This blog is the essay I submitted for my class on economic justice, and is entitled: The Case for, and Critique of, Capitalism as an Economically Just System. I take the position, as required, that capitalism is indeed the most just of all the economic systems. In the last section, however, I critique it. It might be confusing, then, what I personally think. Well, read the blog if you are interested in a paean to and critique of capitalism, and see if you can determine where exactly I stand.
Free-market capitalism (roughly synonymous with laissez-faire capitalism and competitive capitalism) has a long and storied history. Before it morphed into what many consider to be the Frankenstein of crony capitalism in the modern United States, David Boaz indicates that “[w]e might define libertarianism as a species of (classical) liberalism, an advocacy of individual liberty, free markets, and limited government rooted in a commitment to self-ownership, imprescriptible rights, and the moral autonomy of the individual.” In his edited book, The Libertarian Reader, he adds:
Although libertarian ideas are evident in the writings of the Chinese philosopher Lao-tzu in the sixth century B.C., the main thread of libertarianism goes back to the Jewish and Greek idea of a higher law, a law by which everyone, even the ruler, could be judged. The simple idea that the will of the ruler was not the ultimate source of authority helped lay the groundwork for a pluralist society, the flowering of individualism, and eventually the scientific and economic miracles of Western civilization.
I will lay out three arguments in favor of capitalism as being an economically just system – one consistent with the cardinal values of liberty, autonomy, and fairness. Then, I will critique free market capitalism as an economically just system. Thus, a case can be made for and against a libertarian view of government and economics (which are separate, but deeply related). Consider the fact that Arthur Laffer’s “supply-side economics” is still getting air time all these years later.
The history of libertarian economic and political philosophy predates the United States, and Adam Smith. Boaz notes:
A generation [after John Milton and The Levellers in the 1640s], John Locke set forth the philosophical justification for liberty, property, and a government based on consent in his Second Treatise of Government, published in 1690. His ideas have been an essential foundation for libertarian thought ever since. They also constitute the fundamental argument underlying modern democratic governments, though modern governments have strayed far from Locke’s strict definition of the purpose of government: to protect life, liberty, and property.
“Chicago School” economist Richard Epstein adds: “The Constitution was drafted by individuals who tried to find a Lockean response to the Hobbesian problem. It has been interpreted by courts and academics who too often forget that big government is the problem, not the solution.” Locke was indeed one of the main influences on Jefferson and the other framers of the United States Constitution, along with Montesquieu and Voltaire, going all the way back to Aristotle, Plato, and Cicero.
Libertarians have never been far from the halls of power, especially since 1980, and with the rise of The Tea Party, it is clear that they exert a major influence. Libertarian demigod and former Congressperson Ron Paul chafes under taxation, for example: “One thing is clear. The Founding Fathers never intended a nation where citizens pay nearly half of everything they earn to government.”
What is the basis of libertarian capitalism as an economic, and a political, system? Freedom. A person has a natural right to be free of unwarranted interference from any other individual or conglomeration of individuals (e.g., government), especially re: property (Locke). Libertarian thought leader and novelist Ayn Rand put it this way: “I swear by my life, and my love of it, that I will never live for the sake of another man, nor ask another man to live for mine.” Thus, citizens are not wards of the state, and need not let government grow to the point that it unjustifiably affects the rights of the individual. Individualism is a prime value. Powerful proponent of libertarian philosophy, Chicago School guru and author Milton Friedman puts it this way:
To the free man, the country is the collection of individuals who compose it, not something over and above them. He is proud of a common heritage and loyal to common traditions. But he regards government as a means, an instrumentality, neither a grantor of favors and gifts, nor a master or god to be blindly worshipped and served (Friedman, p.1).
One can see echoes of philosopher Immanuel Kant with the flavor of persons ought not to be used as means, only treated as ends in themselves. Indeed, the Lockean approach to just entitlement to goods is whether a person used their own labor to turn naturally-existing raw materials into one’s possession – “…at least where there is enough, and as good, left in common for others” (Locke). He maintains: “The labour of his body, and the work of his hands, we may say, are properly his. Whatsoever then he removes from the state that nature hath provided, and left it in, he hath mixed his labour with, joined to it something that is his own, and thereby makes it his property.”
One must be personally responsible for one’s own well-being. It is a hallmark of libertarian philosophy – and therefore government and economics – that justice lives and dies with the individual. It is the reason so many modern conservatives tout individual responsibility as opposed to “welfare state paternalism.” Sink or swim, you’re on your own is the message since 1980. This contrasts with the idea that we’re all in this together (Bernstein), and that there should be adequate taxation and societal organization such that our fates are more tied together. Nay, a libertarian America is marked by rugged individualism.
Politically, freedom is optimal; economically, freedom is optimal. These are reciprocally related and very significant (Friedman). Freedom is special and primary. There is indeed a relationship between politics and freedom in that, theoretically, economic freedom is a necessary, but not sufficient, condition of political freedom. There have been a few societies which were economically free but politically tyrannical – Nazi Germany in the 1930s is an example. However, economic freedom will not take root in the rocky soil of an autocratic state: Communist Russia, for example. Indeed, Friedman notes that economic freedom is a bulwark against an omnipotent and repressive government taking hold.
Government has a moral responsibility to avoid interference in markets and in the economic lives of citizens and ought to refrain from attempting to redistribute income based on “patterns” (Nozick). To do so would be paternalistic (Friedman), violate liberty, and be impractical and never-ending (Nozick). This is because of the difficulties of determining the true, relevant history. Government should be kept at the bare minimum to provide citizens the bare minimum. The only two things government is good at are: 1) growing and 2) growing more corrupt (Lloyd).
First, the scope of government must be limited. Its major function must be to protect our freedom both from the enemies outside our gates and from our fellow-citizens: to preserve law and order, to enforce private contracts, to foster competitive markets. …government may enable us at times to accomplish jointly what we would find it more difficult or expensive to accomplish severally. However, any such use of government is fraught with danger (Friedman, p. 2).
Furthermore, “Socialism can only be put into practice by methods which most socialists disapprove,” Austrian school economist F. A. Hayek points out. Who is going to be entrusted to do “the taking?” Not you and your neighbor – government. The individuals drinking the champagne and smoking the cigars.
Economic justice, in this way of thinking, is simply based on whether goods were acquired legally and transferred legally (Nozick). This summarizes Harvard philosopher Robert Nozick’s entitlement theory. Indeed, if one gains an advantage (say, assets) legally (in other words, he or she is entitled to it), then it has been justly acquired. It can also be transferred to (given to) one justly, if it is official, above-board, and without subterfuge. As Nozick puts it: “A person who acquired a holding in accordance with the principle of justice in acquisition is entitled to that holding.” Is that the end of the matter? No. “The existence of past injustice (previous violations of the first two principles of justice in holdings) raises…rectification of injustice in holdings.” Regarding rectification, Nozick asks: “[W]hat now, if anything, ought to be done to rectify these injustices?”
In the case of slavery, for example, it is a question, indeed. Reparations or at least truth and reconciliation are live possibilities to make the stain of slavery less a blot on the American character. But, Nozick and other libertarians tend not to ask “Is x or y fair?” based on a snapshot. They would not look upon a mother mired in poverty and simply decide “That is not just.” It depends fully on history to determine if she has gotten what is fairly due her. Same with a person who owns three yachts: if they obtained them according to just means, such largesse is theirs without question. History can tell us if the two conditions were or were not met, more or less. A 30,000-square-foot mansion, as in the case of Bill Gates? Yes, it is fair. Wilt Chamberlain getting an additional $250,000 in tips? Yes, fair.
These premises lead to the conclusion, then, that free-market capitalism (a libertarian-inspired approach to economics) is more just than any other method of economic management of society. How complicated it would be for a government of thousands of individuals, far away and largely corruptible (and often inept), to make sophisticated determinations about who deserves what! It is much preferred to leave the production, distribution, trade, and consumption of goods and services to the free market. It also is the only economic system that accords proper respect to the moral aspect of the equation: the rightness of upholding liberty of the individual as the prime value.
The free market is, like an invisible hand (Smith), well-designed for producing, trading, and distributing goods. Left to its own devices, it will curb excesses, primarily avoid monopoly and faction, and allow the best people and ideas to float to the top. Government will only muck that process up, as history has certainly shown. Self-interest is not a bad word! Indeed, self-concern, amazingly, will ensure the evolution of the economic system of a society. Adam Smith said: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” Self-interest and altruism are compatible (Smith), and there is nothing wrong with or unjust in allowing persons to “look out for #1.” Society will be better off if trade and commerce are left unimpeded. Self-interest actually foments social progress.
It has been claimed, following Nozick, that a person has a natural right to be free of unwarranted interference from any other individual or conglomeration of individuals (e.g., government), especially re: property. License is liberty unchecked by rational constraint, but liberty need not be conflated with license. A person has a natural right to their own, chosen, individualistic goals. They should pursue the ends they themselves choose. Milton Friedman puts it this way: “…[a free market] gives people what they want instead of what a particular group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself.” Murray Rothbard adds to that: “The central thrust of the libertarian thought is to oppose any and all aggression against the property rights of individuals in their own persons and in the material objects they have voluntarily acquired.”
Yes, a government will be necessary, but it should be a “night-watchman state,” performing only minimal tasks that are necessary and that should not be left to individuals or the private sphere (e.g., road construction and maintenance). A government is, of course, comprised of individuals. But, “The greatest advances of civilization, whether in architecture or painting, in science and literature, in industry or agriculture, have never come from centralized government,” wrote Milton Friedman.
Theoretically, the government’s choices are to: a.1) interfere with, control, regulate, and/or own the means of production (business and industry), or b) keep its “hands off” and allow the market to be unimpeded and self-correcting. It is recommended that government keep its hands off to the degree that it is possible. It is not feasible to think that a paternalistic government can do for us that which we cannot do, and would not abuse its power. The market is quite capable of regulating itself. Famous libertarian H. L. Mencken said:
I believe that liberty is the only genuinely valuable thing that men have invented, at least in the field of government, in a thousand years. I believe that it is better to be free than to be not free, even when the former is dangerous and the latter safe. I believe that the finest qualities of man can flourish only in free air – that progress made under the shadow of the policeman’s club is false progress, and of no permanent value. I believe that any man who takes the liberty of another into his keeping is bound to become a tyrant, and that any man who yields up his liberty, in however slight the measure, is bound to become a slave (Mencken, 1927).
Some curtailment of liberty will be necessary for a government to function with the end goal being collection of tax revenue, the provision of needed services not best left to individuals or private enterprise, etc. (Nozick). We don’t want to live in a state of nature, where it is dog-eat-dog and “nasty, brutish, and short” as Thomas Hobbes famously wrote. However, again, it will be a minimal infringement upon the liberty of the individual.
In any practical application of theory, the results will be more or less as envisioned – the consequences will range from fully intended to fully unintended (Friedman). In the history of American economics, unintended consequences have often resulted from attempts to successfully regulate, control, manage, or own business and industry (Friedman). Friedman writes: “In fiscal policy as in monetary policy, all political considerations aside, we simply do not know enough to be able to use deliberate changes in taxation or expenditures as a sensitive stabilizing mechanism. In the process of trying to do so, we almost surely make matters worse.” So it goes when states intervene and create unintended consequences.
One example is the United States bailing out Mexico in the 1990s to prevent default on the debt and collapse of the peso. This was engineered by big government actor, Robert Rubin (who doubled as a Goldman Sachs C.E.O.)., et al. The bailout sent a message that would grow louder as 2008 approached: take unwise risks, and should failure occur, the government will be there to prevent the chickens coming home to roost. It ushered in a “me-first!” hurricane of risk-taking and financial improprieties. Friedman feels that the Fed was literally partially responsible for the Great Depression, in fact. Boom and bust cycles are greatly exacerbated by the government’s undue influence on free markets. Such are the perils of a “crony-capitalistic” system, where government tinkers, regulates, and interferes – but not on behalf of the citizens, necessarily, but based on industry pressures. It has been called bribery.
Practically speaking, then, government ought to refrain from as many interventions in the free market as possible because doing so not only entails infringements on liberty, but will bring up a whole host of unintended consequences which are negative (Friedman). “Many of the great reform programs – such guidons of the past as welfare, public housing, support of trade unions, integration of schools, federal aid to education, affirmative action – were turning to ashes.” Liberty is not only the moral imperative, it is wise, as well.
The system just doesn’t function well under a big and active central government. Incentives for “getting ahead” and turning in one’s best effort will be missing under a centralized, socialistic state – an unintended consequence. Work will be shoddy if incentives are bereft: the mines in the old Soviet Union are an example. The Soviet Union had to in fact utilize slave labor and all kinds of other injustices to make its system function because of the dispiriting effect of Communism. Bribes and bureaucracy marked the Indian state-planned system of economics for much of the post-war era (take as an example the flagging Indian automobile sector and compare it with the Japanese model). As well, it often takes guns and tyrants to coerce the populace into adopting a totalitarian, welfare state, as many countries in Latin America have shown. The laws of supply and demand are sufficient to bring about a well-functioning market and tax revenue can then be gleaned from the results, so there is no need to run the risk of introducing unintended consequences from state ownership of industry, price fixing, and so on, anyway.
For these reasons, capitalism distributes to members of society more justly than any of the alternative systems. It doesn’t care for every individual’s needs and preferences, of course. The state is not one’s parent. You should decidedly not ask what your country can do for you, and what you can do for your country, Friedman noted. Effort and native ability and luck certainly are critical in determining what distributions one is owed. “You don’t get something for nothing/ You can’t have freedom for free,” the Ayn Rand-inspired lyricist Neil Peart wrote. In nature, no creature gets its needs met by a benevolent “parent-figure,” and in modern economics, the same is true. They call it “the nanny state” as an epithet, not a compliment. One has to work for what one gets, and if one does, one will be entitled to what the market determines one’s value to be. Fair is fair. “People who take risks should bear those risks; they got the reward for them, they should take the down-side,” said Lawrence Lindsey, Assistant to the President for Economic Affairs during the Bush Administration, referring to the Great Recession.
Freedom is the most important right or value. Friedman notes in his book aptly entitled Capitalism and Freedom: “To the free man, the country is the collection of individuals who compose it, not something over and above them. …Freedom is a rare and delicate plant.” Alas, however, Aldous Huxley claimed that: “Modern technology has led to the concentration of economic and political power, and to the development of a society controlled (ruthlessly in the totalitarian states, politely and inconspicuously in the democracies) by Big Business and Big Government.” This is the kind of backdrop in which Friedman and the Chicago and Austrian Schools of economists found themselves. Keynesianism had played such a significant role in the post-war era that Milton, Hayek and others found that freedom had been greatly diminished. Bureaucrats choosing how much airlines should charge for a ticket had dampening and repressive effects on both persons and businesses.
If freedom is virtually sacrosanct as a human right, justice cannot violate or diminish freedom. Theoretically, at least. In this sense, justice refers to an attempt by government to take something from someone that is rightfully theirs. Liberty can be conceived as having trumping power over other societal goals. Indeed, government ought not to be doing injustices to persons.
No one is going to voluntarily give tax to a government composed of other individuals who hold a fair amount of power and in whom autonomy is granted (well, limited autonomy). And who receive a tremendous amount of lobbying and campaign contributions. Thus, some coercion is needed to fill the coffers and allow judges to have a job. It is true, as Locke said, and Rousseau echoed, that there needs to be a “social contract” in place between the governors and the governed, and that consent is the lubricant that makes alienation legitimate.
Having said that, it is contended that government infringements upon freedom (coercion) are unjust if they go beyond a certain minimum required for society to function (Nozick). F. A. Hayek pleads that “[t]here is all the difference in the world between treating people equally and attempting to make them equal.” The market requires no coercion to function; it is virtually self-running, self-correcting, and self-leveling. Government need only perform services such as making sure contracts are enforced, security is maintained, and the like.
“Our minds tell us, and history confirms, that the great threat to freedom is the concentration of power. Government is necessary to preserve our freedom…; yet by concentrating power in political hands, it is also a threat to freedom. …the scope of government must be limited,” Friedman contends. This is consistent with the laws of the land set up by the founders of America, following Montesquieu, Locke, Rousseau, and Voltaire. Indeed, Lord Acton indicated that “power corrupts, and absolute power corrupts absolutely.” F. A. Hayek certainly looked around in the 1960s and was flabbergasted by how much power the state had – and the results became increasingly dysfunctional (“stagflation,” for example).
Therefore, “the government which governs least, governs best,” as Jefferson is purported to have said. That is, less government equals more justice. The free-market-capitalistic view of economic justice is the one that prioritizes freedom above all else. Friedman advises that “[i]f government is to exercise power, better in the county than in the state, better in the state than in Washington.” The market is not that terribly complicated, at least in theory and at least with a manageable number of participants, and history has shown that an unfettered one which the government does not interfere with allows society to flourish economically – which, as noted, will facilitate a strong populace, suitable to provide a counterweight to government overgrowth and possibly, tyranny.
Citizens should be as free as possible to pursue their own ends and, perhaps paradoxically, this will indeed have a positive effect on the society as a whole. Don’t shackle the invisible hand to a radiator! Case in point: no one wants to bake bread out of a duty to others, or the state, so society does well to incentivize the baker to bake as well as he or she can, and a reasonable amount of taxation can be gleaned from the trade to make the “night-watchman state” function. Multiply this by ten thousand and you get a well-functioning system based on simple supply and demand.
That is the best we can hope for in this, the real world. “There is still a tendency to regard any existing government intervention as desirable, to attribute all evils to the market, and to evaluate new proposals for government control in their ideal form, as they might work if run by able, disinterested men free from the pressure of special interest groups,” said Milton Friedman. In fact, some citizens will thrive, and some will merely survive (and others, fail to do even that). The market is quite capable of determining which goods and services are in demand, well-produced, and needed on a community level. It is like an evolutionary process. Indeed, in the case of a faceless, sclerotic, and distant government, allowing tinkering with the free market is akin to the remedy being worse than the disease.
Libertarian capitalism has certain strengths. It is probably true that government can create unintended consequences in the market by inept or crony-capitalistic interventions. As well, few would argue that freedom is not a prime value. Finally, there is some historical evidence that when a society has a market that is not free, and about which the government does not keep its hands off, things can get off-kilter. Consider the languishing or inflation-wracked countries in which a strict regimen of Chicago School-style reforms made a significant difference. One needn’t look further than China, Bolivia, Poland, and India to see an improvement in the lives of citizens when government officials just let the market be. It is perplexing to see how Keynesianism seemed to be just what the doctor ordered following the autocratic nightmare of World War II, followed by a “golden era” of prosperity in the United States, which ultimately culminated in the malaise and stagflation of the 70s.
I do, think, however, that free-market capitalism and the application of libertarianism to both government and markets has some flaws. It’s just not a system one wants to live under unless one is the best and brightest – and luckiest and most driven of individuals. Though we all value freedom and don’t particularly like a “nanny state” ordering us around, a free market can be a tough place to be. Indeed, the excesses and sharp edges of laissez-faire economics need to be managed and dulled if society is to be considered economically just, excellent, or enviable to others around the world.
Take for example the excesses. It is clear to most impartial observers that capitalism has run through the planet’s resources like the Vikings through the English countryside. Where is the ability of “the market” to correct itself, to limit its aggressiveness, to look out for the future? Does the market care about the distant future, or only the next fiscal quarter? As George McGovern put it, “The free market should not include the right to pollute our environment.” With capitalism, it’s like the parents are away and the kids are throwing a party. Corporations bribe politicians to get away with it.
In addition to planet-wide concerns such as pollution, climate change, deforestation, and animal extinctions, contemporary critic of capitalism, David Korten, notes that: “In selectively culling out bits and pieces of market theory to argue that the public interest is best served by giving globe-spanning megacorporations a license to maximize their profits without public restraint, capitalism has distorted market theory beyond recognition to legitimate an ideology in the service of a narrow class interest.”
Edward S. Herman, a critic of some renown from The Wharton School, agrees that: “If we assume that the purpose of the economy is to serve and improve the welfare of the entire body of citizens, the U.S. model has clearly been a major failure. It has served a minority, and the majority have not only failed to share in the income gains yielded by the model, they have suffered….”
What this adds up to is that capitalism is great for allowing individuals who are the “fittest” to excel (to use the social-Darwinian term). Ayn Rand was raised under Communism, and her novels extol the virtue of independence, unlimited potential, and non-interference from government. In a word, an extreme form of freedom. Individuals, fed on such ideas, will never take sufficient responsibility for “the Commons.” Who will pick up trash if they are walking around in a solipsistic haze, planning their next incredible business venture? If one is allowed to over-graze one’s sheep on the common field, metaphorically, there might not be enough left for others. Capitalism is great at getting sheep sold at market, but not so good at preserving natural resources or looking out for workers, monopoly, or cheating.
This critique can be taken too far. I’m not suggesting a kind of utopia based on Christian values. It’s probably “pie-in-the-sky.” But a glorification of individuality leads to real, measurable, deplorable effects. Putting Social Security funds into the stock market so that the “Goldman Sachs crew” can do their thing and, eventually, wreck the economy, take a bailout, pay bonuses, and be temporarily regulated, is a horrible idea. We’ve seen that movie before. Perhaps the “country club set” can afford to lose a pension due to a poorly-regulated, Wall Street-dominated financial system, but your grandma and my neighbor and probably a hundred million others cannot. No, I think that the Austrian economists and the Chicago School guys have some good points, but free market capitalism needs to be completely separated from cronyism and Wall Street influence before we could have faith in the democratizing and liberating effect it promises. When one looks at Denmark, New Zealand, Canada, and the U.K., it makes America look like a dystopia in many ways. Consider income and wealth inequality, lack of health insurance, poverty, and social violence. We should hold capitalism’s think-tankers, government officials, and the John Galts of the world to “…at least where there is enough, and as good, left in common for others,” as John Locke counseled, and other reasonable safeguards against greed and irresponsibility.
I welcome you to find more quotations about capitalism, economic justice, libertarianism, and politics here, in The Wisdom Archive, a free and vast source of interesting and inspirational quotations on values, ethics, and wisdom.
Here is a very informative podcast about Adam Smith.
Here you will find a blog featuring critiques of capitalism.