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In defense of capitalism

  • Published at 10:14 pm May 14th, 2018
In defense of capitalism

It's the only system that has worked

The just past birthday of Karl Marx, May 5, having been its 200th anniversary, is a good time to consider his ideas and legacy. Marx was, of course, right. 

No, really, his basic analysis of underlying economic processes was just fine, perceptive, and correct, the three together being all anyone can really ask of an analyst. 

Sure, he had a failing, in that he didn’t really understand the power of markets themselves, how they ameliorate the excesses of capitalism and industrialization. But on the other issues, he was indeed correct.

Do note though that I mean his analysis of what was happening and what could -- not his dreams of what would replace it, nor how that should come about.

For what Marx did say is that this bourgeois-led capitalism is what produces wealth. Even that, as long as there is competition, it will increase the living standards of the people. 

His warning was that monopoly capitalism -- something rather different to what we would mean today by that phrase -- would undo all of that. What he meant is, there is a single employer, what we would call monopsony capitalism. 

If there was just the one employer -- thus someone able to dictate wages -- then increases in productivity would only flow to the capitalists. The workers would be left with near nothing, just subsistence wages. Enough that they would still be able to work for the bosses but no more.

If, however, there were many capitalists competing for access to those workers they could profit from, then wages and living standards would rise as economic development continued. That really is what Marx said. 

It’s just that he thought that monopsony would happen. He underestimated the power of markets to stop that. It, in the end, only happened in one place, in the Soviet Union under Stalin. Not an example that anyone else is really going to want to copy.

We can also show that Marx really was right by looking at the economic history of the last few decades. That collapse of communism in 1989, that absolute proof that planned socialism doesn’t deliver the economic goods, led to an expansion of what we call neoliberalism or globalization. Either and both of which are really just capitalism and free markets spreading their geographic influence. The result has been as we can see in Bangladesh. 

A couple of decades of 5% to 7% economic growth. That’s about as fast as any place has ever grown the economy. Bangladesh has started from a very low point, that’s true, but there’s little to be ashamed of in the overall performance.

Such has also been true of all the places that this same capitalist, free-markets stuff has reached in these recent decades. All have become richer and all have done so in a manner that Marx would have recognized. And all from that very process that Marx not only recognized but lauded -- bourgeois capitalism.

Marx was also correct in what might come afterwards, in a manner at least. For this “true communism” thing he talked about, the details were always very vague in his writings. But the basic underlying idea was that we would abolish economic scarcity. 

Industry would be so productive that everyone could have what they wanted, as they desired it. At which point we can, indeed, radically change society. We’ve not got a problem left as to how to produce what everyone wants. All we’ve got to do is make sure that all have access to that bounty which is being produced.

Now, that abolition of scarcity, it’s taking a great deal longer than Marx thought it would. It seems that human desires and wants are very much larger than he thought they were. But the basic concept is fair enough, when we’re already producing all that anyone wants then the only remaining problem is distribution -- the who gets what -- not the difficulty of producing. 

Which is, of course, that world of the robots that people are so worrying about today. What does happen when the robots are making everything? No one has a job, because everything everyone wants is already being made by a machine somewhere? 

But then, of course, if everything everyone wants already exists out there, then who needs a job anyway? We’ve all got, potentially at least, access to all that we desire. Our only problem then is to make access possible, not production.

Now, standard economics says that those human desires and wants are unlimited. That we’ll never run out of things to want and thus, never run out of jobs that humans can and will do. 

But imagine that we do? That’s when the other part of Marx will be correct. Once we have, if we can, conquered economic scarcity, then true communism will be possible -- will, in fact, have arrived. 

At this point though we’ve got to go back to that insistence that Marx was entirely correct about. That bourgeois capitalism, it was and is the most productive economic system. It was so then, it is now. 

And as Marx predicted, if that economic scarcity problem is ever to be solved, it will be that bourgeois capitalism which achieves it. All of which gives us our guidance as to what to do next.

For Marx really was right in many ways. While we’re not producing all that everyone wants then we’ve got to stick with the economic system that produces more than any other -- capitalism. 

And if that system does, and it’s the only system which can, ever becomes productive enough that we’ve not got to worry about production any more, then fine, we can move onto a new system. But not until. As Marx actually did point out.

Once we’re all rich then maybe we can ditch capitalism, but not until.

Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.

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