In Defense of Capitalism

What anti-capitalism gets wrong.


Jorge Salvador / Unsplash

“The inherent vice of capitalism is the unequal sharing of blessings. The inherent virtue of Socialism is the equal sharing of miseries,” said Winston Churchill, to the House of Commons, on October 22nd, 1945.

Our planet is in flames. The climate crisis deepens as forests are wiped off the map and sea levels rise. Inequality is at an all time high, as corporations plunder developing countries.  The bourgeoisie get richer and richer, while the proletariat face mass unemployment, economic instability, and a world of other injustices. Clearly, capitalism has failed.

The idea of capitalism is decreasing in popularity among young Americans.  70% of millennials say they would vote for a socialist, and support for socialism has grown by ten percent during the COVID-19 recession.  What was once a forbidden word in the U.S. is now a badge of pride for many.  Particularly popularized because of rising costs of living, stagnant wages, and multiple economic recessions which have left millennials the worst off generation in nearly a century, socialism is poised to become a major force in the United States.  

Yet in spite of this, I do not believe that socialism is by any means the answer to our current ailments.  Indeed, by every metric available, the world is a better place than it has ever been.  This is in part, due to globalization and an expansion of neoliberal capitalism in the post-World War 2 era, particularly in the 1980s and 90s.  The results are clear.  And while American capitalism is certainly an extremely poor system – the result of years of government intervention, regulation which has decreased household income by hundreds of thousands, and cronyism –  liberal, free market capitalism has proven itself to be the best economic system yet devised, as evident by the last two centuries of unparalleled prosperity.  But capitalism should not be accepted merely because it is the most prevalent system, nor because economists generally agree on it.  It requires its own vindication, its own examinations, and its proponents should defend it rigorously.  To have a discussion about such arguments however, I think a few tropes about capitalism needs to be cleared up.  Six are presented here.

1) Capitalism is exploitative.   

The main argument against capitalism relies on its supposedly exploitative nature.  The claim is rather simple: a capitalist (business owner), extracts what Marx deemed ‘surplus value’ from his workers, who are compelled to work because they lack the means to sustain themselves.  If a worker produces 10 dollars of value, a capitalist pays them 7 and takes 3, thus stealing from them.  Moreover, without the necessary things provided to workers to survive, capitalism exploits this reality to effectively coerce workers into jobs in which they neither have a say or even get the full value of their labor.

This argument, however, relies on the assumption that workers produce any value in the first place.  The reality is that neither wealthy industrialists who invest tens of millions into firms or millions of workers produce any sort of value.  Rather, value (not price) is subjective.  Value does not come from labor, nor machinery, nor investments; it comes from the fact that individuals place importance on goods and services within society, thus giving them value.  The worth of a commodity is determined not by the amount of labor invested into it, but by the subjective importances people place upon an item.  Exchange can never be equal, as any exchange requires you to value the opposite good more than the good you give up.   

2) Profits over people.

Another of the critics’ go-to arguments is that capitalism puts profit over people. That, rather than doing what is good, the capitalist only engages in activity that is profitable. This has resulted in the scenario in which we live in today, in which the Coronavirus pandemic has led to millions of Americans going hungry, with poor healthcare, and who are now worse off than their parents financially at a similar time in their lives. 

This demonization of profit is peculiar. Profit is simply one of many forms of income that may be generated, when one meets the demand of a consumer. We do not see the people go into the streets and declare that farmers, workers, clerks, teachers, doctors, and ministers take too much of their fair share. But do not some go hungry while others gain vast riches? It is the pursuit of riches that benefits the consumer. If a corporation makes large profits, it is because they are the best at rendering their products to the consumer. Any corporation who stops doing this, such as Blockbuster, may soon no longer see its once-massive profits. The entrepreneur  makes his revenue off of consumers choosing to spend their money, and coincidentally, his success means the poor are better supplied. Indeed, since the industrial revolution, poverty has fallen and fallen year after year, most significantly in the areas with the most entrepreneurs

Of course, it still is true that vast numbers of Americans lack access to basic necessities — from healthcare to food to education.  Perhaps, the solution is de-regulation.  Median households incomes would be 6 times higher today has it not been for regulation since 1945.  Far from being a free-market, the United States healthcare system is a grotesque amalgamation of government and privately run healthcare.  Or perhaps, the solution is more welfare, a restructuring of our benefits system to bring us more in-line with the Nordic countries.  Far from being anti-capitalist, this is the main model of capitalism now in the world, besides the United States.  UBI, increased tax credits, carbon taxes, multi-payer healthcare – these are elements already being proposed by ‘centrist’ Democrats.  Indeed, Joe Biden is far closer to a Nordic-style welfare state than Bernie Sanders ever was.  

3) Capitalism creates inequality.

I believe the argument surrounding inequality is flawed.  Opponents of capitalism often treat inequality as an absolute evil, a facet of capitalism which makes the system terminally unjust.  However, we must ask, why is inequality a bad thing?  The rich may have far more than they need, but if obtained in a just manner, what is immoral about some people simply having more?  According to the Pareto principle, 80% of outcomes are generated by 20% of the causes.  By this alone, inequality is simply a natural phenomena, a reality and law of nature.  Furthermore, if one wants a free society, where individuals are free to work toward their own goals and realize their full potential, inequality will naturally occur, as a minority will always achieve far more than the masses, a few people in each field will do far more than the vast majority of others, combined.  It is certainly true that government policy, such as regulations and bailouts, (which I vehemently oppose) can create inequality by benefiting those in power.  In a truly free market, however, these would not exist.  Thus, while it is not true that where there is inequality, there is freedom (see the Soviet Union, for example), where there is freedom, there is inequality.  One only has to look at Scandinavia, which despite its false reputation as a shining example of democratic socialism, has both high levels of inequality and very high qualities of life.

4) Capitalism is undemocratic.

Another common argument to critique the structure of capitalism is its seemingly undemocratic nature – that workers do not have a say in how a firm is run or managed.  This is, of course, assuming that democracy in the workplace is a universal good, or that democracy in the workplace is incompatible with capitalism.  Of course, neither are true.  Worker cooperatives, democratically run firms, have existed and can exist in a capitalist system.  Ocean Spray, an agricultural cooperative responsible for producing much of the cranberry juice consumed in the United States, is among one of the most famous.  Mondragon Corporation in Spain employs over 81,000 employees, a significant portion of which have a say in the federation’s decisions.  While traditional firms will always remain dominant within a capitalist system, there is no reason worker cooperatives cannot thrive within a capitalist system, able to gain funding from investors and even tax benefits from governments (as in the U.S.).  Socialists desire to go beyond this, from merely worker cooperatives existing alongside capitalist firms to the state mandating such firms be the absolute norm, citing a lack of democracy as the primary reason.  But why?  What is so inherently wrong with a consensual agreement between worker and owner?  If five hundred people start a firm, must they be forced to give a single worker they have hired a share in the company?  As previously established, labor is not the source of value, so the only ‘fair’ employment is through a voluntary contract between employee and employer.  It may be beneficial and good for a company to extend democracy to the workplace, but such actions should not be forced by the government.  And while cooperatives are commonly cited as successful examples of alternatives to more traditional firms, they not only have large issues scaling up, but a track record of failure on a large scale.  

5) Capitalism exploits the third world.

A common leftist criticism of welfare capitalism is that welfare and benefits rely on the increased exploitation of the global South, resulting in a massive upward transfer of wealth.  Never mind the largest reduction in global history in history, largest increase in literacy, life expectancy, among some statistics, no, capitalism is a net detriment to the global South.  The argument goes like this: corporations go into vulnerable third world countries, through military intervention or predatory loans, and take advantage of cheap labor, funneling wealth from these countries to their richer counterparts in the West.  As Lenin wrote, “Capitalism has grown into a world system of colonial oppression and of the financial strangulation of the overwhelming majority of the people of the world by a handful of ‘advanced’ countries.”   

This argument has merits.  It is true, that workers in the third world often work in poor conditions.  It is also true, that Western countries have much to gain with trade with the third world.  It is not true, however, that these relationships are necessarily negative.  First, votes in the IMF require an 85% agreement, guaranteeing that Western countries and the United States of America cannot make decisions alone.  Next, the positive effects of foreign investment are hard to deny: Deng’s reforms in China have lifted 800 million out of poverty, and sweatshops, far from being the boogeyman many see them as, are essential tools in development.  Certainly, the relationship between capital and the third world is not perfect, and a proper defense would require far more writing than a mere paragraph. Ultimately however, the results of globalization and spread of capitalism have been overwhelmingly positive.

6) Capitalism versus the Climate

The concept of infinite growth in a finite world is often seen as paradoxical, as there are seemingly limits to the resources we may use.  The idea that infinite growth is impossible, however, is of course absurd.  For the sake of the argument, I will assume that we will not be mining any resources from asteroids, the moon, or Mars, though any of these sources would undoubtedly solve our scarcity issues for centuries to come.  An economy is not simply the consumption of material resources.  It is the consumption and goods and services.  While Hong Kong or Singapore may produce far less than a country like China or Egypt, they still have higher GDPs, thanks to their reliance on services, not material goods.  While our current consumption and rising population (expected to plateau at around 9-10 billion) may be unsustainable, capitalism is dynamic.  How something is produced does not matter, only that it is produced.  We are in the process of transitioning into a circular economy, where growth is decoupled from consumption.  Minimizing waste, circular systems employ the usage of reuse, repairing, remanufacturing, and recycling to create a closed loop economy, where trash and other discarded products and materials are converted into new ones.  There is not really an argument for why capitalism cannot adapt to this — shipment container farms, for example, produce dozens of times more crops per acre than traditional farms, while using 70-90% less water.  New nuclear reactors, reusing old waste, provide nearly unlimited, renewable power to millions around the globe.  Wasted food and plastic are turned into energy and shoes.  Sustainable development and sustainable growth are the future of the global economy, and a new era of capitalism will be at the forefront.

And what about the claim that 100 corporations are responsible for 71% of global emissions?   Not only does this ignore the responsibility on individuals and households who purchase energy from these corporations, over half of these 100 corporations, and 64% of the top 25 emitting companies are state-owned companies.  In other words, it is still government who is responsible for these emissions, and not totally the fault of private companies.  Investment returns on renewable energy are three times that of fossil fuels.  With effective state-action and current trends, there is simply no reason why capitalism cannot be harnessed to create a sustainable economy.  The idea of de-growth is perhaps the worst solution to our current ills – simply think of what a recession looks like and imagine a global economy perpetually in such a state.

Liberal capitalism is the greatest economic system ever devised by mankind.  It is not a static system, where reforms cannot take place, nor is it merely a stage in the grand march of history.  Some predictions made by its critics, such as Marx’s immiseration thesis and tendency of the rate of profit to fall have all but been relegated to the dustbin of history.  Other predictions — globalization, automation — have been realized, but only for the better.  The legacy of socialism are dictatorships, mass killings, political repression, and economic failure.  The world it promised — democratic ownership of the means of production, positive rights, and freedom from economic wants — was a fantasy.  Capitalism has transformed the world, drastically raising the living standards of the masses wherever it has spread.  The irony of Marxism and socialism is that a fundamentally humane ideology was so dominated by dogmatism and a bookish perspective it became blind to humanity and freedom.  Marx may have considered religion to be the opiate of the masses, but socialism is the opiate of the intellectuals.  In this context, there are grim implications to Engels’ claim that Marx’s name and work “will endure through the ages.”

The legacy of socialism are dictatorships, mass killings, political repression, and economic failure.  The world it promised — democratic ownership of the means of production, positive rights, and freedom from economic wants — was a fantasy.