Long-Term Capitalism

Capitalism Is Here to Stay. The Challenge Is Making It Part of Our Society’s Social Commitment.

June 16, 2017

All people, however fanatical they may be in their zeal to disparage and to fight capitalism, implicitly pay homage to it by passionately clamoring for the products it turns out.

— Ludwig Von Mises

It’s striking how “capitalism” is a forbidden, almost obscene word for some politicians in Mexico. We continually hear arguments for and against the system, but Ludwig von Mises’  The Anti-Capitalist Mentality provides an interesting view on the sources of the criticisms of the model, without which it’s impossible to explain modern life.

I mentioned in a prior blog how in The Rational Optimist, Matt Ridley explains that the survival of the human race is based on trade — an invention that Neanderthals could not aspire to, and as a result, could not compete with Homo sapiens. In The Red Queen, Ridley argues that competing is part of our nature. I’ve also mentioned how Milton Friedman, in Capitalism and Freedom, declares trade to be a fundamental freedom of humankind.

We can fight for a better capitalism.

Mises’ book does not attribute the survival of the human race to trade, but reminds us that because of capitalism, which is much more than just trade, ordinary men and women enjoy goods and services that were unimaginable in earlier times, even for kings, emirs, and emperors.

Under capitalism, small and large companies produce goods to massively satisfy needs. This allows for continuous improvement in the living standards of average citizens. Consumers determine what is produced, in what amounts, who produces, and with what quality, through daily spending.

The advances in living standards and well-being in capitalist countries are undeniable. Nevertheless, the criticisms of the system are ongoing. Although, I think that those in Mexico who criticize this system, praising the virtues of collectivism, would hardly agree to move to Cuba, Venezuela or North Korea, where a key characteristic in maintaining government is to avoid freedom of expression at all costs.

Under capitalism, small and large companies produce goods to massively satisfy needs. This allows for continuous improvement in the living standards of average citizens.

The reason for these criticisms, according to Von Mises, is rooted in the fact that traditional communities had structures based on rank or castes, with social positions that were fixed generation after generation. Today, in modern economies, an individual’s social status usually depends on his or her own merits.

Many of those who fail to achieve personal life goals are frustrated and have a propensity to criticize capitalism and attribute their personal failures to the system.

In a monarchical system, for example, the aristocracy is not a market phenomenon that is modified by consumers’ purchasing decisions. The social status of each person is not subject to individual control and is attributed to destiny or some divine order. Under capitalism, on the other hand, the principle of equality before the law enables personal creativity and determination to define who is able to satisfy the consumer and who controls the means of production. Whoever does this best excels in society — although as I have previously mentioned, a businessperson, however prosperous, is only a temporary guardian of wealth.

Another point of debate is that there are those who fail to acquire all the goods and services offered by the market — this is natural. However, the author argues that it is in the best interest of companies to reach the mass market in the best conditions of price and quality in order to expand their business and profits.

Other critics note that capitalism focuses on satisfying material needs, which distracts the population from creating and appreciating the arts, as manifested in monumental works of the past. Von Mises responds to this criticism by recalling that in other periods in history, the arts were available for only those who had the means to acquire and access them, while today large-scale production brings increasingly sophisticated merchandise to the mass market.

Perhaps the greatest criticism of capitalism is that it leads to unsatisfactory living standards and poverty for workers. However, Mises reminds us that with competition, (i) generally speaking, members of society benefit from products at affordable prices, (ii) capital accumulation leads to greater productivity, that is, with more machines, more goods are created per worker, which eventually translates into higher salaries, and (iii) it is in the employer’s interest to have the best employees, with the best salaries in the market so that they contribute to maximizing the company’s profits and not go with his or her competitors. Furthermore, in a robust economy the employee is free to seek the job that is most advantageous to him or her.

It’s clear that the market economy has imperfections. However, the system allocates resources according to what economic agents choose — and not according to the whims of a bureaucrat. This represents a basic economic freedom that we should value.

Government has a key role to play for this system to prosper. This consists in designing legislation that promotes competition, entrepreneurial culture, the rule of law, security, and education, all of which translates into opportunities for personal development for all members of society.

Even though Mises does not explicitly mention it, I am also convinced that companies, in addition to improving society through the creation of jobs and the production of goods and services under competitive conditions, must maintain a solid social commitment.

This implies contributing to better health, education and the environment, as well as promoting freedom and leadership with values through actions that promote prosperity and better living standards.

We can fight for better capitalism. However, to think that collectivism is a better economic system is inconsistent with the history of humanity.

Ricardo B. Salinas is chairman and founder of Grupo Salinas and a member of the board of trustees of the Aspen Institute. The opinions expressed in this piece are those of the author and may not necessarily represent the view of the Aspen Institute.