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Is capitalism humane?

By Joseph Petchauer
web posted October 1, 2018

The debate about capitalism has been raging for centuries: is it the superior market system designed to give everyone equal opportunity and economic freedom, or an oppressive system that favors the rich and creates economic inequality?  Especially in today’s heated political climate, this seems to be an especially touchy issue.  Bernie Sanders became the champion of the idea of “democratic socialism” in the 2016 election.  In my own home state of Florida, where we just held our gubernatorial primaries, the winner of the Democratic nomination is someone who ran his campaign based on promoting socialist values and condemning the alleged horrors of capitalism.  In light of this, I decided to watch a lecture Milton Friedman gave at Cornell University entitled “Is Capitalism Humane?”  After all, that seems to be one of the primary criticisms of capitalism: it’s a system that doesn’t care about the poor or about the common man.  Although Friedman made many fascinating arguments in this lecture, I will be focusing on just his main ideas, particularly the concepts of incentives and self-interest.

In order to tackle such a difficult question, Friedman first lays out a few basic premises about how we should judge economic systems.  The first is that we must do so by looking at results, rather than simply at “what the proponents of one system or another say or their intentions.”  We can’t look merely at what one system classifies at its objectives; we must also analyze how close that system is to achieving those objectives.  In this vein, Friedman mentions that while the concept of socialism may be an “ideal,” and for this reason often appeals to a lot of people, it doesn’t mean the ideal has been or can be translated into reality.   In order to properly analyze socialism, we need to look at the actual results of real-life socialist systems rather than at its lofty, idealistic goals that may or may not be realistic in the real world. 

Friedman also brings up the idea that we have to be careful about making judgements based on “moral values,” because, after all, everyone’s moral values are different and individual to themselves.  In other words, we must be careful to avoid engaging too deeply in normative economics, economics based on value judgements.  In a way, the entire question is already a bit flawed, since “humane” is a subjective term. 

With that in mind, Friedman notes that the primary difference between capitalism and socialism is the incentives each one offers, the driving force behind each system.  For capitalism, the driving incentive is “self-interest.”  In a truly capitalist society, people make all their decisions based on their own self-interest, each making voluntary exchanges which makes the society wealthier as a whole.  Friedman calls this “voluntary exchange” or “voluntary cooperation” the “essential notion” behind capitalist thought.  When someone makes a decision to exchange something with someone else, he will be enriching not only himself but also the other person involved in the trade.

On the other hand, socialism’s primary incentive is force.  People are forced to work, people are forced to give up their money, and so on.  Under any system in which there is such an extent of central planning and governmental control, people lose their economic freedom and will no longer be able to engage in economic activity for their own self-interest.  When a man in a socialist government gives up his money forcibly by government order, he is not engaging in that exchange voluntarily and does not become any wealthier as a result.  So while a capitalist society will continue to enrich itself, socialism will not.  Thus, while socialism states as its goal the promotion of the social interest, capitalism actually does much better in this regard, promoting the social interest through individual interest.

Ultimately, I agreed with most of Friedman’s points throughout this lecture.  While his opinions were certainly pro-capitalism, he acknowledged that no system was perfect.  Instead, he argues that the principles on which capitalism rests are most conducive to achieving results: when we accept the “essential notion” of “exchange on the basis of mutual benefit,” we will be advancing interests on both an individual and social level.  So while there will be still be problems and issues we must address, capitalism is still the best option we have.  One of my favorite Churchill quotes is that “Democracy is the worst form of government, except for all the others”; I think this witty remark could be equally applied to capitalism. ESR

Joseph Petchauer is a a student studying AP Macroeconomics in high school and this is his first contribution to Enter Stage Right. © 2018 Joseph Petchauer

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