What is capitalism?

You would naturally be upset. No chive, thyme, or chadon beni to season your Sunday lunch; no cucumbers, tomatoes, or lettuce to make fresh salad; and no crab for the callaloo. To be sure, you could plant all these things in your back garden or even in pots inside your house. But you don’t do this, because it is a better use of your time and money to go to the market and get these goods from other people, whose best use of their time and effort is to grow and sell produce. In economics, this is called “division of labour” when applied to individuals and “comparative advantage” when applied to groups.

Now suppose another scenario: you go to the market and it is there; but now there are regulations (and policemen with guns to enforce them) about what prices the vendors can sell their goods at. You might be happy about this, if the prices are lower than the market value. But then you find out that there are other regulations about how much goods you can buy and, indeed, that you need a special licence to buy certain goods. You also find out that some items, like tomatoes, simply aren’t available to anyone because, with the prices being dictated by the authorities, the farmers don’t find it profitable to grow them. And so, once again, you’re upset.

Clearly, this is not a satisfactory system. Yet it is exactly what leftist commentators are pushing when they decry capitalism. Such persons use “capitalism” like a four-letter word, flinging it around as an epithet that is synonymous with greed, oppression, and selfishness. Yet they never define exactly what it is they are badtalking. The Pocket Economist defines capitalism as “a free-market system built on private ownership, in particular, the idea that owners of capital have property rights that entitle them to earn a profit as a reward for putting some of their capital at risk in the form of economic activity.” So are people who are against capitalism against property rights? Profits? Economic activity?

Whatever it is, they are basically saying that the market should be abolished or, at the very least, controlled. Yet doing so would be contrary to universal social practice, to the principle of freedom, and even to human nature itself. “Markets are significant institutions virtually everywhere,” writes economist Martin Wolf, author of Why Globalisation Works.

“They emerge in prisons and concentration camps; they emerged in communist dictatorships even though the participants, condemned as ‘speculators,’ were often shot out of hand; and in almost all developing countries they emerge as the informal sector where people trade outside the purview of foolish regulations and corrupt regulators.” Indeed, 200,000 years ago in Africa, newly evolved homo sapiens were carrying more stone tools than they needed long distances from quarries.

By 60,000 BCE, with modern humans leaving Africa, other kinds of goods began to appear regularly more than a day’s walk from where they were made. And 30,000 years ago, pieced seashell beads were buried in graves more than 400 miles inland. So human beings probably never lived in an autarky. Despite battles between bands, they needed to trade – not only for goods, but also for mates. In similar fashion, in our far more complex modern world, trade helps ensure that nations do not go to war. But, even more important than that, trade helps ensure that nations are prosperous. The leftists like to argue that such prosperity comes at the price of oppressing the poor: steadfastly ignoring the incontrovertible fact that the nations with the least poor persons are capitalist ones, and even more doggedly ignoring the historical fact that socialist economies have always impoverished the majority and, on top of that, been politically oppressive.

“Among sophisticated societies with an elaborate division of labour, societies with market economies have been the least unequal and the inequality they generate has been the least harmful,” Wolf writes.

Indeed, in the final analysis, capitalism is a more moral system than socialism or any other economic variant. “While capitalism is often seen as an arrangement that works only on the basis of the greed of everyone, the efficient working of the capitalist economy is, in fact, dependent on powerful systems of values and norms,” writes Nobel Prize-winning economist Amartya Sen in his book Development as Freedom. That is, without social virtues such as trustworthiness, reliability, effort, civility, self-reliance, and self-restraint, capitalism does not work efficiently.

“The success of capitalism in transforming the general level of economic prosperity in the world has drawn on morals and codes of behaviour that have made market transactions economical and effective,” Sen says.

This is the real reason why certain societies and, indeed, certain groups within the same societies, are more economically successful than others. And so those leftist commentators, secure in their middle-class homes or living in the birthplace of capitalism even as they criticise it, are only helping to keep the lives of the poor nasty, brutish, and short.