Dr. Gresham is President Emeritus, Bethany College, Bethany, West Virginia.
"Everybody for himself, said the elephant as he danced around among the chickens." This lampoon of capitalism came from a Canadian politician. The word "capitalism" has fallen into disrepute. It is associated with other pejorative terms such as "fat cat," "big business," "military-industrial complex," "greedy industrialists," "stand patters," "reactionaries," and "property values without regard to human values." Many serious scholars look on capitalism as a transitional system between late feudalism and inevitable socialism.
Adam Smith has been associated with the word "capitalism" even though he did not use the term. He did not so much as refer to capital by that name, but used the word "stock" to describe what we call capital. Karl Marx wrote in response to Adam Smith’s Wealth of Nations and called his great work Das Kapital. There was disparagement and scorn—even hate—for the ideas of the free market economy. The term capitalism has been less than appealing to many people since that time even though they know little about the contents of the Marx benchmark in political economy.
Some political economists who cherish individual liberty and the free market have suggested that a new name be found to describe economic liberty and individual responsibility. Until a new name appears, however, the thoughtful person does well to think twice before he disparages the market economy with all of its implications implied by the term capitalism since there is now no ready alternative available for reasonable discourse.
Is the System Outmoded?
Many thoughtful citizens of America think of capitalism as a quaint and vanishing vestige of our Yankee industrial beginnings. With burgeoning population, urbanization and industrialization, they argue, capitalism disappears. They are not quite ready to embrace socialism, but they heartily approve government planning and intervention. John Kenneth Galbraith, articulate spokesman for the liberal establishment, calls for the open acclaim of a new socialism which he believes to be both imminent and necessary. "The new socialism allows of no acceptable alternatives; it cannot be escaped except at the price of grave discomfort, considerable social disorder and, on occasion, lethal damage to health and well-being. The new socialism is not ideological; it is compelled by circumstance. "1
At first blush, the Marxian assumption of economic determinism is quite plausible, but I do not believe it can stand up to the scrutiny of experience. My study of history leads me to assume with many of my thoughtful colleagues that free people can, within certain limits, choose their own systems of political economy. This is precisely what happened in West Germany at the time of Ludwig Erhard. The Germans chose capitalism rather than the socialism recommended by many American, British, and Continental economists and politicians. It is my opinion that Americans can and should call for a renewal of capitalism rather than a new socialism.
Capitalism has been neither understood nor sympathetically considered by most contemporary Americans. Capitalism is a radical and appealing system of political economy which needs a new and favorable review. The new socialism has never been tried. The old socialism is not very inviting. Consider Russia, China, Cuba, Chile, and now Britain. Capitalism has been tried with the most amazing success in all history. What is the nature of a political and economic system which has made the poor people of America more prosperous than the rich of many countries operating under State control? Here are my paragraphs in praise of capitalism. They are somewhat lyrical but grounded in fact and open to review.
An Enviable Record
Capitalism is the one system of political economy which works, has worked and, given a chance, will continue to work. The alternative system is socialism. Socialism is seductive in theory, but tends toward tyranny and serfdom in practice.
Capitalism was not born with The Wealth of Nations, nor will it die with Das Kapital. It is as old as history and as new as a paper route for a small boy. Capitalism is a point of view and a way of life. Its principles apply whether or not they are understood, approved and cherished.
Capitalism is no relic of Colonial America. It has the genius of freedom to change with the times and to meet the challenges of big industries, big unions, and big government if it can free itself from the restraints of interest-group intervention which eventuates in needless government expansion and spending. Let the market work, and the ambition of each individual will serve the common good of society.
Capitalism is an economic system which believes with Locke and Jefferson that life, liberty, and property are among the inalienable rights of man.
Capitalism denies the banal dichotomy between property values and human values. Property values are human values. Imagine the disjunction when it is applied to a person with a mechanical limb or a cardiac pacemaker. The workman with his tools and the farmer with his land are almost as dramatic in the exemplification of the identity between a person and his property.
Capitalism is belief in man–an assumption that prosperity and happiness are best achieved when each person lives by his own will and his own intelligence. Each person is a responsible citizen.
Capitalism recognizes the potential tyranny of any government. The government is made for man; not man for the government. Therefore, government should be limited in size and function, lest free individuals lose their identity, become wards of the State. Frederic Bastiat has called the State a "great fiction wherein everybody tries to live at the expense of everybody else."
Capitalism denies the naive and mystic faith in the State to control wages and prices. A fair price is the amount agreed upon by the buyer and seller. Competition in a free market is far more trustworthy than any government administrator. The government is a worthy defense against force and fraud, but the market is much better at protecting against monopoly, inflation, soaring prices, depressed wages and the problems of scarcity. Capitalism works to the advantage of consumer and worker alike.
Capitalism denies the right of government to take the property of a private citizen at will, or to tax away his livelihood at will, or to tell him when and where he must work or how and where he must live. Capitalism is built on the firm foundation of individual liberty.
Capitalism believes that every person deserves an opportunity. "All men are created equal" in terms of opportunity, but people are not equal—nor should they be. How dull a world in which nobody could outrun anybody! Competition is a good thing no matter how much people try to avoid it. Equality and liberty are contradictory. Capitalism chooses liberty!
Equality of Opportunity
Capitalism gives a poor person an opportunity to become rich. It does not lock people into the condition of poverty. It calls on every individual to help his neighbor, but not to pauperize him with making him dependent. Independence for every person is the capitalist ideal.
When a person contracts to work for a day, a week, or a month before he is paid, he is practicing capitalism. It is a series of contracts for transactions to be completed in the future. Capitalism is promise and fulfillment.
Capitalism offers full employment to those who wish to work. The worker is free to accept a job at any wage he can get. He can join with his fellows in voluntary association to improve his salary and working conditions. He can change jobs or start his own business. He relies on his ability to perform rather than on the coercive power of the State to force his employment.
Capitalism is color-blind. Black, brown, yellow, red and white are alike in the market place. A person is regarded for his ability rather than his race. Economic rewards in the market place, like honor and acclaim on the playing field, are proportionate to performance. The person who has the most skill, ability and ingenuity to produce is paid accordingly by the people who value and need his goods and services.
Trust in the Market
Capitalism is a belief that nobody is wise enough and knows enough to control the lives of other people. When each person buys, sells, consumes, produces, saves, and spends at will, what Leonard Read calls "the miracle of the market" enables everyone to benefit.
Capitalism respects the market as the only effective and fair means of allocating scarce goods. A free market responds to shortages and spurs production by rising prices.
Arbitrary controls merely accept and keep the shortages. When rising prices inspire human ingenuity to invent and produce, the goods return and prices fall. Nobody knows enough to build an airplane or a computer, but hundreds of people working together perform these amazing acts of creation. This is the notable human achievement which Adam Smith called "The Division of Labor."
Capitalism derives its name from the fact that capital is essential to the success of any venture whether it involves an individual, a corporation, or a nation-state. Capital is formed by thrift. The person who accumulates capital is personally rewarded and, at the same time, a public benefactor.
Capitalism makes every person a trustee of what he has. It appoints him general manager of his own life and property, and it holds him responsible for that trusteeship.
Church and Family Ties
Capitalism is a natural ally of religion. The Judeo-Christian doctrines of stewardship and vocation are reflected in a free market economy. Churches and synagogues can be free and thriving with capitalism. When the churches falter, the moral strength of capitalism is diminished.
Capitalism depends on the family for much of its social and moral strength. When the family disintegrates, the capitalist order falls into confusion and disarray. The motive power for the pursuit of life, liberty, and property is in the filial and parental love of a home with its dimensions of ancestry and posterity.
Capitalism enables entrepreneurs to be free people, taking their own risks and collecting their own rewards.
Work is a privilege and a virtue under capitalism. Leisure is honored, but idleness is suspect. The idea that work is a scourge and a curse has no place in the climate of capitalism.
Capitalism holds profits derived from risk and investment to be as honorable as wages or rent. Dividends paid to those who invest capital in an enterprise are as worthy as interest paid to a depositor in a savings bank. The idea abroad that risk capital is unproductive is patently false.
The Voluntary Way
Capitalism honors and promotes charity and virtue. True charity cannot be compelled. Universities, hospitals, social agencies, are more satisfactory and more fun when they derive from voluntary support. Money taken by force and bestowed by formula is no gift.
The consumer is sovereign under capitalism. No bureaucrat, marketing expert, advertiser, politician, or self-appointed protector can tell him what to buy, sell, or make.
Capitalism encourages invention, innovation and technological advance. Creativity cannot be legislated. Only free people can bring significant discovery to society. Thomas A. Edison was not commissioned by the government.
The concept of free and private enterprise applies to learning and living as well as to the production of goods and services. When a student learns anything it is his own. Nobody, let alone a state, ever taught anybody anything. The State can compel conformity of a sort, but genuine learning is an individual matter—an act of free enterprise and discovery.
Respect for the Individual
Capitalism honors the liberty and dignity of every person. The private citizen is not regarded as a stupid dupe to every crook and con man. He is regarded as a free citizen under God and under the law—able to make his own choices; not a ward of the State who must be protected by his self-appointed superiors who administer government offices.
Capitalism is a system which distributes power to the worker, the young, the consumer and the disadvantaged by offering freedom for voluntary organization, dissent, change, choice and political preference, without hindrance from the police power of government. The renewal of capitalism could be the renewal of America. Nothing could be more radical, more timely, or more beneficial to the responsible and trustworthy common people who are now beguiled by the soft and seductive promises of the new socialism.
No political and economic system is perfect. Plato’s Republic was in heaven—not on earth. If people were all generous and good, any system would work. Since people are self-centered, they are more free and happy in a system which allows the avarice and aggressiveness of each to serve the best interest of all. Capitalism is such a system. It is modestly effective even in chains. The time has come for daring people to release it and let us once more startle the world with the initiative and productivity of free people!
Some of my academic colleagues will deny, dispute, or scorn the foregoing laudatory comments about capitalism. They will say that socialism benefits the poor, the young, the consumer, the minorities, and that capitalism protects the rich and the powerful. When discussion is joined, however, they will argue in terms of politics rather than economics, ideology rather than empirical evidence, and they will accuse me of doing the same. When the most persuasive case is produced, it will not convince. Political opinions are not changed by rational argument.
A Call for Renewal
Those who have socialist ideological preferences are merely annoyed to arrogance and disdain by such honest appreciation of capitalism as I have presented. Those scholars, however, who like Ludwig Von Mises, Friedrich Hayek, and Milton Friedman have explored the relevance of capitalism to our present predicament, will join in the call for renewal of a system that works. Those who, like the late Joseph Schumpeter, have watched the apparently relentless disintegration of capitalism, and have concluded that socialism will work, albeit with painful disadvantages, will heave a long sad sigh of regret at the passing of the happy and prosperous capitalist way of life. They will, as people must, accept what appears from their perspective inevitable, and try to make the best of the gray and level life of socialism.
Schumpeter, however, was no defeatist. He was a perceptive analyst of human affairs. In the preface to the second edition of his magnum opus he wrote, "This,finally, leads to the charge of `defeatism.’ I deny entirely that this term is applicable to a piece of analysis. Defeatism denotes a certain psychic state that has meaning only in reference to action. Facts in themselves and inferences from them can never be defeatist or the opposite whatever that might be. The report that a given ship is sinking is not defeatist. Only the spirit in which this report is received can be defeatist: The crew can sit down and drink. But it can also rush to the pumps.”2
Friends of liberty, to the pumps!
Those who love liberty more than equality, those who are uneasy with unlimited government, those who have faith in man’s ability to shape his own destiny, those who have marveled at the miracle of the market will join me in this call for renewal of this simple, reasonable, versatile and open system of capitalism which has worked, is working, and will work if freed from the fetters of limitless state intervention. The choice, I believe, is ours. The alternative is the stifling sovereign state.
1Galbraith, John Kenneth, Economics and the Public Purpose (Boston: Houghton Mifflin Company, 1973), p. 277.
2Schumpeter, Joseph, Capitalism, Socialism and Democracy (New York: Harper and Row, 1950, p. xi.)