A correspondent who describes himself as “a 26-year old college graduate who strongly supports a system of free enterprise,” recently wrote me to say that he is “continuously confronted with questions that are most difficult to answer.” He appended a list of 10 of them, and asked for my comments.
I offer my answer here. To save space, I have not repeated his questions, assuming they can be clearly guessed from my replies.
Dear Mr. ___________:
The number of faults that have been alleged against capitalism are without limit. Few of the allegations have any merit, and when they do the reason will usually be found to lie deep in the weaknesses of human nature itself. Practically all the criticisms tacitly assume that the imputed faults could be easily cured by some form of socialism or communism, or some ad hoc government intervention that would, in fact, usually make the complained-about condition much worse.
With these preliminary remarks, let me try to give brief answers to your ten questions.
1. Capitalism does depend upon the consumption of natural resources, and some of these could eventually be depleted. But this must happen under any conceivable system of production when the population becomes large enough in comparison with the resources. But capitalism has proved resourceful in finding substitutes or for providing for renewal of resources (as in scientific forestry, for example).
2. There will probably always be some efforts toward collusion and private price-fixing. Encouraging private competition is probably the best cure for this, plus appropriate laws against clearly harmful collusion.
3. Not only do utilities often give lower rates to those who use more power; nearly all sellers give lower rates to bigger consumers because they can be supplied with the commodity at a lower cost. If big automobile companies consume more steel than a small hardware manufacturer, this does not necessarily mean that big companies are using steel more wastefully.
4. Private capitalism means free competition. Capitalism has far less tendency toward concentration than does socialism, and well-drafted laws can prevent coercive methods of concentration. True, big companies can sometimes lower prices excessively to try to drive out small competitors, but they can do this only at a serious cost to themselves. It is more often alleged than proved that such practices happen with any real frequency.
5. True, adequate capital is sometimes difficult for small producers to obtain. But it can be obtained by savings, by previous profits from small-scale operations, or by borrowing. The borrowing can be done if a would-be enterpriser can convince a friend or a bank that he is likely to be successful. For a government agency to supply capital to individuals to become producers would only breed favoritism, corruption, and scandalous waste.
6. True, officers or directors of big corporations can sometimes try to use the capita] and management of their company primarily to enrich themselves. Such practices can be minimized by watchful stockholders and appropriate corporate laws and law enforcement. But companies in which the practices occur extensively will soon go broke and be eliminated in favor of honestly-run companies.
7. There is no scientific way of measuring “productivity” in a service-oriented economy. Most of the current attempts to measure it rest on fallacious assumptions. The total value of output is essentially subjective, and not objectively measurable. The official GNP calculations are largely fraudulent. A short crop of wheat or corn, for example, usually sells for a greater money total than an above-normal crop. If we could produce everything anybody wanted, the national income would be zero. As nothing would be scarce, nothing could command a price.
8. It is sometimes difficult to know what injuries on the job are the fault of the individual worker and what of bad working conditions supplied by the employer. In any case, almost everywhere today the employer is legally obliged to pay “workmen’s compensation” for most such injuries.
9. True, capitalism does not supply “equal” housing or “equal” pay. If we tried to do the latter, regardless of the difference between the skills and industry of different workers or even whether a man did not work at all, we would soon destroy all incentives to production and have little creation of housing or anything else.
10. There is nothing “inhuman” about capitalism itself. It does not legally compel compas sion or charity on the part of private individuals, but neither does it stand in the way. Socialism assumes that nobody will help the poor unless the politicians compel him to. Capitalism is, in fact, the most “human” of all systems. It provides the greatest amount of material goods and services, both necessities and luxuries, for humanity. It supports the great est number of human beings, and provides the more successful with a surplus above their needs capable of being turned over to the less successful, voluntarily or through taxation. Without capitalism, in short, most of its present detractors wouldn’t be around today to denounce it.
A Flawed System
One final word. Your questions tacitly assume that capitalism is the system we are now in fact living under. We are not. We are living under what the late Ludwig von Mises called “sabotaged” capitalism. We are living under a network of government interventions that discourage or prevent capitalism from doing its work. With the “progressive” income tax, the government expropriates a crucial part of precisely the funds that would otherwise be invested in increased production and employment. By imposing minimum wage laws, encouraging coercive unionism, and subsidizing unemployment, government has brought about excessive American wage rates in many lines—making our automobile and steel industries at the moment unable to compete against foreign imports, and bringing about chronic unemployment. Having done this, the politicians denounce our domestic manufacturers for no longer being “competitive,” “aggressive,” or “innovative,” and propose still more interventions to force them to be so. Thus anti-capitalism begets still more anticapitalism.
I enclose a copy of my short pamphlet “Understanding ‘Austrian’ Economics” (published by the Foundation for Economic Education) which adds a list of books that I hope will increase your understanding of the workings of capitalism and its proposed alternatives.