The Wall Street protesters, in their hatred of capitalism, overlook things including the fact that over the last 100 years capitalism has reduced poverty more and increased life expectancy more than in the 100,000 years prior.
They enjoy using their iPhone, indoor plumbing, central heating, refrigerators and electric lighting. All of these things are available to the average person in America today and none of them were available to the aristocracy when the West operated under the feudal system.
How is it that for thousands of years mankind made very little progress in increasing the standard of living and yet today half of the goods and services you use in the next week did not exist when I was born? It wasn’t that there was some change in the DNA such that we got smarter. The Greeks knew how to make a steam engine 3,000 years ago and never made one. The difference is in how we organize our economic system. The advent of market capitalism in the mid 18th century made all of the difference.
We need not just rely on historical data. Look at cross-section evidence. I try another experiment with my students. I tell them they are about to be born and they can choose whatever country in the world they would like to be born in. The only caveat is they will be the poorest person in that country.
Every student picks a country that is primarily organized in a market capitalist system. No one picks a centrally planned state. No one says, “I want to be the poorest person in North Korea, Cuba, or Zimbabwe,” countries which are at the bottom of the Heritage Foundation’s Index of Economic Freedom.
What does it mean to be poor in our capitalist society that the Occupy Wall Street crowd so hates? Robert Rector of the Heritage Foundation has several studies of those classified as poor by the U.S. Census Bureau. He found that 80 percent of poor persons in the United States in 2010 had air conditioning, nearly three quarters of them had a car or truck, nearly two-thirds had satellite or cable television, halfhad a personal computer and more than two-thirds had at least two roomsper person.
Contrast this with what it means to be poor in Mumbai, India, acountry that is moving rapidly towards market capitalism but was burdenedfor decades with a socialist system. A recent story in The Economistdescribed Dharavi, a slum in Mumbai, where for many families half of the family members must sleep on their sides in order for the entire family to squeeze into its living space.
The Occupy Wall Street movement has shown a lack of understanding of how the market capitalist system works. They appear to
think that the cell phones they use, food they eat, hotels they stay in, cars they drive, gasoline that powers the cars they drive and all the myriad goods and services they consume every day would be there under a different system, perhaps in more abundance.
But there is no evidence this could be or ever has been the case.
The reason is that only market capitalism solves the two major problemsthat face any economy — how to provide an incentive to innovate and howto solve the problem of decentralized information. The reason there isso much innovation in a market system compared to socialism or otherforms of central planning is that profit provides the incentive forinnovators to take the risk needed to come up with new products.
My mother never once complained that we did not have access to thelatest Soviet washing machine. We never desired a new Soviet car. Thesocialist system relies on what Adam Smith referred to as the benevolentbutcher and while there will undoubtedly be benevolent butchers outthere, clearly a system that provides monetary rewards for innovators ismuch more dynamic and successful.
The profit that the Occupy Wall Streetprotesters decry is the reason the world has access to clean water andanti-viral drugs.
The other major problem that must be solved by any economic system is how to deal with the fact that information is so decentralized. There isno way for a central planner to know how many hot dogs 300 million Americans are going to want at every moment in time. A central plannercannot know the relative value of resources in the production of variousgoods and services.
Market capitalism solves that problem through the price system. If there are too few hot dogs, the price of hot dogs will rise and more hot dogs will be produced. If too many hot dogs are produced, the price of hot dogs will fall and fewer will be produced.
Market capitalism is the key to the wealth of the masses. As Ludwigvon Mises wrote in his 1920 book, Socialism, only market capitalism canmake the poor wealthy. Nobel Laureate Friedrich Hayek in his famous 1945paper, The Use of Knowledge in Society, showed that only the price systemin capitalism can create the spontaneous order that ensures that goodswill be allocated in a way that ensures consumers determine the use ofresources.
The Occupy Wall Street movement would make best use of its time and energy in protesting the encroachment of the centrally planned state that led to the disaster of the Soviet Union, fascist Germany, and dictatorial North Korea.
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