Mises Daily Articles
The Legitimacy of Capitalism
Why does freedom need a relentless intellectual defense? Because of statements like the following:
"the legitimacy of global capitalism as the dominant system of production, distribution, and exchange will be eroded even further, even in the heartland of the system…; while there are villains aplenty, it is the dynamics of the system of deregulated, finance-driven global capitalism that is the central problem."
The words happen to be written by pop econo-sociologist Walden Bello, but the sentiments have been echoed all across the left, right, and center. Certainly Bello's conviction that the problem is with the market system reflects the views of every bureaucrat currently regulating the capital markets, and probably two-thirds of tenured professors in this country.
Capitalism needs a conscience, says Bush, because otherwise it will be consumed by the "destructive greed" of businessmen. Greenspan concurs, adding that when this greed is "infectious," it destabilizes markets. "This cowboy capitalism must stop," adds Maxine Waters, further urging Bush and Greenspan to apply a regulatory "conscience" to quarantine "infectious greed."
Yet Bush didn't go far enough in his speech, say the nation's editorial pages. He should have gone "after the evils of capitalism" itself, says the San Francisco Chronicle, in the same way that Clinton went after racism even when it emanated from Sister Souljah.
After all, the corporate scandals demonstrate that the Seattle protestors (smashing store fronts, looting, and rioting against the market) were "prophetic," writes lefty columnist Sean Gonsalves. He hopes their plans to hamper the market can proceed without "some F.A. Hayek or Milton Friedman fanatic drowning" them out.
Regulating financial markets is only a start. Government spending is exploding. Protectionism is on the march. The police state is making huge inroads against the ability and responsibility of individuals and communities to provide for their own security and privacy. Politicians are clamoring to put businessmen behind bars, on the belief that this will stop the fall in stock prices.
If you think about it, the hysteria is astonishing, even terrifying. The market economy has created unfathomable prosperity and, decade by decade, century by century, miraculous feats of innovation, production, distribution, and social coordination. To the free market, we owe all material prosperity, all leisure time, our health and longevity, our huge and growing population, nearly everything we call life itself. Capitalism and capitalism alone has rescued the human race from degrading poverty, rampant sickness, and early death.
In the absence of the capitalist economy and all its underlying institutions, the world's population would, over time, shrink to a fraction of its current size, with whatever was left of the human race systematically reduced to subsistence, eating only what can be hunted or gathered. Even the institution that is the source of the word civilization itself--the city--depends on trade and commerce, and cannot exist without them.
And this is only to mention the economic benefits of capitalism. It is also an expression of freedom. It is not so much a social system but the natural result of a society wherein individual rights are respected, where businesses, families, and every form of association are permitted to flourish in the absence of coercion, theft, war, and aggression.
Capitalism protects the weak from the strong, granting choice and opportunity to masses who once had no choice but to live in a state of dependency on the politically connected and their enforcers.
Must we compare the record of capitalism with that of the state, which, looking at the sweep of this past century alone, killed hundreds of millions of people in its wars, famines, camps, and deliberate starvation campaigns? And the record of central planning of the type now being urged on American enterprise is perfectly abysmal.
Let the state attempt to eradicate anything--unemployment, poverty, drugs, business cycles, illiteracy, crime, terrorism--and it ends up creating more of it than would have been the case if it had done nothing at all.
The state has created nothing. The market has created everything. But let the stock market fall 20 percent in 18 months, and what happens? The leading intellectuals discover anew why the Bolshevik Revolution was a pretty good idea, even if the results weren't what idealists might have hoped. We are told that we must rethink the very foundations of civilization itself.
In every society, there is greed, fraud, and theft. But let these vices rear their heads in a socialist society--though the norm is a continual and brutal struggle for power--and the fact goes unnoticed or is attributed to the remnants of capitalist thinking. Let these vices appear in a largely free economy, and the cry goes out: take away the freedom to trade and put the state in charge!
The advocates of regulation may protest: we have no plan to eradicate the market economy and replace it with socialism, but rather to improve it, make it transparent, make it honest, save it from itself. This is the line now being pushed by the likes of John McCain, who protests that he favors free markets but opposes "crony capitalism." He says that it will take massive government oversight to bring about "trust and transparency," which are essential to market economies.
Let's leave aside the evidence that the economic downturn and even the accounting scandals are a consequence of government meddling with credit and regulation of industry and the financial markets. A more fundamental question for McCain or anyone who agrees with him is: do you believe capitalism is soiled by the sins of individuals, in which case no social system measures up because they are all inhabited by sinful individuals, or do you believe that there is a sin at the very root of capitalism itself that can and must be suppressed by the state?
Of course we know the answer. After all, if we are only talking about the sins of individuals, the market has been brutal in its punishment. To the same extent that the credit-fueled bull market overlooked old-fashioned concerns like corporate revenue, the market is now on a witch hunt against any firm that prettified its books. And this is all to the good. Whether the scandals result from greed, error, or just bad forecasting, the markets do not care: bankruptcy is the result. No institution, certainly not government, has a greater incentive to fix itself than the market.
If you believe, however, that there is a sin at the heart of capitalism, it makes no sense to permit the market to police itself. The possibility of such a thing is ruled out a priori, which is a habit of mind as endemic to the interventionist as to the full-fledged socialist. It is a very dangerous mindset, too, because once the regulators are unleashed to "perfect" the market economy, there is no end to the number of blemishes the political class will discover and attempt to correct.
The end result is to hobble and cripple markets to the point that they cannot do what they are supposed to do. At best, you end up with economies like we see in Europe today: bureaucratized and hamstrung, lacking in innovation and opportunity, burdened by unproductive welfare states, and riddled with political corruption. This in turn infects the culture by encouraging an attitude of dependency, one wholly contrary to the American spirit.
It seems absurd to have to say it: the legitimacy of capitalism is not in question. Were it not for the mysterious persistence of anti-capitalist bias, it would be perfectly clear to everyone that the only institutions that should be seriously questioned today are the regulatory state and central banking, the first of which is inhibiting recovery and the second of which caused this mess in the first place.
Let's return to the original question: why does freedom need unrelenting economic defense?
Consider Ludwig von Mises's description of the intellectual culture of 1931, as the world sunk further into economic depression:
The capitalistic economic system, that is the social system based on private ownership of the means of production, is rejected unanimously today by all political parties and governments. No similar agreement may be found with respect to what economic system should replace it in the future. Many, although not all, look to socialism as the goal. They stubbornly reject the result of the scientific examination of the socialistic ideology, which has demonstrated the unworkability of socialism. They refuse to learn anything from the experiences of the Russian and other European experiments with socialism.
Concerning the task of present economic policy, however, complete agreement prevails. The goal is an economic arrangement which is assumed to represent a compromise solution, the "middle-of-the-road" between socialism and capitalism. To be sure, there is no intent to abolish private ownership of the means of production. Private property will be permitted to continue, although directed, regulated and controlled by government and by other agents of society’s coercive apparatus. With respect to this system of interventionism, the science of economics points out, with incontrovertible logic, that it is contrary to reason, that the interventions, which go to make up the system, can never accomplish the goals their advocates hope to attain, and that every intervention will have consequences no one wanted. (See Mises's The Causes Of The Economic Crisis: An Address)
After Mises wrote this, fascism tightened its grip in Italy, and the Third Reich began its program of extreme interventionism, militarism, and protectionism in Germany. The New Deal came to the U.S., and the entire era ended in world war and holocaust. How much has changed, really, in 71 years? The hatred of markets must be countered by defenses of freedom in every generation. Our lives depend on it.