Arguments against capitalism often take a moral tone, and accuse capitalism of deifying avarice: of making greed into a virtue. Who wants to defend an economic system which amounts to codified selfishness?
Such attacks are misguided on multiple fronts.
A polemic against capitalism, if it does not further specify what it is condemning, is fundamentally ill-founded, because the word ‘capitalism’ possesses multiple distinct, different, and mutually exclusive definitions. On the one hard, there is ‘crony capitalism,’ in which a small number of companies develop relationships with the government, in the process inducing the government to so regulate trade and commerce that only these companies have the advantage, and that the majority of companies are burdened by regulation and unable to effectively compete: such “crony capitalism” is opposed to any intuitive sense of fairness.
On the other hand, there is “free market capitalism,” which seeks precisely to correspond to this intuitive sense of fairness: the job of the government is to be a neutral referee or umpire, allowing companies to compete fairly by offering various products at various prices.
In addition to those two types of capitalism, one can even make the counterintuitive argument that Marxist communism or socialism is a type of capital: it argues that the “means of production” should be jointly owned by all the people, in the form of government ownership — and the means of production is nothing else than capital. Marxism, in the form of socialism or communism, can be characterized as “state capitalism.”
If one is to find fault with capitalism, then one must specify which type of capitalism one is vilifying.
Crony capitalism is easy game: it is almost universally seen as unfair, to the extent that even those who engage in it take pains to hide their activity. Beyond that, crony capitalism is of no utility to the citizens: the market is provided with goods of low quality at high prices, and shortages are frequent. Consumers have fewer options and choices in such a system.
State capitalism is sometimes advocated by people of good will, as a route to social justice. Other times, it is cynically implemented by those who see it as an opportunity for personal power. In either case, it leaves the citizens with fewer choices, higher prices, less quality, and shortages.
A free market system, on the other hand, can achieve the social justice which state capitalism claimed to seek. As economist Ludwig Erhard phrased it:
When I speak of a social market economy, I do not mean that the market needs to be made social. I mean that the market is intrinsically social.
A free market corresponds to an intuitive notion of social justice: a market economy is socially conscious because, as suppliers seek to sell to every demand, then every consumer benefits from the competition to offer better products at a lower price. Everyone is a consumer, and everyone is part of the economy’s aggregate demand. In a competitive market economy, every supplier wants to meet as many demands as possible, and suppliers will lower their prices and raise quality in order to sell to those demands.
Because suppliers want to sell to as many consumers as possible, they find ways to offer products at lower prices. Because suppliers compete with each other, they find ways to offer better quality at those lower prices. As consumers are able to obtain better products at lower prices, the goals of social justice are attained.
Ludwig Erhard showed that market economies lead to social justice, and that property rights lead to civil rights. He showed that when suppliers are free to creatively meet demands and consumers are free to choose, all parties in the marketplace benefit.
As a brilliant byproduct, free markets also give consumers more choice and more abundance.
Efforts to censure capitalism as immoral are effective against crony capitalism and against state capitalism, but gain no ground against free market capitalism, as Russ Roberts writes:
A lot of people reject capitalism because they see the market process at the heart of capitalism — the decentralized, bottom-up interactions between buyers and sellers that determine prices and quantities — as fundamentally immoral. After all, say the critics, capitalism unleashes the worst of our possible motivations, and it gets things done by appealing to greed and self interest rather than to something nobler: caring for others, say. Or love.
It is plausible to make moral arguments against greed. But in a free market, the retailer is working simply to feed his family: this is not greed, it is responsibility. How he would be chastened if he did not attempt to provide for his family!
Buyer and seller function as a couple dancing: each plays a part. Buyer and seller function as teammates in a sport: one would hardly accuse the player who caught a teammate’s pass as greedy because he received the ball.
In any discussion of the various forms of capitalism, it is good form to quote from the writings of Adam Smith, whose The Wealth of Nations appeared in 1776 and became a foundational text in economics:
Man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favor, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.
If capitalism were merely greed cloaked in the equations of economists, it would be morally suspect, as Russ Roberts recites:
Capitalism, say its critics, encourages grasping, exploitation, and materialism. As Wordsworth put it: “Getting and spending, we lay waste our powers.” In this view, capitalism degrades our best selves by encouraging us to compete, to get ahead, to win in business, to have a nicer car and house than our neighbors, and to always look for higher pro.ts and advantages. In the great rat race of the workplace, we all turn into rats. Is it any wonder so many want to kill off capitalism and replace it with something more just, more fair, more humane?
But he goes on to point out that only in a free market system does the retailer have a motive to treat his customers honestly and fairly. Only in a free market does the employer have a reason to pay his workers well. The freedom of the marketplace means that the consumers can go elsewhere if they perceive that they’ve been given a bad deal. Workers can go elsewhere if they feel unappreciated.
This is why people who live in countries with even a partially free market inevitably have a better standard of living than those who live in “command economies” or “planned economies.”
The political freedom and personal liberty which accompany a free market are pleasant byproducts of the laissez faire economic system.
Endless tirades have been made — and will be made — against “capitalism,” but when those attacks are carefully analyzed, they fail to undermine the results obtained by a free market system. Those who benefit the most from a free market are not the wealthy capitalists — for such people will enjoy a high standard of living in any economic system — but rather the working-class people, who obtain a level of prosperity not available to the working class in nations governed by other economic doctrines.
