This year is the 240th Anniversary of the publication of Adam Smith’s book, The Wealth of Nations. It is the single most powerfully influential economics book ever published. Smith used the metaphor of an “invisible hand” to explain the efficiency of individuals pursuing self-interest collectively benefiting everyone through effective, free competitive markets. Capitalism has propelled the world forward increasing the lifestyle of everyone and lifting millions out of poverty.
The reason why capitalism has worked so well for so long is because it accepts people as they are – not as they morally should be, or as some central planner wants them to be. It harnesses the intellectual capacity and instinctual ambition of everyone for the common good. Capitalism, like humanity, is not perfect. There are crony capitalists abusing the system and many people end up miserable economic losers. But free markets are hands down, unquestionably better than communism or socialism. It’s not even close.
As income and wealth inequality mushroom, there’s been a surge in criticisms of capitalism; many from absolutely brilliant thinkers and writers. They assume brilliance is the key to human achievement. They are wrong. The key to human achievement is not individual intelligence; it’s a networking phenomenon. By putting our brains together through division of labor and specialization our collective intelligence propels humanity forward. That’s why economist Friedrich Hayek (1889-1992) observed that central planning will never work. The cleverest person is no match for collective intelligence working out how to distribute scarce resources. Bottom up thinking, understood by Adams Smith, Charles Darwin and Hayek in his essay The Use of Knowledge in Society (1945), is not only a historically proven better system, it’s also intellectually superior on its face.
There are no viable alternatives to capitalism because the only other option involves Government operating economic activity, which does not work because: 1) Government is bloated and inefficient; and 2) Government is and will always be disgustingly corrupt at its core. Four out of the previous seven Illinois Governors were sent to prison for crying out loud! Ex-Speaker of the House Dennis Hastert’s net worth went from $270,000 when he took office to over $10 million when he left Congress in 2007. He used his political power to earmark public money for land projects that vastly increased the value of land that he secretly owned. This gave him plenty of cash to buy the silence of some poor kids he sexually abused, enabling him to stay in power. People in power use that power to enrich themselves and then shield themselves from accountability. It’s a cold hard fact. As Jeff Greenfield of the Daily Beast recently put it:
“It is not discontent that describes what so many Americans are feeling about their government and their leaders; it’s something much closer to what ex-Speaker Hastert arouses: outright revulsion.”