In Defense of Capitalism
Despite being a fiscal centrist, I’m also a social liberal, which means that my friends tend to skew to the left in both dimensions. Ergo, my social media feeds are filled with people denouncing capitalism. While I grant that it is not a perfect economic system, I do think it has considerable merit.
Before we can begin talking about capitalism, we need to define what we mean by the term to avoid talking past each other. The participants of economic systems can be divided into two sides: supply/production & demand/consumption; trade/commerce links them together. The supply side may be further divided into owners & workers; the interesting part of economic systems tends to be the nature of the relationship between those two groups.
Historically, the supply side has been dominated by systems like slavery & feudalism. Slavery gave the owners all of the value created by workers for virtually no risk. Feudalism shared the value between owners & workers but also burdened the workers with virtually all the risk. Capitalism is unabashedly an improvement over those, since owners take on the risk while still sharing (some of) the value with workers. But can we do better?
We could replace all owners with a single one: the state, which would ostensibly carry out the will of the people and share value equitably. But this also means that all the risk is being taken by a single entity that is now too big to fail; except when it does & chaos ensues. Fortunately there are better proposals.
More recently, worker-owned entities have been proposed, which would collapse both groups on the supply side into a single one. This is actually a pretty good idea in cases where feasible & I like it a lot. But I don’t think it makes sense for this to be the only option. Right now it’s possible to be a worker at one organization (no risk but also low reward) while investing your savings into ownership stakes across a variety of firms (diversifying the risk). If we eliminate the option of having owners who are not also workers in the same organization then we force everybody to take on the risk of ownership regardless of whether or not they want to. [Yes, it’s still possible to invest savings in property but that’s a much more restricted set of options.]
The aforementioned idea can be taken a step further by collapsing the demand side into the same group too: co-ops that require all customers to also be owners & workers. This has limited application & struggles to leverage comparative advantage in a manner similar to barter. Perhaps there’s room for a different kind of organization: one that merges owners & customers into the same group, which takes on all risk, while having workers be a different group; it’s not clear what benefit that would offer over what we have now, since the value would still be captured largely by the owner/customers.
I have a sneaking suspicion that the maladies often ascribed to capitalism are actually the legacy of slavery & feudalism’s inequity. If we reset the world and started everybody out with the same amount of capital but kept capitalism, I think we’d find it much harder to criticize. The problem isn’t capitalism; it’s that people started out with very different amounts of capital.
Yes, we’d still have people losing their capital when they take big risks that do awry. But it’d be at the margins & they’d still be able to save up more capital by working.
