Capitalism has proven itself to be an extraordinary engine for creating wealth and improving standards of living, as well as promoting the rule of law, representative government, and more free and open societies, in general. In fact, capitalism is unique among economic systems in these accomplishments. Indeed, the history of non-capitalist countries is largely one of brutal poverty and political oppression. Yet today in the United States — the ultimate example of the capitalist free-enterprise system — among our youth, capitalism is increasingly disdained in favor of various forms of collectivism, due, primarily, to the notion promoted by the political Left that capitalism is the enemy of “social justice.”
READ MORE from Brandon Crocker: History Is More Complex Than Ideology
Of course, the term “social justice” is used in a lot of different, and often perverse, ways. But if we stick to the actual meaning of “justice,” we have to come to the conclusion that there is no bigger ally in the quest for actual “social justice” than capitalism.
Capitalism was born out of the Enlightenment idea that freeing people to pursue their own economic interests, instead of being directed by a monarch, feudal lord, or some other outside power, was both moral and efficacious. When people are allowed to use their talents and energies in the ways they deem best for themselves, not only are they far more productive and innovative, but also, as Adam Smith put it, they are led, as if by an invisible hand, to promote the public good. The reason for that is the simple basis of capitalism itself.
The foundation stones of capitalism are freedom and law. Capitalism is rooted in the idea of freedom of choice and voluntary exchange (markets). Therefore, in order to prosper under capitalism, one must produce what others desire. This is in contrast to systems like socialism or communism, which are command economies where people must produce and consume as the governing authority directs. Further, capitalism requires the recognition of property rights. This recognition in turn demands respect for the rule of law. Again, socialism and communism are based on the negation of individual property rights and on the belief that the government can and should take anything from anybody as it determines will serve the “common good.”
Predictably, it was in England that the Industrial Revolution first burst out, fertilized by the new ideas of capitalism and what the historian Thomas Macaulay described as “ordered liberty.” The old 17th-century European powers of Spain and Portugal, not understanding the process of wealth creation, and still mired in ideas of government control and mercantilism, were, by the middle of the 19th century, overshadowed by the early adopters of capitalism, the Netherlands, the United States, and Great Britain. Likewise, China, arguably the most advanced nation on Earth in 1700, was comparatively backward by 1840.
It should also come as no surprise that an economic system based on freedom would progress hand-in-hand with an evolution toward more representative government — as we witnessed in Great Britain (and in its American colonies), where these new Enlightenment ideas were first to take root — whereas the societies that adopted socialism or communism (or had them imposed upon them) quickly developed into barbarous tyrannical regimes, such as the Soviet Union and its eastern European satellites, mainland China, North Korea, Cuba, and Venezuela. As capitalism encourages individual liberty in the economic sphere, it is also compatible with, and supportive of, individual liberty in other spheres of human existence, including representative government. Communism, socialism, and other forms of collectivism, on the other hand, provide a theoretical underpinning for the justification of authoritarianism and dictatorship.
“Power corrupts, and absolute power corrupts absolutely,” wrote Lord Acton. And it is no coincidence that every country that has adopted communism or some other system based on strict government economic control has not become a shining example of “social justice” but has instead turned out like George Orwell’s Animal Farm.
The critics of capitalism often equate “social justice” with “equity.” Since capitalism does not produce “equity” — that is, approximately equal outcomes across individuals or certain identified groups — it is antagonistic to “social justice.” Capitalism does not produce this definition of “equity” because capitalism is based on freedom. (But, as Thomas Sowell has noted, no society has actually ever produced such “equity” — including communist ones.) Most ethnic groups, as well as the sexes, differ in many ways (including average age and education levels), act in different ways, and often want different things. Therefore, in a free society and in a free economy, there will always be inequality of economic outcomes. Most capitalist nations have chosen to use the wealth created through capitalism to help those at the lower end of the economic scale by instituting various degrees of welfarism, but any serious attempt to obliterate economic inequality must result in a strangling not only of innovation and wealth creation but also of freedom.
In order to achieve economic equality among large groups that invariably have differing characteristics, some overriding power must inflict individual injustices, either to provide some individuals benefits they did not earn or to deny them to others who earned them. How can the term “social justice” be applied to a society in which the majority of individuals are being subjected to some form of injustice? The goal of a just society, and a just economic system, is to allow for individuals to be treated fairly, to be rewarded as markets (imperfect as they might be), instead of as government overseers (as imperfect, biased, and corruptible as they inevitably are), dictate. Individual justice is social justice, and individual justice is best served through capitalism.
Though capitalism provides the advantage of dispersing power with the “impersonal” forces of markets determining many important things, like prices, it does so without removing personal accountability in decision making (though that can happen in larger companies). Owners of smaller capitalist business always, and managers in larger capitalist companies often, are directly impacted by decisions on hiring and firing employees. Their income and positions are dependent upon hiring and retaining the best people. As such, petty and irrational biases are penalized, and thereby discouraged, under capitalism. Anyone familiar with the workings of government bureaucracies, on the other hand, know that government managers can engage in petty and irrational biases all they want without fear that it will endanger their income or job. Removing accountability is not a recipe for increasing “justice.”
Capitalism, like mankind, is not perfect. But its imperfections can be mitigated by modest regulation and are limited in scope, since it is a system based on diffused power. Bad individuals can do bad things to others under capitalism (just as they can in all other systems), but their power is limited and ultimately runs against the rule of law that capitalist society demands. On the other hand, under systems where the power of a select few over the many is necessarily near limitless in order to control economic activity and engender “equity,” the imperfections of those select few invariably have catastrophic consequences because such systems allow those faults to be expressed with near unlimited power.
Capitalism is not a panacea that can cure all of society’s ailments, but it does provide a strong bulwark against the collectivist ideologies that caused such great misery to much of the world’s population in the 20th century and continues to cause so much misery today. Will we learn from this history, or, in our quest for greater “social justice,” will we throw away the enviable justice we have and replace it with the grinding injustice of capitalism’s competitors?
Brandon Crocker is the author of the novel Burma Road (Moonshine Cove, February 2024) and recently retired from a 35-year career in commercial real estate.
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