Behavioral economists have shown that humans are irrational. All market economies are predicated on two assumptions that are false:
- Humans are rational economic actors
- Market prices accurately reflect the values people place on goods and services
First, the inability to replicate the findings of behavioral economists has largely discredited the field.
Second, trying to decide what is “reasonable” is difficult. We think that someone is acting rationally if their actions help them achieve their goals, and that they are acting irrationally if their actions set them back. But the observer may not know or fully understand the actor’s goals. Or the observer may have information that the actor does not. If the actor has wrong beliefs, he can act in a way that – if his beliefs were true – would be rational.
I am skeptical of claims that people are generally irrational. If that were true, then humanity would not survive. Assuming the theory of evolution is correct, humans must have acted rationally. And “more often than not” is good enough for progress to occur and the two assumptions of a market economy.
Capitalist economies are subject to bank runs, panics and recessions.
From the early 19m By the 1990s, many US states had banned branch banking. As a result, thousands of small banks have loan portfolios at the mercy of the local economy. Banks routinely collapse when crops fail, commodity prices fall, or large companies go bankrupt. This was not a failure of the free market, but a failure of government regulation.
Virtually every recession and depression in history has been preceded by inflation. Governments cause inflation by mixing base metals with gold and silver in the country’s currency or by resorting to the printing press. The injection of new money into an economy creates a temporary boom, which inevitably turns into a bust when the flow of new money stops or slows.
Capitalism keeps the economy moving in a clean environment.
A thriving economy and a clean environment go hand in hand. A clean environment is a “luxury” that poor people generally cannot afford.
The United States and Western Europe have reclaimed the environment over the past half century as they have grown richer. For example, the River Thames is no longer the open sewer it was in Shakespeare’s time. The “fog” of London and the smoke-filled skies of Pittsburgh are a thing of the past.
In contrast, pollution in places like Venezuela, China, Iran, Cuba and North Korea is much worse than in the West.
A key difference between capitalist and socialist countries is the respect for property rights. Like Aristotle, people recognized that, “Men are most attentive to their own things; They care less for what is common; or at any rate they care for it only to the extent to which each is individually concerned.” The phrase “tragedy of the commons” refers to the tendency to overuse and abuse unused or communally owned resources.
The whole point of socialism is to make everything a “common”. The results were terrible.
Capitalism is racist.
Free enterprise makes discrimination costly. For example, Southern bus companies opposed Jim Crow laws that required blacks to sit in the back of their cars. Angry customers are bad for business because seats are left unfilled when there are too few customers of the “right” color.
Child labor is a feature of capitalism.
Throughout most of human history, child labor was not a “problem”, it was simply something children had to do to survive. Only when capitalism magnified a person’s ability to produce enough to support a family was child labor no longer necessary.
Child labor laws were not enacted in the United States until they were largely unnecessary because relatively few children worked. When similar laws were passed in countries where productivity had not yet increased enough, children continued to work because the only other option was starvation. Unfortunately, with no recourse to law, they are exploited more than ever.
Capitalism oppresses women.
Capitalism has liberated women. Women are “second-class citizens” in a society where brute force is a matter of life and death. Waving banners in street marches did not change this reality. This was changed by the huge gains in productivity brought about by the industrial and information age. Now that free market innovation has made brains more important than brawn, women are able to compete with men.
Richard Fulmer has worked as a mechanical engineer and systems analyst in industry. He is now retired and writes freelance. He has published about fifty articles and book reviews in Muktbazar magazines and blogs. Robert L. Along with Bradley Jr., Richard wrote the book, Energy: The Master Resource.