The term “capitalism” has been dragged through the dirt more so than almost any other. While the socialists and communists obviously reject the idea, even most mainstream people are careful about their approval of it. It is rare that a person says that he supports a form of capitalism left unfettered by the state and most people like to conflate capitalism with crony capitalism. It’s a tough road to trod, but it’s the system that some of us argue to be by far the most productive for everyone.
I am a proponent of capitalism, which is the private ownership of the means of production. Many libertarians in perfectly good standing will use the slogan “Markets not capitalism.” If you’re speaking in a purely libertarian sense, I think that is the correct ideological approach to take since any economic system would be ethically permission as long as coercion is not a requirement. That said, given the marketplace of ideas, I do believe that capitalism will outstrip the other economic systems to the point that most people will end up adopting it.
This has also been the case throughout history as capitalism (or more correctly, the people who act within the capitalist system) has produced vast amounts of wealth for vast amounts of people despite all the restrictions put on it by the state. A lot of the things we use and take for granted today are the fruits of capitalism. I don’t necessarily want to dismiss the anti-capitalists who use things like cell phones, computers, cars, medicine, oil products, food, etc. as being hypocrites. My critique is a bit more nuanced than that as my criticism stems from the rejection of the assumption that those things would exist today without capitalism.
This requires some analysis of the differences between how capitalism and many anti-capitalist systems work.
Many of the anti-capitalists want a moneyless society where resources are pooled together. They reject the idea that without money a system of bartering would be necessary. They do seem to value the idea of the division of labor to help maximize output. However, since there is neither money as a medium of exchange nor bartering as a way to satisfy one’s needs, they argue that the community would freely share what they produce. The idea is that you produce for the good of your community with each person contributing the best they can and in turn each person takes whatever he needs. This idea is where the phrase “from each according to his ability, to each according to his need” originates.
We’ll call this system the “sharing economy,” which I am more narrowly defining than what might usually be considered part of it and it should not be confused with the access economy. It aligns fairly well with the ideas of pure communism.
The ideas make sense on paper. And in practice, they do sometimes work depending on a few variables, including scale. What immediately sticks out is that this is very similar to how most families operate. It also reminds us of benefit societies. But the key to both of these arrangements is that they are voluntary in nature. The fact that they are voluntarily makes them ethically permissible.
If we are to take people at their word that the sharing economies did occur in centuries past, it makes sense for some “primitive” (for lack of a better term) people to have engaged in this type of behavior within their tribes. But what happens when the societies grow in size and societies begin to interact with other societies? We should be able to make the a priori case that one of the main reasons the sharing economy works is that the people involved know and trust each other. Yet as the society grows and the number of participants increases, it also becomes more anonymous. It becomes a little bit easier to fly under the radar and maybe work a little bit less each day and/or take a little more than you need. As this continues, the system becomes unsustainable and collapses.
But that’s not the main criticism for the discussion at hand. The bigger issue is economic calculation and the price system. In capitalism, an actor delays some immediate gratification in anticipation of some future reward. In a very simple case, let’s imagine that in a small society, each person catches and eats two fish per day to live somewhat comfortably. For whatever reason, Irwin decides that he would like to catch more than two fish each day but he cannot do so by continuing to catch fish by hand. So he gets the idea to build a net to help him. In order to have the time to make the net, he must spend less time fishing, so he is only able to catch one fish per day while he spends the rest of the time developing and building his net. It might be unpleasant, but he does it because he believes that his life will be better off in the long run.
If he fails with his net, then he is the only one harmed. If he succeeds, then he reaps the benefits. With the ability to consistently catch four fish each day, he can either eat more, spend less time fishing, trade his spare fish with someone else, or provide the extra fish as gifts to others. Even if he doesn’t give the fish away for free, his ability to produce more food for his community is a benefit for more than just himself. Maybe it allows someone who isn’t any good at fishing to work where he is more productive.
The same ideas occur in more complex economies. People take risks with their money and resources in the hope that they will be rewarded with more. There are two main reasons to keep the capital in private hands for this type of risk taking. First, the consequences of losing your own resources are generally greater than losing resources that are collectively held. Second, and more important for our discussion, there is no guarantee that the group would be willing to take the risk of delaying gratification if they don’t agree that the idea is any good.
The goal of this sharing economy is to provide for the needs of its members. The further you go back in history, people had fewer “needs.” Today, people have a “need” for a cell phone, internet access, MRIs, etc. To claim that people had those needs 1000 years ago would be absurd. The basic needs of the primitive man were mainly food, water, clothing, and shelter. With limited technology at their disposal, securing the resources to satisfied those needs took a lot of time and effort.
So just imagine a primitive society with a sharing economy and Irwin, the guy whose responsibility it is to catch the fish, approaching the group one night and saying, “I think I have a pretty good idea of how to catch more fish, but it’s going to require that I spend less time fishing and putting the spare time to figuring out how I’m going to make what I’m going to call a ‘net.’ And because of that, we’re going to have to cut how much we eat in half. How does that sound?”
It would be perfectly reasonable for the rest of the group to respond, “Are you crazy? We need you to make sure we have enough to eat each day, not try your little experiments. Go ahead and try to build your little concoction on your own time, but we can’t afford for you to be wrong about this. We’re sorry, but keep on fishing the way you’ve always done it.”
It’s not that the rest of the society is stupid or evil. It wouldn’t make sense for them to risk the wellbeing of their community by setting resources aside to invest and thus take the risk of starving the community. Maybe the best decision is to continue to fish by hand or maybe it would be better to have nets. The problem is that without a price system they don’t have the signals and information that they need to direct resources efficiently. The price system only develops when people are allowed to direct their own private resources to where they see fit. They use the information from prices as feedback to help them further direct their resources and thus continuously grow the economy.
For the anti-capitalist to casually ignore how the economy grew to the point that they have access to all of the wonderful modern conveniences is a huge oversight. You cannot take for granted what your system is incapable of producing or at least would take eons to produce. I don’t blame them for using the fruits of capitalism but they ought to at least be prepared to explain why we’d have more or less the same amount of wealth had their sharing economy been used in place of capitalism for all of these years. Given the stark differences in the incentive structures, it is monumentally intellectually lazy to brush this aside. It assumes that innovation occurs just because and ignores the struggles of innovators throughout history. It screams of ignorance of praxeology, capitalism, and even their own proposed systems.
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