and regulation
Understanding when capitalism can potentially undermine innovation, competition and merit. Created by Sal Khan.
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- I really don't like the generalization of socialism and communism. Looking at modern socialist countries, such as the Nordic ones, for example Norway and Sweden, the incentive structure is still basically the same. It is just as much a meritocracy. Having a good education or being innovative will still lead to a well above average income. The profit you make will of course be taxed way higher than if you were to live in say the US. A few questions arise for me at this point.
How much is innovation and willingness to work actually connected to the amount of profit you can achieve? Are people in capitalist countries more inclined to work or innovate because they could make a larger profit from it?
A higher taxation leads to a stronger welfare state, i.e, public education and health care. This means people has a chance to educate themselves regardless of what social status the family one is born into. Doesn't that lead to more people being able to work and innovate at a higher level?(30 votes)
- Norway and Sweden are fantastic countries -- in fact, Sweden has the highest number of Nobel Peace Prize winners and one of the lowest murder rates in the world -- keep in mind they are not purely socialist countries, they are democratic socialist countries. That means they follow a lot of socialist beliefs but also some democratic beliefs, such as electing a president.(21 votes)
- I honestly feel that the government is not considered Capitalist since they have the authority of preventing some companies from monopolizing and gaining to much wealth. So would our government be considered a hybrid of Capitalism & Socialism?(11 votes)
- Some things a government does can be socialist, like providing education, Social security, and police. Some can be capitalist such as allowing for the private ownership of property. There are usually never pure capitalist economies. Most economies are "mixed economies": a private marketplace and government regulations, some public ownership and some private ownership. So yes, the US government's policies are a hybrid, but so are most every other government's policies.(11 votes)
- If the government is acting as agent of capitalism by breaking up monopolies, but seems to be so susceptible to corruption(AKA politicians, lobbying, or even social justice)what are the tools that would be used to prevent the goverment from becoming monopolized? I understand that the obvious ones would be the the constitition and the bill or rights, but they seem to be being ingnored, and our two party system only seems to work for those in power or wanting power or with money to make it work.(7 votes)
- The US Constitution is different from other constitutions in the world because it is not, "We the Government grant these rights..." It is "We THE PEOPLE claim these rights..." THE PEOPLE are what make the country run. Politicians don't become politicians without a lot of people voting for them. If we put them in office, we can vote them out. The Constitution and Bill of Rights can only lay the rules, but it is THE PEOPLE who have to be aware of what their elected representitives are up to. THE PEOPLE need to make sure the government acts within the bounds set by the Constition and the Bill of Rights. It is THE PEOPLE who need to be educated voters and be involved in society, making sure the government's actions coincide with the voice of THE PEOPLE- that the government acts with prudence and in the interest of the country.(11 votes)
- Have you ever heard of Ayn Rand? The philosopher who advocates for "the virtue of selfishness" and pure capitalism? I, personally, do not follow her teachings, but if we were to determine that there was a necessity for some form of regulation (for the sake of social mobility and meritocracy), seeing that we live in a capitalistic society, how would we accomplish that with disciples of Rand, tea-partiers, and such a strong anti-regulation bias in the U.S.? Oh and also create a philosophy channel?(0 votes)
- Adam Smith, writer of "The Wealth of Nations" who coined "the invisible hand" of the market, much quoted by "Rand's cultists", believed that regulation was a requirement for capitalism and markets in general, as did a great many economic theorist after.
The phrase "free market" specifically doesn't mean free from government regulation.
"Free Markets" require free access, to participate or not. Free markets also require openness (freedom) of information, both for the value of the things in trade (for each participant), but also the positioning of the participants and its effects on the market. There are other requirement, such as, that participants be free from coercion (by players within the market). These freedoms must be guaranteed. The "invisible hand" at best is a tendency, not a guarantee.
An outside authority, i.e. government, must guarantee these market conditions in order to establish a free market, hence no free market without government regulation.
To your question about Rand, the answer is in the question: Rand was a cultist, having "disciples", and not a philosopher. Her "theories" were riddled with logical fallacies. At best, her ideas serve as examples of errors in logic and morality.(16 votes)
- At1:16, Sal says Capitalism can aline everyone's incentives, what does he mean by that?(3 votes)
- An "incentive" is a thing that motivates you to do something. Capitalism "aligns incentives," because if you work harder, you get more money. Socialism sometimes does not provide as much incentive to work harder because usually the more money you make, the greater percentage of your income is taxed by the government to provide for social services, such as healthcare or welfare.(7 votes)
- In this video Sal seemed to compare largely the pros and cons of moderate capitalism to extreme socialism. Wouldn't it not have made sense for him to compare the U.S. version of captilism to the Sewedish version of socialism? Since true examples are hard to find on either extreme end picking two that have both been successful would have been more beneficial. Anything looks good against nothing and so why not compare against something that actually has merit?(4 votes)
- You say yourself that examples are hard to find. The reason for that is that they do not exist. Every country has capitalistic and socalistic elements.
I prefer Sals approach in this case because rather than going into intricate details of one country which would not be applicable to another, he defines the basic concepts at large. While he could have used those countries as examples, it would make for a much longer video which he likes to avoid.(3 votes)
- at7:17Sal starts to talk about a monopoly, what is a monopoly?(3 votes)
- A monopoly is when only one person or corporation supplies a certain thing. The result is that the corporation does not have to compete with others to sell the thing and people can only buy that thing from the corporation. The corporation can then sell things at a higher price. Sometimes countries make laws to prohibit monopolies, and sometimes governments create monopolies. An example of a monopoly being broken up by the government would be AT&T in 1984. Examples of government-sanctioned monopolies are public utilities like water and electricity.(6 votes)
- What is a lobbyist?(2 votes)
- A lobbyist is a person who is paid to try to persuade politicians to agree with his or her client's point of view.(5 votes)
- What examples of a monopoly ever being created in the U.S. are there?(2 votes)
- What does the idea of fairness and equality means in terms of actual life? There is nothing fair about being born rich just as there is nothing fair about being born intelligent, or artistic, or musically inclined. The actual result of a 100% inheritance tax would be to destroy savings and investment because where is the incentive to make more than you can consume in your lifetime unless you can pass it on to those of your choosing without a large portion taken off for taxes?(4 votes)
After the fall of the Soviet Union, and even China's migration to a market-based economy-- even though they call themselves Communists, their economy is now, essentially, capitalist-- there's been a general consensus around the world that capitalism is the way to go. And just to put my bias out there, right from the get go, I am in that camp. I would consider myself a capitalist. But what I want to do in this video is do a little bit more of a nuanced discussion of capitalism versus, say, socialism. Because I feel like there has been-- especially here, in the United States, and in the West-- a knee jerk reaction against anything that even has a whiff of the government getting involved or even a whiff of socialism. So I want to think more about what are we trying to achieve with the capitalist system. And where we could fall into the things we don't want to achieve if some of the aspects of capitalism are allowed to go on without any type of controls or, maybe, some type of regulation. I don't want to advocate anything. I just want to give, maybe, a framework for thinking about it. So you ask any capitalist, including myself, you say, well, what's good about capitalism? And I would say, well, you know it aligns everyone's incentives. So it's good incentives. If you work harder, you can earn more, you can generate a capital for yourself. You can use that to improve your standard of living. You can reinvest that capital. So it's a good incentive structure. I'm not saying that everyone is motivated purely by the desire to earn. I think there's plenty of people in the world who are motivated for the desire for social good, for elevating mankind. But the general census in a lot of parts of-- is that those type of things are specific to certain domains. But, in other domains, if someone's running a trucking company, it's not clear that someone would run a trucking company optimally just for the good of mankind. Maybe they would run some type of nonprofit that way. But a trucking company, or a farm, or something like that, who knows. So in general, you have a good incentive structure. There's also this notion in a capitalist economy that it's a meritocracy. It is meritocracy. And I'm going to, actually, put a box around this because a meritocracy, in my mind, is super duper important. Because even if you talk to us-- almost everyone is a fan of a meritocracy. Even the communists were a fan of a meritocracy. They would give exams to people and have the people who were successful have more authority within the communist regime. So a meritocracy is something that everyone lays claim to. And actually a lot of socialists or communists would claim that extreme forms of capitalism, when the wealth disparity becomes two extreme or where you have inherited wealth, actually goes against the idea of meritocracy. So let me actually put meritocracy here as well. And we'll talk about that in a second. And then the other ideas is that you have innovation in capitalism. And these are all related ideas. That if the incentives are good, if capital gets in the hands of people who are most deserving of it because they've somehow earned it, they've somehow innovated, that can also lead to innovation because the right people are handling the capital. Now, if we go to the socialist side of things, they'll say, well, look, there's a social cohesiveness to this. So let me write this down. And I won't speak to the-- I don't claim what I'm going to do in this video is comprehensive of all of the pros and cons of either. I just want to give a little bit of nuance to the discussion. So social cohesiveness. You won't have this situation where you have a gazillionaire sitting behind a walled compound with armed guards and their people right on the other side of that walled compound starving to death. And these people don't even, necessarily, view themselves as part of the same society, that they somehow have a responsibility to each other. And that is happening in some parts of the world where you have severe disparities in wealth. The rich people don't even view themselves as the same species as the poor people or even vice versa. You have the other idea of-- and I'll put this in quotes-- fairness. And I'll put it in quotes because one could say, well, it's fair if you make more, if you work harder, you should get more. If you innovate more, you should get more. And then their notion of fairness says, well, yeah, but look sometimes this wealth gets so extreme. sometimes you have this notion of inherited wealth. Generation after generation. Old money. What's fair about that? That people are just randomly born into a situation where they can just extract the interest off of their wealth and never have to work. And other people have to work super hard and they really get nothing for it. So this notion of fairness, I'll put it over here as well. Fairness. Because there's arguments for either. And so, like I said, I'm definitely biased to the capitalist side of things. I think there is an importance to these things that we have on the right hand side. But the reality, at least what we've seen in the economic experiments of the 20th century, is that even though communists and socialists might speak to these types of things, to a large degree there's less social cohesiveness. The senior communists in the Soviet Union would drive fancier cars. And they did have a very different lifestyle then the workers. And they would hide that lifestyle. And then it would lead to a lot of hypocrisy. In general, the extreme forms of socialism-- not clear that it was a meritocracy. It might have been just the best people climbing up the party ladder that get to the top as opposed to the people who would innovate and actually produce in a better way. But with that said, I want to give fair warning, that capitalism, if it goes unchecked in certain ways, it could also lead to those same problems of socialism. And the main problems there, when you think about good incentives. I think the incentives, and once again, I'm giving my opinion here, the incentives work out well when you have a bunch of competitors who can compete and innovate. And it makes complete sense that, let's say, that this person comes up with an innovation. And because they have that innovation, they're able to provide a better good that's cheaper to society. And so they make more profits. And it seems reasonable that person should get more profits, and more wealth, and grow. And it could even be good for society because this person's an innovator. Maybe there was an element of luck there. But it seems like they're competent at managing these resources. So it's good for society to give them more resources to manage. The areas where it becomes less clear that capitalism is unambiguously good, is a situation where this person becomes out right dominate. So let's say that this person becomes so big that none of these other players can even compete with them. So they all disappear. This person can just undercut everybody. And all the other players disappear. And this is the situation of a monopoly. And the problem here is, when this guy had competition he had every incentive to work harder. He had every incentive to innovate. It was a meritocracy because the person who innovates well grows the fastest. But once you get to a monopoly stage, and everyone else has died down, this is the only player in the economy, then all of a sudden, he has no incentive to innovate. This corporation or this person can just keep raising prices. There's no competition. There's no one else to say, hey, I can have a better product or I can sell it to you cheaper. And so it actually goes against the ideas of innovation. That's why it's really important. And that's why it's part of, especially in the United States, the economic system that you try to break up monopolies. That you don't like monopolistic practices. The other risks that you have when you start having a lot of wealth and a lot of influence in one entity, or one person, or one corporation-- and this can happen in a democratic or even a non democratic regime-- is that, the control of resources aren't just control of those resources. Aren't just control of land, and buildings, and railroads. They can also use it to influence government. And in the United States, this has been institutionalized in the form of lobbying. And when you have excess resources and you can influence government in this way, you can get the government-- so let's say this is the government over here-- to, essentially, do things for you. So it works to your advantage. And may be allowing you, eventually, to become a monopoly. So you can view this as crony capitalism, where lobbying can be a form of legalized bribery. And in that way, you kind of own the elected officials. I'm not saying that this is happening everywhere but it could happen. And in that situation, you have the government acting on behalf of these. And, once again, it goes against the idea of a meritocracy because when you have this cycle developing, maybe this person right over here has the innovation. But this person doesn't have the clout, doesn't have the influence with the government. And so this guy gets the government contract for the planes. Or this guy gets the tax benefits from the government so that he can be even more competitive. He can undercut this guy even though this guy has the innovation. The other element-- and I could talk about this for hours. And these are just things to think about-- are the idea of inherited wealth. And I'm not saying that inherited wealth is a bad thing. But there's this idea that, let's say, someone through their competence, maybe competence with a little bit of luck, is able to accrue a huge amount of wealth. And maybe they're not even a monopolist. But they're able to get a huge amount of wealth. But they were able to do it-- that they're really good managers. They're kind of these really smart dude. He can he can really manage a lot of resources well. The question arises is, what happens when this person passes away? In a very purely capitalist situation, you pass this onto your children. So you pass this onto your children. And the issue here is, one, what did this person do to earn it? And also from a society's point of view, maybe this person here is a dummy. Maybe there was another kid over here who was born at the exact same time, who is way smarter and who-- but this kid is now in control over 100 gazillion dollars. And he can completely mismanage the resources so that they're completely wasted. And so you have this idea of-- over time-- inherited wealth in a capitalist society can go against the ideas of meritocracy. It can go against the idea of good incentives because if this guy inherits enough money, he has no incentive to work. Why should he have to study hard and go and tackle math and all that? He's inherited enough money that he gets millions of dollars just off of the interest. Why should he educate himself? He got daddy's or granddad's money. And so it also goes against the idea-- and why should he try to innovate? Why should he ever do anything? He could maybe just hire some of these people and give them a minimum salary, whatever it takes. And so it goes against these ideas of fairness and all that. And I'm not saying that I'm against inheritance. I'm just saying this is something to think about. And there's some, probably, threshold of inheritance that it starts to undermine some of these ideas of a meritocracy, and good incentives, and fairness, and all that. And that's why I think it's funny when people who call themselves "old money" are proud of it. They view themselves as, somehow, being part of a better caste because "old money" means that you did not earn the money yourself. That your granddad or you're great grandad earned the money. And you've just happened to be born in this family and are, essentially, just living off of the interest. And it's funny because they'll talk about "new money" as if they're not as good as old money. But at least in new money people-- maybe it was through luck, but maybe it was through competence or innovation-- this is something that, at least in my mind, I'd respect more than old. Old money, you've done nothing. What's the difference between old money, or a king and a queen, or the aristocracy of Europe, that goes against a lot of the philosophical underpinnings of what the United States is even based on. So I'll leave you there. I just want to add a little bit of a nuance to the conversation. And I will say-- I'll say it again-- I come to this conversation with a capitalist bias. But I'm hoping that this gives you a little bit of more nuance. So that instead of saying, capitalism is an unambiguous good and socialism is an unambiguous bad, these are the things that we should try to promote. And to do that, we do have to do some things, like make sure that everyone is educated so that we can have a meritocracy. If everyone is educated, then you have a level playing field. You have this notion of equal opportunity. And that does involve some type of, on some scale, redistribution of-- at least in the form of education. Maybe you do need some way for people to get health care. You don't want people dying in the streets. I'm not going to take a stance here, but I'm just showing you that you can't just, even though I do consider myself a capitalist, you can't just say that everything has to be purely capitalist and you can't have any notion of government intervention. You maybe want the government to invest in things like long-term research. Where they don't have an immediate profit motive, but 50, 100 years down the future it might allow the society to thrive or whatever else. So I'll leave you there.