Past year’s market collapses seemed to confirm all the clichés about capitalism. Subsequent panic-based responses by government with its big bumps in spending and creating of new entitlements confirmed many of the clichés about government. In April 2009, only 53% of American adults thought capitalism was better than socialism and a full 20% actually preferred socialism (the rest don’t know), according to Rasmussen. We have since recovered some of our optimism.
I got some insights about this at the AEI program “Recovering the Case for Capitalism” featuring Yuval Levin. I like to attend lectures at AEI when I can. You have to get there on time, since there is usually a good sized crowd and they start punctually. Most of the lectures are free. The Bradley Lectures cost $5, which doesn’t even cover the price of snacks and utilities. The Bradley Lectures were sponsored by the family who owned Allen-Bradley in Milwaukee, BTW.
Levin started with Adam Smith. We often get the caricature of what Smith wrote or mendacious misinterpretations like the Gordon Gecko “greed is good” statement. Smith actually just made a moderate observation that people were not really good or bad but they were motivated by self-interest. Most people also have a desire for approval, which can be moved to empathy and “good.” Smith never advocated getting rid of government. A good government doesn’t generally push particular outcomes, but it creates institutions that direct people’s self-interest and vanity to proper objects.
The market will discipline participants by encouraging people to do things other people find useful or desirable, since everybody has to approach the market terms of what he can provide, not what he will be able to get or even demand. But the rules of the market are not self creating. Some people will try to employ coercion. Rules are necessary to maintain security and open completion, so that negotiations are free and pricing is not coercive. This does not ensure that outcomes are equal and not every transaction serves the interests of everybody, but overall the market produces the best achievable outcome.
Nobody seriously questions capitalism’s ability to produce material goods. A century ago, some people thought a socially planned economy could produce more, but experience had dispelled that idea. Nevertheless, few people love capitalism.
The market tends to be unkind to established interests and established businesses have an interest to collude with government to limit competition. Our modern welfare system is largely a creation of this kind of corporate-government collusion.
Capitalism also doesn’t properly stoke the egos of all participants. You are judged by what you do and what you contribute – lately. The market disperses decision making and it is evolutionary, so in constant state of change, so it doesn’t appeal to academic intellectuals who like intelligently designed theoretical master systems. Most systems work better in theory than the free market, since there really is not a comprehensive theory of capitalism.
Capitalism is process, but it is incomplete. This is not a bad thing, considering the world’s experience with the more comprehensive systems. Capitalism is not a totalitarian. It leaves the details of your life and beliefs up to you. In this respect, it is more a tool than a comprehensive system and it requires the input of values from outside. Traditions, family, religion and other anthropological aspects form the “soul” of our system. Capitalism makes freedom possible, but it is not in itself freedom. Humans need more. The free market makes it possible for them to seek it but it doesn’t force choices.
I guess it is true that man does not live by bread alone.
The picture above is a painting at AEI featuring Gerald Ford,Helmut Schmidt, Valéry Giscard d’Estaing & James Callaghan.