Capitalism is an economic and political system in which private owners, rather than the state, control trade and industry for profit. A highly regulated form of capitalism—as opposed to unfettered capitalism—empowers the economic system of the United States. The current election cycle, especially within the Democratic Party primaries, incorporates a focus on economic inequality and differing social positions resulting from that inequality inherent in capitalistic outcomes.

The Foundation of Capitalism

Competition among individuals, companies, or corporations establishes the foundation of capitalism. This competition should be free, fair, and open without governmental or criminal influences in the marketplace; however, capitalism necessarily involves meritocracies. Dictionaries give the following definitions of a meritocracy:

  • A government or the holding of power by people selected on the basis of their ability.
  • A ruling or influential class of educated or skilled people.
  • An elite group of people whose progress is based on ability and talent rather than on class privilege or wealth.

Individuals acting alone or within companies and corporations have differing talents, capabilities, and ambition that can be applied to the competitive marketplace. These differences inevitably produce income inequalities as expected outcomes of capitalism: Some persons, individually and collectively, will be successful and some will be unsuccessful. Ideally, the degree of success should be directly related to the degree of merit among the competitors with respect to talent, applied capabilities, and ambition.

The Level Playing Field

A true meritocracy within capitalism must be the outgrowth of a level playing field for all competitors in the marketplace. Our economic history demonstrates that some competitors will always attempt to inappropriately influence the marketplace in order to seek an undeserved advantage, the opposite of a meritocracy. From this perspective, we can easily argue that the primary role of the government in the marketplace should be to enforce the level playing field, certainly not to pick winners and losers or to design governmental regulations, e.g., corporate welfare, that benefit only a small segment of competitors.

The Impact of Education

Educational opportunity and application play important parts in the economic competition. A level playing field requires equal access to quality education. Obviously, this access does not mean equal application of educational benefits for all competitors: Intelligence and ambition are not distributed equally among the population. Nevertheless, people who do not have access to a quality education—academic, vocational, or through the “hard knock school of life”—enter the marketplace with profound disadvantages.

Sen. Bernie Sanders proposes “free” tuition for all students at public colleges and universities as a critical component of his candidacy for the Democratic nomination for president of the United States. I believe he understands the importance of access to quality education in order to compete successfully in the marketplace. His proposal, however, to fund this program through excess taxation on the top one-percent of wealth holders should be a non-starter. If access to quality education constitutes a great societal benefit, then the costs should be spread rationally throughout the population. These equitable costs for financial support probably will require a restructuring of our federal taxation scheme, a topic for a subsequent post.

We also need more information from Sen. Sanders about the following, among other topics: How to set reasonable standards for admission to public educational institutions; whether these standards and criteria for graduation should be national or left up to individual states; how to prevent “grade inflation” in order not to cheapen the benefits from educational degrees and certification; the extent to which the free tuition be applied—only to undergraduates or also to graduate and professional education; and how the non-tuition costs of education should be accounted for.

Several commentators have criticized Sen. Sanders’ educational proposals because the costs will be extremely high, if not prohibitive. A balanced critique of these costs must also take into account the societal—including economic—costs to the United States with the increasing competition in the global marketplace that depends upon highly educated persons.

The Influence of Wealth

Children of wealthy families begin with great advantages in securing access to a quality education, e.g., expectations; private tutors; the benefits of travel; and admission to elite and costly private secondary schools, colleges, and universities without economic stress. I do not advocate eliminating these advantages of earned wealth. I do advocate developing a system so that all children have equivalent opportunities. I don’t have any problem with earned wealth derived from competition in the marketplace, as long as the competition takes place on a level playing field.

Many years ago I had a conversation with a United Methodist minister and avowed socialist. He proposed one way to ensure economic equity in the United States would be to give all adults a generous payment at the beginning of each calendar year. No other source of income would be allowed and the amount of the payment would be dependent upon the number of children and other dependents in the family. I asked, “What incentive under your scheme would there be for people to work and, if they don’t work, where would the money—in the form of taxes—come from to support your proposal?” He replied with some socialist gobbledygook. I next told him that, even with generous equivalent annual stipends, within a short time some recipients would have more wealth than others because of differing talents and attitudes. The minister abruptly turned away to talk with people more inclined to his “theorizing” that was totally devoid of reality.

If we believe competition in the marketplace accounts for the economic success of the United States, we also should consider how inherited, as opposed to earned, wealth may lead to an uneven playing field. The inheritors of familial wealth most often receive that wealth without their competition in the marketplace but they do benefit from the competition of preceding family members. I am unaware of any successful scheme that has been proposed to control the non-competitive aspects of inherited wealth except for one: a booming economy that allows all persons the opportunity to become wealthy through competition.

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