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Capital, Capitalists and Capitalism (Part VI)

Posted By Mark Hendrickson On August 14, 2013 @ 12:12 am In Daily Mailer,FrontPage | 46 Comments

Editor’s note: The following is the sixth, and final, installment of the FrontPage series “Capital, Capitalists and Capitalism” by Dr. Mark Hendrickson. Click the following for Part IPart IIPart IIIPart IV and Part V

We have already discussed how, despite overwhelming evidence to the contrary, most progressives and other advocates of more government intervention believe that Washington should have greater control over economic activity in order to increase prosperity for more people. We also have examined the glaring holes in their arguments of advocates of intervention who insist that government redistribution of property is fairer and morally superior to allowing free markets to distribute wealth. The third point they make in support of their statist agendas is the alleged problem of class divisions inherent in capitalism. Their arguments in this case are equally feeble. In fact, charges that capitalism divides people into irreconcilable classes is a hollow canard.

When one surveys the history of capitalism, starting with the onset of the Age of Capitalism in the 18th century, one can’t help but notice its revolutionary effects on social structure in addition to its pronounced positive economic effects. Pre-capitalist societies in Europe had been characterized by rigid social stratifications. A person born into a certain social stratum was doomed, barring a miracle, to die there. Royals, aristocrats, and their retinues enjoyed the privileges of a rigged Big Government system that enriched them and left the common man with such scant economic opportunities that having enough to eat was a recurring problem.

Capitalism changed all that. By virtue of its superiority in producing goods, capitalism “provided sustenance for the masses of paupers. Capitalists emptied the poor houses, the workhouses, and the prisons. They converted starving beggars into self-supporting breadwinners.”1 Capitalism liberated millions from hereditary poverty. By shifting control of economic production from the privileged few to the masses (i.e, consumer sovereignty in free markets), new fortunes were made and old fortunes were eclipsed.

In short, tremendous upward mobility supplanted social stasis as capitalism multiplied opportunities for individual advancement. Capitalism sundered pre-existing class divisions and made it possible for the talented and industrious to make the proverbial leap from rags to riches. When Karl Marx and his successors fixated on the theory of class conflict, they were like the proverbial general fighting the last war. They were obsessed with the rigid, antagonistic class divisions that characterized the politico-socio-economic orders—feudalism and mercantilism—that preceded capitalism.

Capitalism, in fact, broke up the old order, supplanting rigid social hierarchies with social mobility. Capitalism unlocked the doors of economic progress for the masses, both by lowering the cost of goods so that those once too poor to purchase various goods now could afford to do so; and also by increasing the amount of capital in society so that it became possible for citizens from poor backgrounds to become entrepreneurs and make the proverbial leap from rags to riches.

It is historically inaccurate for socialists to accuse capitalism of sowing the seeds of class conflict by dividing society into classes whose interests were implacably opposed to each other. The calumny that capitalism would keep workers in a permanent state of inferiority has been disproved millions of times throughout American history. Worse, though, than the socialists’ diagnosis is their proposed cure for the class divisions allegedly created by capitalism. Socialism commits the very sin of which it accuses capitalism: It divides society into two classes, a dominant upper class and submissive lower class—the elite government planners and the masses of people, respectively.

Whereas capitalism represented a radical departure from the class divisions inherent in mercantilism, socialism seeks to reinstitute such divisions. Socialism is, in some very fundamental ways, a neo-mercantilist system. Indeed, by deposing the sovereign consumer—the democratic economic rule of Everyman—and replacing it with a privileged ruling class, socialism is politically reactionary.

The reason why capitalistic systems like the United States never fell prey to a worker’s revolt or class warfare was because the vast majority of Americans have seen that they could advance themselves economically without bloodshed or revolution. Instead, they could take advantage of the opportunities that capitalism continually presents. Why resort to force and violence if the system offers your children a better life by peaceful means? How can anyone organize a proletarian army of oppressed, impoverished malcontents if the members of the would-be army are climbing out of poverty and rising above (sometimes considerably above) their previous social status?

In the United States, the individual liberty that accompanies and characterizes capitalism has allowed millions of Americans to rise two, three, or even four quintiles in social rankings of income and net worth. America’s perennial economic, social, and political mobility has been a healthy antidote to class conflict, since anyone with the talent and initiative was free to go up the social/economic ladder, rendering notions of rigid class distinctions untenable. A U.S. Treasury study found that “over half of taxpayers moved to a different income quintile” in the ten-year period, 1996-2005.2

It seems incredible that anyone would try to fan the flames of class conflict in the U.S. today when a middle-income American enjoys a standard of living that in many ways is more affluent than the lifestyle enjoyed by 19th-century monarchs. Today, the average poor American “has more living space than the typical non-poor person in Sweden, France, or the United Kingdom”; “80 percent of poor households have air conditioning” (as recently as 1970, only 36 percent of Americans had A/C); “31 percent have two or more cars”; “nearly two-thirds have cable or satellite TV,” etc.3 It has to be hard to organize a movement based on income when society is so fluid and large numbers of people continually move up to higher income levels.

Socialists, progressives, and other opponents of capitalism are nothing if not persistent. As latter-day ideological heirs of Marx, they continue to see the world in terms of class conflict. They seem to need class conflict so badly that if they can’t find it, they will do their best to manufacture it. Whether consciously or not, government interference with free markets over the past two or three generations have managed to thwart capitalism’s natural tendency to lift people out of poverty and have produced a long-term (some sociologists even use the adjective “permanent”) underclass in American society.

Many social scientists—Charles Murray preeminent among them—have documented the secular trend toward declining poverty rates over the course of American history.4 Except when this trend was interrupted during the Great Depression of the 1930s (itself a tragic sequence caused by a succession of pernicious policy mistakes in Washington)5 free-market capitalism reduced the incidence of poverty in every decade—until the mid-1960s when the poverty rate quit declining and has remained range-bound ever since.6

What policies interrupted capitalism’s progress against poverty? One has been the devastation and even literal destruction of thriving black business communities in the name of urban renewal.7 Another was the breakdown of the black family, famously warned about by Daniel Patrick Moynihan in 1965, and then abetted by a series of government anti-poverty programs that created what Heritage Foundation analyst Robert Rector memorably dubbed “the incentive system from hell” that financially rewarded and incentivized single parenthood. Another was the strategy resulting in the Curley effect, by which interventionist politicians kept large numbers of inner-city residents in various misnamed social welfare programs in exchange for their political loyalty. This deal with the devil lured many urban residents to accept a state of permanent economic dependence on the political plantation of slick politicians who purveyed their status as defenders of the poor into permanent control of city governments. Thus, we have essentially one-party hegemony in America’s poorest, most rundown cities.8

By blaming stubborn poverty on capitalism, those advocating more government economic intervention are projecting their own faults onto others. It is government intervention that is responsible for the unnecessarily large size of the chronically poor in America. Capitalism is no panacea; people can still be poor where there is capitalism (read the book of Proverbs for numerous reasons why that is the case), but the historical record of capitalism has proven that it does more to promote upward economic mobility than any form of socialism or interventionism.

The assertion that capitalism leads to class conflict is not only historically false; it is a cynical lie. Rigid class divisions—economic, social, and political—are only possible where governments subvert free markets and impede people’s ability to advance economically. It takes a powerful government, or a strong cultural-religious caste system, to maintain rigid class distinctions. Capitalism does not erect divisions between economic classes; it demolishes them. Far from being the cause, as Marx and his followers claimed, capitalism is the antidote for class conflict.

The left talks a lot about “peace.” What could be more peaceful than free individuals choosing with whom to interact economically for mutual benefit in the noble framework known as capitalism? In such a system where voluntary action is the rule and individual rights are respected, human beings encounter allies, not enemies, and individual self-interest tends toward harmony instead of conflict. Perhaps this is the greatest and most blessed feature of capitalism, and a primary reason for why capitalism is worth defending and preserving.

Notes:

1 Ludwig von Mises, Human Action, Scholar’s Edition, p. 615.

2 “Income Mobility in the U.S. from 1996 to 2005,” Report of the Department of the Treasury, November 13, 2007.

3 Official government data cited in “Understanding Poverty in the United States…”  March 22, 2012, www.projectworldawareness.com/2012/03/understanding-poverty-in-the-united-states-surprising-facts-about-americas-poor/.

4 Charles Murray, Losing Ground: American Social Policy 1950-1980, New York: Basic Books, Inc., 1984.

5 Cf. Lawrence Reed, “Great Myths of the Great Depression,” www.mackinac.org/4013; Burton Folsom, New Deal or Raw Deal? How FDR’s Economic Legacy Has Damaged America, New York: Threshold Editions/Simon & Schuster, 2008.

6 Ezra Klein’s “Wonkblog,” “Poverty in the 50 years since ‘The Other America,’ in five charts,” The Washington Post, posted July 11, 2012, www.washingtonpost.com/blogs/ezra-klein/wp/2012/07/11/poverty-in-the-50-years-since-the-other-america-in-five-charts/.

7 Cf. Ellen Pierson, “Race and City Planning in Pittsburgh’s Hill District,” 16 May 2008, posted in “The Not-So-New Face of Urban Renewal,” documents.kenyon.edu/americanstudies/; Matt Lakin, “1960s brought end to segregation, prohibition,” July 29, 2012.www.knoxnews.com/news/2012/jul/29/1960s-brought-end-to-segregation-prohibition/?print=1; Peter Dreier, “Jane Jacobs’ Radical Legacy,” National Housing Institute Issue #146, Summer 2006, www.nhi.org/online/issues/146/janejacobslegacy.html.

8 Edward L. Glaeser & Andrei Shleifer, “The Curley Effect: The Economics of Shaping the Electorate,” Department of Economics, Harvard University,2005, www.economics.harvard.edu/facutly/shleifer/files/curley—effct.pdf.

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