More Misconceptions of Capitalism

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Advocates for moneymore government intervention in the economy will point out that capitalism isn’t perfect. There are some specific cases a capitalist economic system cannot handle perfectly, such as education and environmental protection. They argue that because capitalism isn’t perfect, we need government intervention in the way they prefer.

It is true that capitalism isn’t perfect. Nobody (besides maybe the occasional random person on social media) argues that capitalism is a perfect system. Not even the anarcho-capitalists claim capitalism is perfect. If it was, capitalism would’ve eliminated poverty and hunger the second it was adopted as an economic system. And it obviously hasn’t done that.

Even if we were to implement an entirely free market and maintain it, future generations would still face problems. There would still be scarcity, as well as other problems. As old problems are fixed, new ones arise.

To some, this may seem like an argument for a mixed economy with more government intervention. Economist Jeffrey Sachs argues in a similar manner against the free market in The Price of Civilization. He argues that capitalism is great, but it’s not perfect, therefore we need government intervention in the ways he advocates for.

But this isn’t an argument for government intervention. It could be a foundation for one, but on its own it means nothing, because it relies on faulty logic.

No system is perfect. And practically nobody would argue that what they’re advocating for is perfect. They’re simply saying that what they’re advocating for is better than the alternative. And in nearly all (or all, depending on who you ask) cases, capitalism is far superior to the alternative.

Many critics of capitalism argue by comparing capitalism to their utopian vision. If we argued this way consistently, we would have to settle on not advocating any economic system and simply giving up.

Sure, it’s sometimes good to compare something to an ideal, so that we have a goal to aim for. But it doesn’t work when deciding between two systems.

The arguments against capitalism often go something like this:

Economic System A (Capitalism) doesn’t work as well as Economic System B (The Utopian Ideal), therefore we should implement Economic System C (Intervention)”

In other words: A < B, therefore C.

Of course, the actual debate should always be whether Economic System A is better or worse than Economic System C, but it’s much easier to point out the flaws of the opposing system than it is to provide a system without those flaws.

Take efficiency and waste, for example. There is a ton of waste within capitalism. Competing companies, rather than working together to invent a new technology or product, work separately on similar products. Theoretically, (as some have argued) there would be much less waste if a single organization oversaw the research and development of this product in a top-down centralized manner.

Despite the latter sounding more efficient in theory, the capitalist system of competition is much more efficient in practice. Even though many of these companies will end up as failed investments (and therefore a “waste”), capitalism constantly incentivizes and rewards those that are the most efficient and can best satisfy the needs of people.

And we’ve seen how a top-down centralized system without competition works in practice. It lacks the necessary signals to determine exactly what to produce and how much of it to produce, and that leads to waste. Even though capitalism isn’t perfectly efficient, it wastes far less than other systems, and therefore can be said to be the most efficient.

So while it is the case that capitalism is not a perfect system, this does not mean that intervention is preferable. The question is not which system is perfect, but which system is best. And so far, capitalism has proved again and again that it is almost always preferable to intervention.

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Nathan A. Kreider is the host of The Conversation, a podcast about ideas and how to spread them. He also 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]

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