Capitalism for dummies

Two received notions about capitalism I always find perplexing:

ONE:  Capitalism is the tool of greedy people, who amass indecent fortunes by making all around them poorer.

TWO:  Capitalism has a mystical connection with something called the “bourgeoisie” — a class of people who, besides being greedy, nurse petty dreams and display appalling taste.

We can dispose of these notions quickly, then move on to a more important question:

ONE:  All countries that have embraced capitalism for any length of time — the Anglosphere nations, Japan, South Korea, Taiwan, Chile, lately China and India — have seen tremendous declines in poverty along with increases in wealth.  The greatest untold story of the last 20 years has been the migration out of dire traditional poverty and into the modern world of hundreds of millions of Chinese and Indians.  Those countries that have most severely restricted capitalism — North Korea, Cuba, chunks of sub-Saharan Africa, to a lesser extent France and Germany — have become poorer, in either absolute or relative terms.  Consider North and South Korea:  what more need be said?

TWO:  Who on earth is the “bourgeoisie”?  Is it lawyers?  Bureaucrats?  Small businessmen?  Large industrialists?  Bankers?  University professors?  Shopkeepers?  Shop attendants?  What common interest binds such a disparate group into a single class?  Bourgeoisie became a term of contempt in the Romantic Age; Marx merely turned aristocratic outrage into a theory of class war.  As a description of a coherent, self-conscious group in society, it’s useless.  For those who hate capitalism, the word is a weapon.  One can abuse the abstract “bourgeoisie,” and expect applause, most rapturously from the middle classes.

Which brings me to the truly important question gleaned from all this:  why should a system so obviously successful in improving the lot of the human race — in expanding the circle of human choices — be so consistently hated by so many, over such a long time?

The question becomes the subtext of Deirdre McCloskey’s review of two books, one a biography of economist Joseph Schumpeter, the other a republication of John Kenneth Galbraith’s The New Industrial State.  Schumpeter preached capitalism.  He was the first to grasp that innovation, not greed, powered the system, and he coined the phrase “creative destruction” to describe the work of the marketplace.

Capitalists weren’t greedy Philistines.  They were dashing, adventurous risk-takers.  According to McCloskey, Schumpeter sought to identify entrepeneurs with the old aristocratic virtues.  He himself, though middle class in origins, “liked to play the part of the aristocrat,” fighting duels and wearing jodhpurs.  If true, that betrays a certain shallowness in Schumpeter’s character, mirrored intellectually by his identification of the entrepeneur with the aristocrat.

Galbraith was a socialist who outlived his own time.  He believed that Big Government must inevitably end up managing Big Business and Big Labor — the macroeconomic equivalent of the dancing hippos in Fantasia.  He was wrong about this, as he was about every other economic prediction he made.  That The New Industrial State has been republished after the new industrial state failed to come about speaks more about the enduring hatred of capitalism than any wisdom old Galbraith had to offer.  McCloskey writes:

“Capitalism stands its trial before judges who have the death sentence in their pockets,” wrote Schumpeter. “The only success a victorious defense can possibly produce is a change in the indictment.” Thus the major indictment of capitalism by the socialists of the 1850s was for immiserating the working people. When this proved scientifically wrong, the socialists of the 1890s indicted it for imperialism. When that too proved wrong, at any rate by the lights of the best economic scientists who troubled to look into the matter (among them Joseph Schumpeter), the socialists of the 1950s indicted it for alienation. When this accusation seemed less fresh, the socialists of the 1990s indicted it for environmental decay. Schumpeter wrote that “such refutation,” rationally proving the latest indictment wrong, “may tear the rational garb of attack [on capitalism and all its work] but can never reach the extra-rational driving power that always lurks behind it.”

Anti-capitalism is a persistent virus.  I don’t have the space to explore the cause of the disease, which in any case is uncertain — a hypothesis rather than a fact.  But the existence of this virus should not be in doubt.  Today, it infects the brains of climate change fanatics, anti-globalization anarchists, and established elites in places like North Korea and France, which would be swept off the map by creative destruction.

Both Schumpeter and Galbraith thought capitalism was doomed.  In the Eighties and Nineties that would have sounded like an old-fashioned idea.  I wonder if it hasn’t crept back to center stage, in this new millenium of ours.


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