1. Adam Smith’s ‘Invisible Hand’
Self-interest is so central to pursuing our talents, so personal and invigorating, that the power in capitalism ultimately comes from monetizing our dreams. Amazingly, self-interest creates prosperity far beyond the scope of the individual. In Adam Smith’s masterpiece, “The Wealth of Nations,” he states:
“By pursuing his own interest (the individual) frequently promotes that of the society more effectually than when he really intends to promote it.
“He intends only his own gain, and he is … led by an invisible hand to promote an end which was not part of his intention.”
The beauty of capitalism is the freedom it employs not the products it creates. For those who denigrate self-interest, Adam Smith gives this savvy and classic rebuttal: “It is not from the benevolence of the Butcher, the Brewer or the Baker that we expect our dinner, but from their regard to their own self-interest.”
2. Capitalism curbs greed
Capitalism curbs greed because giving value comes before earning any profit. Greed is taking more than you have earned, reaping more than you have sown and demanding more from others than they are willing to give. For example, let’s say you’re selling a pen once used by Napoleon worth $100,000. Your greed dreams of selling it for a million dollars. The buyer’s greed hopes to pay $10 for it. Capitalism curbs greed because it thwarts the schemes of both aspirants. In other words, self-interest won’t reward the greed of the other party.
This is illustrated in a diagram from my upcoming book, “The 9 Gifts of Capitalism – Why Prosperity Requires Freedom”:
3. Income inequality means happy customers
Why was Elvis wealthier than his gardener? They both possessed talent in their field. Both had intelligence and were hardworking. It’s because Elvis had more happy customers. It’s that simple. He served more people. Also, successful people in his profession earn more than gardeners normally do. So, to hate income inequality is foolish, vindictive and envious.
Don’t panic; not everything is about money. Many forms of excellence have nothing to do with accumulating wealth – like charity work, parenthood, loving God, bravery in battle and sainthood.
Still, whenever a great product or service is desired by many, income inequality is born. What’s wrong with high demand for a quality product at a fair price? Let’s say a prayer for more income inequality within free markets. It often improves society’s standard of living as a whole.
4. Capitalism is a force of nature
My father always said that”capitalism is not an ism.” It is not a man-made construct like arbitrary price controls and nanny-state mandates of democratic socialists. It’s just an innate expression of wanting to be free.
Capitalism is an ecosystem within our DNA, a catalyst to human desire, a perfect storm of self-interest, survival instincts, demand for value, joy in using our talents, hope for a better future and free will.
Capitalism predates money, interest rates and stock markets. Even cavemen exchanged objects when it was mutually beneficial. In prison, inmates trade items of value. Black markets spring up even in rigid communistic economies. Self-interest and free will cannot be destroyed by governments, because capitalism survives in captivity.
Bartering is subject to the principles of supply and demand, a desire to seek value in exchange and the astonishing benefits of the invisible hand. Supply and demand is an immutable law. Think of capitalism as electricity or gravity, a principle in nature. Anyone who gets shocked from an outlet doesn’t blame electrical currents for the injury. It’s the fault of human interference.
Likewise, think of the economic collapse of oil-rich Venezuela, stagnation of EU’s socialist democracies and the implosion of Enron and Obamacare not as a failure of capitalism but as grotesque examples of economic malfeasance.
5. Equal opportunity does not cure poverty
Capitalism is opportunity not wealth, a choice not a cure. Therefore, opportunity and poverty will always coexist. Put another way, if opportunity cured poverty, there would be no poor people in industrialized countries. Even so, countless stories of rags-to-riches occur in a world filled with obstacles, lack of capital, racism, sexism, binary-sex showers, ageism and coulrophobia. Opportunity alone is not enough. Desire and ability must be present. In fact, any action requires all three ingredients, even to pick up a quarter. Without the opportunity, desire and ability, it would be impossible to accomplish even this simple task. Three Essentials of Action diagram from my website:
6. Milton Friedman: Capitalism, like justice, is blind
The great Nobel Prize winning economist Milton Friedman made an analogy in his “Free to Choose” book about how free enterprise resembles justice. Both are blind. Both give equal opportunity to all without preferential treatment, predetermined outcomes, racial or political bias.
Conversely, a social justice economy is neither social nor just; it demands equality of results regardless of ability or desire, even if equal opportunity for all exists. Affirmative action is measured not by the content of your character (or how many happy customers), but by the color of your skin or gender. You might call it MLK’s nightmare. Milton Friedman warned, “A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.”
7. Capitalism and larceny are at war inside human nature
Sad to say this, but involuntary transactions, known as theft or greed in the individual, have always plagued mankind. In tribes, nations or empires, they are called imperialism.
Capitalism is called free enterprise for a reason. But force can achieve the same end. A mugger who steals someone’s daily wage has acquired by theft what honest labor has achieved. The choice is ours. Nothing is so beautiful that force cannot uglify it. Adding force to work, sex or charity defines slavery, rape and socialism. What’s your choice?
Socialism monetizes greed and power lust; free markets monetize desire to make customers happy. One adds to poverty, the other alleviates it. Even Milton Friedman could not have foreseen the magic in the following chart. See how the Industrial Revolution, capitalism and the internet’s global marketplace have dramatically reduced poverty around the world.