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Instead, a capitalist society supplies new gadgets, appliances, and luxuries that arouse envy in those who cannot afford them and that inspire a ceaseless obsession with securing more among those who already own too much.

He argues that low taxes are harmful to the poor because they give government inadequate revenue to provide essential services to the poor. Higher taxes really would not harm the well-to-do, he says, because money and material possessions are subject to diminishing marginal utility. If such claims have a familiar ring, it is because Galbraith made the same points fifty years ago

. “Is it really your money?” Singer asks, citing economist Herbert Simon’s estimate that a flat income tax of 90 percent would be reasonable because individuals derive most of their income from the “social capital” provided by technology and by protections such as patents and copyrights, and by the physical security afforded by police, courts, and armies rather than from anything they personally do. If the “fruits of capitalism” are merely a gift of government, it is an argument that proves too much. By the same logic, individuals might be enslaved if they were not protected by government, so conscription (servitude for a brief period) would be entirely unobjectionable, as would the seizure of privately owned land to turn it over to new owners if their uses would yield higher tax revenues—exactly the basis of a 2005 Supreme Court ruling on “eminent domain.”

In fact, giant corporations are fully consistent with capitalism, which does not imply any particular configuration of firms in terms of size or legal form. They attract capital from thousands (sometimes millions) of investors who are strangers to each other and who entrust their savings to the managerial expertise of others in exchange for a share of the resulting profit

Today, the United States, once the citadel of capitalism, is a “mixed economy” in which government bestows favors and imposes restrictions with no clear or consistent principles in mind. As the formerly communist countries of Eastern Europe struggle to embrace free-market ideas and institutions, they can learn from the American (and British) experience about not only the benefits that flowed from economic individualism, but also the burden of regulations that became impossible to repeal and trade barriers that were hard to dismantle. If the history of capitalism proves one thing, it is that the process of competition does not stop at national borders. As long as individuals anywhere perceive a potential for profits, they will amass the capital, produce the product, and circumvent the cultural and political barriers that interfere with their objectives.

With the coming of the New Deal in the early 1930s, however, it became impossible to maintain the sacrosanct character of private property. A series of decisions by the Supreme Court validating New Deal legislation removed the constitutional barrier to governmental action in the economic field.

e series of economic measures of the New Deal, including control of agricultural prices, production, and marketing; the sanctioning and support of collective bargaining; social security legislation; the increase in the progressivity of income taxes; regulation of the security exchanges; increased governmental control over money and banking; the conscious use of deficit financing; the great increase in the proportion of national income flowing through the governmental budget; and the great increase in the proportion of the labor force in governmental employment, meant a significant change in the capitalistic system. The later legislative acceptance, which came about after World War ii, of the responsibility of the federal government to attempt to maintain full employment represented another step in the same direction. All these changes served to differentiate modified capitalism from old-style capitalism. [SeeWelfare state.]

"Capitalism." International Encyclopedia of the Social Sciences. 1968. Encyclopedia.com. 11 Jan. 2013 <http://www.encyclopedia.com>.