How can half of Americans between 18 and 29 favor socialism over capitalism? Because they do not know the first thing about capitalism, the economic system that has made them the most prosperous and privileged young people in the world.
Many young people accept every myth about capitalism. Capitalism, they say, favors only the rich, never the poor. Capitalism is responsible for every economic disaster of the last 100 years, from the Great Depression to the Great Recession. Capitalism is racist, misogynistic, dismissive of climate change. Capitalism, they declare, is the apotheosis of all that is wrong with America. But these myths don’t stand up to scrutiny.
Myth: Capitalism Is Only For the Rich
They are right about one thing: the rich are becoming richer. There are now nearly 19 million millionaires in America, two-fifths of all the millionaires in the world. We have 621 billionaires, one-fourth of all the billionaires globally. They are rich because the United States rewards the entrepreneurial spirit. American capitalism has also produced the largest and most affluent middle class in the world, with a per capita GDP of more than $65,000. By contrast, Communist China’s per capita GDP is an estimated $10,900, one-sixth of ours.
But it is also true that the poor are getting richer. Measured by consumption, according to economist Bruce Meyer of the University of Notre Dame, the percentage of the poor fell from 13 percent in 1980 to 2.9 percent in 2018, while the official poverty rate fell by only 1.2 percentage points to 12.3 percent. A major reason for the discrepancy is that the official poverty measure is based on cash income only, which fails to include all the resources available to a family including tax credits and in-kind transfers. The reality is that the average “poor” American owns a car, enjoys air conditioning, has access to the Internet, and has at least one TV. The official poverty line for a family of four is $25,465.
Capitalism benefits all, as seen by the lessening of historical racial and gender disparities. From 2013-2018, the five metropolitan areas with the largest black population—New York, Atlanta, Chicago, Dallas, and Washington, D.C.—saw black median household income increase significantly from rates of 7 percent in Washington, D.C., to 21 percent in Atlanta. In 2019, blacks maintained their lowest unemployment rate ever of 5.5 percent. The jobless rate for Hispanics hit a record low of 3.9 percent. The 11.6 million women-owned firms in America represent 39 percent of all private businesses. No other nation comes close to matching this level of female entrepreneurship.
Adam Smith’s “invisible hand” is everywhere. Capitalism, not socialism, is responsible for a global economic miracle: The number of people living in poverty around the world has declined every year since 1990 while the global population has risen. Free-market capitalism, in the words of the Pew Research Center, has for the first time “allowed [billions of] people to decide for themselves what they value and what type of life they wish to pursue.”
Myth: Capitalism is Just Modern Exploitation
Millennials urgently need some remedial history to fill the gaps left in their education. Many young Americans sympathetic to socialism mistakenly believe that capitalism is a relatively modern concept, first seriously examined in Karl Marx’s Das Kapital, published in 1867. However, as the Harvard historian Richard Pipes wrote, private property—an essential ingredient of capitalism—has been an integral part of Western civilization since ancient Athens, which had “a highly developed system of private property.”
In the Politics, Aristotle accepted private property as inevitable and “ultimately a positive force,” asserting that people who hold things in common tend to quarrel more than those who hold them individually. Thomas Aquinas, the most influential theologian of the Middle Ages, emphasized that possession of private property was not just lawful but necessary for peace and order: “Quarrels arise more frequently where there is no division of things possessed.”
In 1776, two documents were published that shaped America and the rest of the world. In The Wealth of Nations, Adam Smith analyzed how a market system can combine the freedom of individuals to pursue their own objectives with the widespread cooperation needed to produce “our food, our clothing, [and] our housing.” Smith described how an individual who “intends only his own gain” is “led by an invisible hand to promote an end which was no part of his intention….[B]y pursuing his own interest he frequently promotes that of the society more effectually.”
The Declaration of Independence, drafted by Thomas Jefferson, states that all men are endowed by their creator with certain unalienable rights, and among them are “life, liberty and the pursuit of happiness.” As the political historian Matthew Spalding wrote, the founders understood that life, liberty, and property were closely connected, as expressed in the 1780 Massachusetts Bill of Rights:
All men are born free and equal, and have certain natural, essential and unalienable rights; among which may be reckoned the right of enjoying and defending their lives and liberty; that of acquiring, possessing, and protecting property; in fine, that of seeking and obtaining their safety and happiness.
John Adams defined a republic as “a government in which the property of the public, or people, and of every one of them was secured and protected by law.” Property “implies liberty,” Adams said, “because property cannot be secure unless the man be at liberty to acquire, use or part with it, at his discretion.”
Socialists say that the unequal distribution of property inevitably leads to division and the age-old conflict between the rich and the poor. Karl Marx argued that the only way to overcome class struggle and social warfare was to overthrow capitalism and replace it with socialism—that is, state ownership of property.
The founders rejected any such concentration of power. They believed that to ban private property, to put property in the hands of government, or to enforce the equal distribution of property would be a denial of liberty itself. The founders, led by Alexander Hamilton, believed that America would not remain small and static, but would become a large commercial republic with many peoples and multiple interests. Such a republic would restrain class struggle because it would create a large prosperous middle class instead of a rich-versus-poor society, and would stimulate market competition and opportunity. And so it has turned out for Americans for nearly two-and-a-half centuries.
Myth: Capitalism is the Cause of America’s Ills
Another persistent myth is that capitalism is responsible for the worst times in American history. The 19th century is depicted as the age of the “robber barons,” when greedy capitalists exploited the poor and opened wide the gates for immigrants whom they abused unmercifully. Night and day, goes the myth, Wall Street conned Main Street and nearly bled Midwest farmers dry. The reality was far different.
There was an explosion of charitable activity financed in large part by America’s wealthiest citizens throughout the 19th century. As Milton Friedman summarized, “Privately financed schools and colleges multiplied; foreign missionary activity exploded; non-profit private hospitals, orphanages and numerous other institutions sprang up like weeds.” The charitable activity was matched by cultural activity. Art museums, opera houses, symphonies, museums, and public libraries (a favorite benefice of steel magnate Andrew Carnegie) were begun in big cities and small towns alike.
Capitalism is also blamed for the Great Depression of 1929-1932. The truth is that the Federal Reserve’s gross mismanagement of the money supply led to an inflationary boom and the crash of the stock market. Between 1921 and 1929, the economist Thomas Sowell has pointed out, the Federal Reserve increased the money supply by a shocking 61.8 percent, encouraging mass speculation and unsupported bank loans.
The end of the Great Depression is just as misunderstood and mis-taught in our schools. President Roosevelt and the federal government did not lift America out of the depression, although they tried through massive domestic spending and government action like agricultural price support programs. In 1939, after seven years of the heralded New Deal, U.S. unemployment stood at a disturbing 17.2 percent. Economic recovery finally occurred because of an impending world war that occasioned large orders for guns, tanks, ships, and other materiel.
Capitalism and Limited Government
What Americans have sought since the Founding is a society that keeps government in its place. And nothing restrains government more than private property, the primary instrument of capitalism and the primary target of Karl Marx and socialism.
The tide of U.S. public opinion toward economic freedom and limited government that Adam Smith and Thomas Jefferson advanced flowed strongly until late in the 19th century. The Great Depression of 1929 enabled FDR to declare that it was the “responsibility” of the federal government to care for the welfare of its citizens, a progressive declaration that led to Social Security, Medicare, Federal Aid for Dependent Children, and numerous other entitlements.
President Ronald Reagan sought to limit the growth of government so that free-market capitalism could work its magic. As he said in 1970 as governor of California, “Free men engaged in free enterprise build better nations with more and better goods and services, high wages and higher standards of living for more people.” But as president, Reagan was not able to reverse the federal government’s seemingly inevitable expansion. Congresses, Republican as well as Democratic, continued to expand rather than limit government. Entitlement spending from health care to social security made up 52 percent of the 2018 federal budget and is projected to command a breathtaking 65 percent of the budget in 2029.
Nevertheless, the roots of capitalism have not withered away. The United States has continued to be the most prosperous and freest nation in the world, atop most economic indexes well into the 21st century. This is despite the election of Barack Obama, who was often critical of capitalism. He promised to be a transformational president, building on the progressive programs of FDR and Lyndon B. Johnson, especially with his Affordable Care Act. However, the ACA turned out to be more expensive than any of its sponsors imagined: A typical U.S. household spent $11,172 in 2019 on health care. The bureaucrats were proven wrong again.
Obamacare was a wakeup call for conservatives of both political parties whose electoral response was the election of the idiosyncratic Donald Trump, a billionaire populist who has confounded official Washington from his first day in office. There is no questioning where the president stands on the issue of socialism versus capitalism. In his 2019 State of the Union Address, President Trump declared: “America was founded on liberty and independence—not government coercion, domination, and control. We are born free, and we will stay free…. Tonight we renew our resolve that America will never be a socialist country!”
Capitalism is About Human Flourishing, Not Greed
Although a prosperous economy is good in itself, it is no less significant for its contribution to America’s first principle of ordered liberty. In the words of the cultural historian Russell Kirk, economic production (or capitalism) is the means “to raise man above the savage level, to make possible the leisure which sustains civilization and to free man from the condition of being a simple drudge.” Private ownership of property is not greed, Kirk argued, but “one of the most powerful instruments for teaching … responsibility.” The Nobel economists Friedrich Hayek and Milton Friedman both recognized that private property encourages wise decisions and requires individuals to accept the consequences of their choices. Capitalism puts a premium on industry, thrift, honesty, and ingenuity. It is not capitalism that is ruthless, wrote the economist John Attarian, but socialism, which makes a society ruthless by denying individuals the ability to make their own decisions and turning government into the master.
Nowhere is the stark difference between socialism and capitalism more evident than in a photograph of the Korean peninsula at night. As Acton Institute president Robert Sirico, among others, has pointed out, South Korea (the lower half) is a glittering Christmas tree that offers a vision of what the world looks like under freedom. North Korea (the upper half) is a dark wilderness, suggesting what the world might look like were “the torch of human liberty to sputter out, casting civilization into darkness.”
It is not a myth but a reality that capitalism has brought greater economic wealth and cultural freedom to more people than any other system in the history of man. As we look ahead to an uncertain, post-pandemic economic future, we should not allow the pervasive but unfounded myths about capitalism to divert us from this path of prosperity and freedom.
This piece originally appeared in Law and Liberty