Misconceptions of Capitalism

capitalism, wealth

Arguing for capitalism is far more difficult than advocating for any of its alternatives. Capitalism is slow and steady, moving forward at whatever rate it is capable of. It chips away at poverty one bit at a time. It doesn’t promise perfection, and is guaranteed to deliver imperfection.

The big government alternatives, meanwhile, (ranging from mixed economies to complete socialism) are utopian. They promise food, water, housing, healthcare, education, better working conditions, higher wages, a clean environment, and equality. And while the alternatives may not deliver perfection, whatever results from aiming for perfection must be pretty great, right?

To the average person, the choice is obvious. Within their mostly-capitalist society, they see poor people relying on government welfare to get by, while the rich elites exploit a corrupt system to bring in far more money than one person could possibly ever need. They see their own struggles, and advocates for larger government are promising to help.

This average person doesn’t have a background in economics, political science, or world history. And we can’t sit back and wait for them to familiarize themselves with the works of Mises and Hayek. And it would be dishonest to demand they only read defenses of capitalism while completely ignoring the critics of capitalism. To be informed can be quite time-consuming.

Instead, we need simple arguments, examples, and comparisons that show the superiority of capitalism.

Granted, stating this doesn’t really add much. Obviously simpler arguments are better than complex ones. And obviously examples help support an argument. And many libertarians are already doing this. And this author doesn’t have a PhD in Arguing For Capitalism.

So instead of just stating the obvious, let’s review some effective arguments for capitalism that are not mentioned enough.

Capitalism Saved The Children

The horrors of the Industrial Revolution have been used to repeatedly smear capitalism as this dystopian system that forced children (and everyone else) into absolutely brutal working conditions.

What they fail to mention is that the Industrial Revolution dramatically increased the standard of living. The disagreement among the experts is more about when the increase occurred and its intensity, but it’s pretty well accepted that quality of life improved. Instead of seeing poor families and working children thinly spread out for miles across farms, you could see them bunched together in factories. Struggles were much more visibly, not necessarily worse.

It is true that young children worked terrible jobs for a small income, but what’s often ignored is that child labor was the norm throughout history up to that point, and then it went away. Advocates of big government will say that their system could’ve prevented that (doubtful), and it did when governments stepped in to ban child labor, effectively saving the children and offering them an education.

But they ignore the facts. At least in the United States, the number of child workers plummeted from 1880 to 1930, from 32.5% to 6.4% respectively. The government then banned child labor later in 1938 with the Fair Labor Standards Act. The capitalist system increased the standard of living to the point where children no longer needed to work.

We can then compare this to the U.S. government’s threat to ban imports made by children from Bangladesh, which made the manufacturers there fire all of their child workers. Surely any rational person would support such an effort. And yet when UNICEF examined the results, they found that most of those children either starved or became prostitutes.

To simplify this, we need only point out to critics that capitalism, without any centralized planning, saved the children, while government programs fueled the supply of child prostitutes.

The US Depression of 1920

Every U.S. citizen has heard of the Great Depression, and how the New Deal saved capitalism from itself. And we could recommend some fantastic books for the layman like The Politically Incorrect Guide to The Great Depression & The New Deal to respond to that. But for those that aren’t going to devote that much time to research, we can make our point by comparing it to the Depression of 1920. Both began with severe economic downturns. One was “solved” with loads of government growth and interference and lasted decades. The other saw the opposite response from government and only lasted two years.

These two depressions provide a fantastic comparison of the effects of government intervention vs the free market.

Who Controls The Regulators?

Advocates for heavier regulation complain about the corrupt relationship between government and corporations. They label it crony capitalism, unaware of the incentives that created and maintain such a corrupt system. They declare that we need to get progressive activists in Congress to pass common sense regulation.

What they forget is that their entire plan relies on people in power doing the right thing. As Lord Acton said, “Power tends to corrupt, and absolute power corrupts absolutely.”

Once government is powerful enough to start manipulating an industry, it is ripe for abuse. Government is run by whoever has the most influence. Corporations have no incentive to abuse a small government with no legal power to regulate their industry. But once government steps in to control corporations and their competitors, it becomes in the best interest of each corporation to lobby for regulations that help them and hurt their competitors.

This is the cronyism that supporters of big government criticize. To say that “the people” can wield more influence over government regulations than big corporations is nonsense. Which is why the current amount of regulations is never enough. And what’s worse? A free market system without regulation (or very little), or a system with regulations written by corporations?

These three arguments for capitalism aren’t anything new. They’ve been brought up before, but not often enough. And they each defend capitalism from a different angle. The first takes an absolutely horrible thing and shows how capitalism eliminated it and government made it worse. The second is a direct comparison of government intervention vs the free market. The third points to the current system and shows how more of the same will make things worse, not better.

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Nathan A. Kreider is author of the Misconceptions column for Being Libertarian, and has written for the Austrian Economics Center, the Foundation for Economic Education, and the Liberalists. He also occasionally publishes a blog and video content, including short book reviews, which can be found on his website, nkreider.com. He can be contacted by email via [email protected]