Freeman

ARTICLE

Can Capitalism Guarantee Right Answers?

DECEMBER 01, 1983 by BARRY SCHWARTZ

Dr. Schwartz is a psychologist, a free-lance writer, and a teacher at Empire State College in White Plains, N.Y.

Arguments for government controls often begin with a series of practical-sounding questions designed to make freedom appear impractical and utopian in light of impending crises. Prior to each new regulation by the state, questions are posed by professors, journalists, legislators, and interest-group spokesmen. “How can our free market system solve this particular problem? Might not government action be more expedient in this case?”

In essence, the interventionists seize upon a pressing problem for which there seems to be an obvious right answer, at least in the eyes of a vocal minority. For example, most reasonable people will agree that energy conservation is wise, that killing whales is inhumane, and that racial discrimination is illogical and cruel. And so we agree.

Now, they say, the free market carries no guarantees of infallibility. Competition does not always give the correct answers, at least not as quickly as can be gotten by direct state action. While the government is not creative, it does offer one advantage: It is definite. The state has arrived at a good plan of action, recommended by experts, and backed by public consensus. Why must we leave this problem in the uncertain realm of the free market?

To put the issue more broadly, take any problem where there exists some state plan, and you can ask: “Can the free market promise a better answer, or even one that is correct?” The same applies to any scientific controversy where there are funds for research available from government agencies. The challenge is: “Can capitalism solve problems well enough and soon enough?”

There is no correct answer to this question, because the question itself is invalid.

It does no service to the concept of freedom to argue that capitalism solves problems more efficiently than does socialism. The whole argument assumes a collectivist premise: that problems are solved by social systems rather than by individuals.

Discoveries and solutions to problems are accomplished by individuals, not by social systems. Political-economic systems merely define the conditions under which creative in dividuals are either rewarded or brutalized for their efforts.

Reason Is Released

Capitalism is the economic expression of individual rights. When force is removed from the marketplace of ideas and production, the reasoning power of the individual is unchained. Since individual reasoning power is the only kind in existence, the result of establishing in dividual rights is an explosion of time-saving, life-saving inventions recognized later on as wealth.

In any civilization, whether under primitive or advanced conditions, the power of reason belongs to the individual, and the seeds of progress are planted in the privacy of a thinking mind. Progress has never worked by command, nor could it be predicted in detail. The great advances of the 19th and 20th centuries under near-capitalism were made possible by scientists and industrialists in pursuit of their own interests. The Edisons, Carnegies, Rockefellers, and Einsteins were not brought forth by government edict in recognition of pressing national problems. There was no way to predict, for example, prior to John D. Rockefeller, that the development of petroleum exploration and refining would ultimately be the salvation of the remaining whale population; or that the inventions of the transistor and computer would constitute a means of energy conservation, and contribute to an improvement in air quality by saving fuel and transportation costs.

Creative work requires tolerance for error and the chance to succeed in the competition of the new and untried against the old, the accepted, and the routine. It is no accident that America, the land of individual rights, is also the land of inventors and industrialists: creative and productive men from around the world who were Americans by choice. Consider the disproportionate numbers of American Nobel laureates, men with surnames of every nationality, who are refugees or second- or third-generation Americans.

Capitalism Nourishes Genius

Capitalism was not asked to solve the problems that interested these thinkers and producers. But, with the guarantee of individual rights, force was kept from interfering with their creativity. Capitalism does not solve problems. It nourishes genius.

It doesn’t take technological hindsight to debunk the interventionists’ mistrust of competition. The impulse to turn to government authorities in defense of “right answers” did not originate in the mixed economy of the 20th century. Thomas Jefferson saw the threat, and wrote about it with his accustomed clarity and fire, “The error seems not sufficiently eradicated, that the operations of the mind, as well as the acts of the body, are subject to the coercion of the laws.”[1]

Against the statists’ mistrust of freedom in the realm of religious beliefs, Jefferson wrote: “Reason and free enquiry are the only effectual agents against error. Give a loose to them, they will support the true religion, by bringing every false one to their tribunal, to the test of their investigation.”

What Jefferson saw in the realm of personal philosophy he knew to apply to the realm of scientific controversy: “Government is just as infallible too when it fixes systems in physics. Galileo was sent to the inquisition for affirming that the earth was a sphere: the government had declared it to be as fiat as a trencher, and Galileo was obliged to abjure his error. This error however at length prevailed, the earth became a globe, and Descartes declared it was whirled round its axis by a vortex.

The government in which he lived was wise enough to see that this was no question of civil jurisdiction, or we should all have been involved by authority in vortices. In fact, the vortices have been exploded, and the Newtonian principle of gravitation is now more firmly established, on the basis of reason, than it would be were the government to step in and make it an article of necessary faith. Reason and experiment have been indulged, and error has fled before them.”

And, in one classic sentence, Jefferson weighs force against reason: “It is error alone which needs the support of government. Truth can stand by itself.”

Confidence in the free competition of ideas is not blind faith about the ability of the market to solve any particular crisis. It is instead a certainty about the fundamental conditions needed to protect creative and productive minds from brutality and confiscation.

Hobbes Feared Freedom

Far from being an expression of “scientific” social planning, the statists’ mistrust of the marketplace is much more in the spirit of Thomas Hobbes, the 17th century statist, who feared that freedom would produce chaos. Hobbes recommended a social system which would invest a king with complete authority over the lives of the people, not because the king would be wise, but because his actions would be definite and predictable. Hobbes, being a skeptic, did not believe that the “unaided power of reason” could function as a basis for individual action or for benevolent cooperation. Mistrust of reason implied mistrust of the individual. Society was, for Hobbes, in the person of the king, more reliable than the mass of individual people.

Naturally, today’s interventionists would chafe at any comparison with Hobbes, the totalitarian and skeptic. They do not champion skepticism; they advocate science. And they do not want to establish a king: they advocate only a mixed economy, with the greatest latitude possible for freedom. Each intervention by government is to be made only in those areas where they see the marketplace as having left a gap, in the form of an important and unsolved problem. It is only these gaps which the interventionists would fill with the expedient of government action.

The Consequences of Force

A broader view would show them that all of the unsolved problems of man fit into these gaps. Once force is preferred to competition, the implications are universal. The results are only a matter of time. It is logically inconsistent to advocate the use of force in one area of production and thought, and to demand that it be kept from other such areas. If government coercion can be justified in banking, why not in publishing?

Those who favor the mixed economy are less consistent than their neo-Hobbesian contemporaries, who rule over today’s totalitarian states. These modern-day kings regard the individual as inconsequential and unworthy in the grand scheme of state action. The idea that individuals are made capable by the power of reason and cooperation is regarded a dangerous and fallacious bourgeois prejudice, to be eradicated by state censors. They must jealously guard all areas of thought against the intrusion of private initiative, especially in the presses and in the schools. They know, by experience, that there is no telling when one side of a free controversy will discover the idea of liberty.

Impatience with private competition of ideas in favor of government enforced solutions reveals a mistrust of reason and its sole proprietors: the individual citizens. If government controls are believed necessary to find answers to problems, then the individual’s capacity of reason, persuasion, and competition has been judged to be incompetent. Then, the government must become the caretaker to all. There is no middle ground in this controversy: a mixture of freedom and statism is no more viable than a mixture of persuasion and coercion. Freedom is indivisible.


1. All quotes are from Jefferson’s Notes on the State of Virginia, first published in 1787 (New York: W. W. Norton, Co. 1954).

ASSOCIATED ISSUE

December 1983

comments powered by Disqus

EMAIL UPDATES

* indicates required

CURRENT ISSUE

December 2014

Unfortunately, educating people about phenomena that are counterintuitive, not-so-easy to remember, and suggest our individual lack of human control (for starters) can seem like an uphill battle in the war of ideas. So we sally forth into a kind of wilderness, an economic fairyland. We are myth busters in a world where people crave myths more than reality. Why do they so readily embrace untruth? Primarily because the immediate costs of doing so are so low and the psychic benefits are so high.
Download Free PDF

PAST ISSUES

SUBSCRIBE

RENEW YOUR SUBSCRIPTION

Essential Works from FEE

Economics in One Lesson (full text)

By HENRY HAZLITT

The full text of Hazlitt's famed primer on economic principles: read this first!


By FREDERIC BASTIAT

Frederic Bastiat's timeless defense of liberty for all. Once read and understood, nothing ever looks the same.


By F. A. HAYEK

There can be little doubt that man owes some of his greatest suc­cesses in the past to the fact that he has not been able to control so­cial life.


By JEFFREY A. TUCKER

Leonard Read took the lessons of entrepreneurship with him when he started his ideological venture.


By LEONARD E. READ

No one knows how to make a pencil: Leonard Read's classic (Audio, HTML, and PDF)