A Historical Argument for Capitalism Part 1

The current economic crisis has intensified the fifty year assault on capitalism (also called free-market economics) to the point that even the average American is questioning if there is a better system.  He is beginning to wonder if the critics of capitalism are correct; that the free-market economy hurts the individual because it creates economic inequality by concentrating money in the hands of a few.  The common analogy that “a rising tide does not raise all boats equally” does seem to make sense.  After all, we are the wealthiest country in the world with people living in poverty.  It just does not seem fair! Something must be wrong! Maybe it is time to look for an alternative.  But where do we look? How do we know which alternative is the best?  As Americans, we would want a system that has a solid record of creating prosperity.  For that, we need to turn to history.  For, although past performance does not guarantee future results, it is an exceptionally reliable indicator.

Free-market economics has a track record of nearly 700 years.  During that span, it has proven itself to be the best economic system that humanity has ever conceived and a blessing for the average individual.  Although it is true that there are economic differences between individual members of a free-market society, history has proven that wherever it is practiced it produces a society that is as a whole much wealthier than that of any alternative system.  In his book, The Origins of English Individualism, anthropologist Alan Macfarlane details how by the mid-1300s England had developed a free-market economy.  He further notes that, around the same time, there was remarkably little evidence of a peasantry within England.  This does not mean that there was not a poor or servant class, which there was.  But that class differed from the typical peasant model found in the rest of the world.  Even in class conscientious England, there was a social and economic mobility that would not be seen on continental Europe for another 500 years.  In fact, traditional peasant societies, which lacked social and economic mobility, were still firmly in place up until the 19^th century in Western Europe (including France) and as late as the 20^th century in Eastern Europe.

History shows that this socioeconomic mobility benefitted the population as a whole.  Even the poorest individual in the society had the potential of changing his station in life or, at least, make preparations for his children to do so.  This was incentive enough for most individuals to work towards creating a better life for themselves.  Those who were ambitious found that with sacrifice and hard work they could move up from the son of a servant to being the master.  While such drastic leaps were not common, records of the time demonstrate that the upward mobility of individuals was the norm rather than the exception.  A family could move from the lower class through middle class and into upper-class within a couple of generations.  

While it is true that capitalism does create economic disparity, the less able, the less willing, and the less ambitious are not excluded from its benefits.  The system creates a societal wealth that allows even its poorest members to live reasonably well when compared to those in non-capitalistic societies. Between 1300 and 1600, the wealth of English society grew to the point that the lifestyle of the poorest Englander was vastly superior to that of his continental counterpart.   He ate more meat, had better dwellings, and, more importantly, had the ability (freedom) to change his lot in life.  Visiting foreigners would be amazed at how well the lower classes of England lived compared to that of their homeland. This is similar to what we experience in modern day America.  Americans living in “poverty” have a standard of living that is the envy of many living in non-capitalistic countries.  When referring to Britain Alexis De Tocqueville rhetorically asked, “Is there any single country in Europe, in which the national wealth is greater, private property is more extensive, more secure, more varied in character, society more settled and more wealthy?” This same question could be applied to 21^st century America.

Capitalism has proven track record that spans almost seven centuries.  It has demonstrated over and over again to benefit any society that embraces it.  The common free-market heritage of America, Australia, New Zealand, and Canada are evidence of this.  Throughout the history of the countries, there was never a peasant class and, today, all of them are considered first-world nations whose citizens enjoy extremely high standards of living.  This cannot be said for any of the former colonies of France and Spain, both of which were countries that were antagonistic towards capitalism.  The Dutch had no such qualms and, in 16^th century, wisely adopted free-market economics.  By the 17^th century, their wealth made them the “bankers of the world.”  So, while the tide may not raise all the boats equally, it does raise all boats.  How high each boat rises depends on the individual in charge of it. 

But is there a better alternative to capitalism?  In A Historical Argument in Favor of Capitalism Part 2 I will analyze the historical record of alternative economic systems to see if they live up to the promise of creating wealth for all.