From presidential candidate Bernie Sanders to Pope Francis to social activists like the Black Lives Matter group, capitalism is under fire. Capitalism is criticized more than usual in recent years, as a rising number of people, particularly among the American left, have unfavorable opinions of the system that created the unprecedented rise in economic prosperity that humans have enjoyed the last few hundred years. What misconceptions have caused people to become so disillusioned with capitalism?
Misconception #1: Pure capitalism exists in the world today
Most systems that are generally considered to be ‘capitalist’ like the rich democracies of Western Europe and North America, are not pure capitalism, and instead can be more accurately described as mixed economies. These countries are generally among the most economically free nations of the world, but most suffer from inherently anticapitalistic government regulation and cronyism. Take for example the sugar subsidies that Marco Rubio loves so much. A true capitalist system would not tolerate the government using other people’s money to artificially prop up certain industries. So when you see tax dollars being spent to support the sugar oligopolists, cronyism is the culprit, not capitalism. The unwanted and unpopular side effects of cronyism and government intervention cause some people to jump up and say “Hey look how horrible capitalism is, it’s causing (insert strawman criticism here.)”
Misconception #2: Capitalism is an imposed system
Capitalism is not centrally planned, but instead relies on spontaneous order, or things organizing themselves in the absence of a central planner. Biological evolution, language, the internet, and even the creation of the entire universe rely on this same principle. Capitalism is not defined by many things, other than the protection of the economic autonomy of all individuals. History shows that capitalism has developed as a result of people’s desire for and/or exercise of economic freedom. The rise of capitalism didn’t come about because of a group of people united, decided that it is the best economic system, and then forcefully implemented it. There is the sense among particular groups of people that capitalism is artificial, and that it is engineered to work in particular ways. The reason that the economy is ‘rigged’ to work in the favor of some and not others intentionally is because of governments with overbearing and dominating powers that companies bribe through lobbying.
Misconception #3: Capitalism is colonialism
Most discussions of imperialism and colonialism end up criticizing capitalism at some point, with a participant saying something like “Those capitalist Europeans did horrible things to native populations just to make a profit.” Pretty much everything that happened in the colonial era, at its roots, is the exact opposite of what a pure capitalist society would do. Capitalism at a sub-national level means respecting the autonomy of each individual, so it follows that capitalism at an international level means respecting the sovereignty of every nation, state, tribe, political system, or group of people, which discredits the idea of colonialism in the first place. A first main criticism of colonialism is that it allowed the colonizers to steal resources from indigenous people. In a capitalist system, everyone has a right to his or her own private property, and nobody has the right to coerce groups of people into forfeiting their resources. Another obvious result is the twisted labor systems imposed on indigenous peoples. Capitalism says that people have the right to make their own decisions about the allocation of their labor and their capital. The systems established under colonialism, like the Spanish encomienda system, were much closer to forced feudalism, and of course, employed the most blatant plundering of economic rights: outright slavery. When a system condones the absence of enforced economic rights of the people, it ceases to be capitalism.
Misconception #4: Capitalism is racist
Out of all the bewildering allegations leftists make against capitalism, this is one of the most misguided, and it comes from a deeply flawed idea that pure economic liberalism (in the classical sense) and social authoritarianism are compatible in the long run. This is because social rights and economic rights are not substantively different from a moral perspective. There are only human rights, and a system either complies with them or it does not. Therefore, any system that does not sufficiently protect the economic rights of its citizens based on race does not protect the overall rights of its citizens; such a system is both racist and non-capitalist. The main argument saying that capitalism is racist concerns the traditionally despicable treatment of non-white people in the United States. Native Americans lost land and resources to European theft, and Africans were brought here to work as slaves which are both non-capitalist actions. Still, people point to disparities between blacks and whites in modern America as evidence that capitalism is racist because the US is a capitalist nation. The economic hardships faced by blacks today come about from slavery, the already established non-capitalist institution. This may seem contradictory as I earlier stated that the United States was capitalist and that is why it is rich, and I am now saying that it was not because of slavery. The US was capitalist for most white men, and some capitalism creates wealth better than no capitalism. If women and people of color had the full economic rights they would have under a true capitalist system, the United States would be even richer than it is. The antebellum Southern United States, obsessed with slavery, practiced it at an economic disadvantage. Profits would have been better served by paying slaves through wage labor instead of owning them as property. Also, slave owning Southern states faced technological and economic stagnation before the civil war. I’m sure most people remember middle school American history class when we learned that the north won the war because they industrialized and the south did not. The teachers neglect to mention that the south’s stagnation derived from slavery. In other words, racism has no economic function.
Misconception #5: Capitalism causes inequality
This one is not entirely untrue, but it is not necessarily a bad thing. Capitalism does cause inequality. All people have different natural abilities, different circumstances and different starting points, which does create a system in which some people have more than others. Following the Pareto rule, 20% of people will naturally earn 80% of the income. But increasing inequality is not a synonym for increasing poverty. If everyone is getting richer, but some are getting richer faster than others, inequality is increasing, yes, but who would really object to this? Everyone is getting richer. This is part of the answer to the question of why “the middle class is disappearing.” Demagogues like Bernie Sanders talk about the “disappearance” of the middle class, which somehow carries the assumption that all of these people are getting poorer, a claim which is demonstrably false. Less people are earning incomes in the typically middle class interval, but their incomes are not falling, they’re growing. Capitalism does cause inequality, but everyone will be richer than they would be with government intervention.
Misconception #6: Capitalism is perfect
Although capitalism is the best system that we know of, it is not perfect. Let’s face it, there are going to be poor people. Not everybody can get everything. Ideally everybody would have as much as they want of whatever they want. But this is obviously not possible because Earth has finite resources. Capitalism is imperfect only because the world is imperfect. When we get caught up trying to come up with the answers for how to eliminate poverty, we forget that poverty is the natural state, that humans create only prosperity. The Big Bang caused poverty, capitalism caused prosperity. The fundamental economic problem is scarcity. This won’t go away if we simply let the government take the reins and let it decide how to allocate resources efficiently (which it can’t). Although we will always have poor people, capitalism has historically proven that it is the best way for everybody to get richer, to make what would be considered rich 100 years ago, seem relatively poor today. The way forward has been, and always will be, not to cut up wealth like a pie and divide it artificially, but to build something, and grow the whole.