Capitalism

Thoughts on capitalism (part 4)

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4: Capitalism isn’t perfect.

I wanted to finish up these thoughts on capitalism with an observation: capitalism is great, but it’s not perfect. Again, many of these thoughts are extracted from John Addison Teevan’s Integrated Justice and Equality which I can’t recommend highly enough, and a few are gleaned from Not Tragically Colored by Ishmael Hernandez.

Capitalism does not contain values, it’s amoral. It can’t distinguish anything on any basis besides price. For capitalism, there’s no difference between a missile and a bushel of apples besides its market value. This basically means that capitalism is as good (moral) as the people who are utilizing it.

Capitalism relies on the self-interest of humans, a pretty reliable foundation. However, apart from values, self-interest can quickly and easily devolve into greed. Greed is a problem, Teevan argues that it ‘flattens the soul.’ Greed changes the equation from self-interest to gross indulgence. It’s the opposite of moral, and it can wreak havoc on society.

We know that capitalism is the single greatest sociological economic force in creating wealth and alleviating poverty. But we also know it’s not perfect, it can be manipulated for greedy ends, harming people and environments. So what’s the solution? A popular conclusion is to hand over responsibility to the government to regulate and stipulate and care for the underprivileged, that personal generosity and compassion should be delegated. That’s a bad idea, for a few reasons:
(1) Government compulsion stifles generosity and compassion within society. Generosity means giving, void of any obligation or compulsion. When the government requires and stipulates giving, generosity dies. Not only do people resent the government for taking from them, they learn to resent the people to whom their proceeds are redirected. They learn to hold what they have closely. Why do you think CPA’s do so well? It’s not because they help people pay taxes, they help people pay the least amount of tax possible. People lose compassion when it’s delegated to the government.
(2) Redistribution deprives people of their dignity. Recipients of government ‘compassion’ efforts don’t receive a gift, whatever they receive becomes a right, an entitlement. Instead of gratitude, they learn to expect. Instead of self-reliance, they learn dependence. Part of a person’s self-worth is lost in all this.

Instead, in order for capitalism to work in society, shared moral values, specifically personal compassion, are required. The delegation of personal generosity and compassion from the people to the government is destructive for everyone. Capitalism is as strong as the values of the people who embrace it. “P.J. O’Rourke is alleged to have quipped that civilization is a bootstrap operation: we have to work at being civil. We cannot assume that the bounty of wealth or the freedom to enjoy it can be continually provided without continual care” (Teevan, p121).

Thoughts on capitalism (part 3)

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3: Capitalism in history.

 

  • Capitalism has been the most successful socioeconomic system in elevating people out of real poverty the world has ever seen.

 

  • John Addison Teevan, in his work Integrated Justice and Equality, states (p91):

    Per capita income, which had merely doubled over 2,500 years until the Industrial Revolution (roughly 1800), has increased by a factor of forty. Schoenfeld notes that real per capita income has nearly tripled since 1960, and the bottom quintile has risen so that it is now living at the economic level of the former middle class.

    Worldwide, income per person had merely doubled over 2,500 years prior to 1800. The result was the cause of an agrarian economy where wealth was fixed for the most part. Since 1800, worldwide income per person has increased forty times. The result is the cause of capital markets.

 

  • Steven Horwitz (Foundation for Economic Education), referring to an idea from Deirdre McCloskey, states:

    If you multiply the gains in consumption to the average human by the gain in life expectancy worldwide by 7 (for 7 billion as compared to 1 billion people), humanity as a whole is better off by a factor of around 120. That’s not 120 percent better off, but 120 times better off since 1800.

    Here too, the rapid enhancement of the human experience is drastic, and a direct result of capital markets.

 

  • Two revolutions were required for this transformation to occur: democratic and industrial. Democracy took the power from kings and dictators, often interested primarily in accruing wealth at the expense of others, and gave it to the people. The Industrial Revolution gave people power and opportunity to earn money and create new things, democracy insured that the ruling authorities wouldn’t take it away.

 

  • Until after WWII, there wasn’t enough food grown or produced per year to sustain the global population. Humanity lived in incessant food shortage, poverty meant literal starvation. Capitalism allowed for the creation of new systems and technologies to boost food production. Starvation is no longer a facet of absolute lack, but where it exists, it largely stems from corrupt governments and roadblocks.

Thoughts on capitalism (part 2)

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2: Capitalism is a growing pie for everyone, not just the already rich.

The growing pie idea doesn’t only mean that rich people keep getting richer. They do, but instead of growing rich at the expense of everyone else (as in the agrarian economy we touched on in part 1), everyone else also gets richer. Capitalism is a rising tide that raises all the boats, even the little ones. A cool analogy for this rising tide idea (as noted in John Addison Teevan’s Integrated Justice and Equality) can be seen in the late great Chicago Bulls teams of the ’80s and ’90s. In 1986 the lowest salary on the Bulls was $135,000, the median salary was $300,000, the highest salary was $806,000. Jump to 1996, the Bulls highest paid player (you can guess) was Jordan, who made a screaming $33 million. At the same time, the lowest paid player’s income had also increased significantly to $500,000, and the median salary was all the way up to $2.3 million. Everyone wins! Over that 10 year period, the incomes of Bulls players grew by an average of 21% per year compared to an inflation rate of 3.65%, which is some serious wealth creation. Furthermore, while the income of the rich (Jordan) increased by a larger percentage than the lowest paid players (44% growth per year compared to 13%), it wasn’t at the expense of anyone. No one lost anything in this scenario. In fact, the opposite is true, everyone gained income. Sports salaries obviously aren’t perfectly correlated with the entire economy, but the point remains: capitalism creates wealth for everyone.