It’s easy to criticize capitalism because of the resultant inequalities. The wealth difference between the wealthiest 1% of Americans and the median American is factor of around 1000 times or greater, with that top 1% holding about 40% of the total wealth.
It’s also easy to criticize capitalism because it arguably drains the joy and happiness from productive activities. Working for rewards or money arguably stifles art, creativity, and expression. Likewise, the machinery of the market arguably drives us towards a soulless society that’s all work and no play.
Yet, in spite of our criticisms, we should remember that capitalism also has positive effects. The inequalities it creates give us the ability to price things and allocate resources efficiently. Together with incentives, this provides individuals with the means to internalize preferences beyond their own.
It’s not enough to simply point to the cons of capitalism in our appeal for more redistribution – we must consider capitalism in contrast to the communist alternative.
Capitalism and communism lie on opposite ends of a continuum. One way to think about points on the continuum is as different levels of a tax that redistributes wealth. On one extreme, we would have a pure laissez-faire system, with no redistributive tax, where everyone ends up with exactly what the markets dictate. On the other extreme we have complete redistribution, where everyone ends up with an equal share of the pie regardless of their actions. Of these two extremes, which one is more realistic given our current understanding of human nature?
It seems obvious to me that whereas society would invariably fail as a strict communism, this would not necessarily be the case for strict capitalism. Quite frankly, a strict capitalism also seems to jive better with traditional notions of fairness.
Right now, we are somewhere in between these two extremes. The question often asked is one of economy, and has to do with our location on the continuum: towards which extreme should we move? While this is undoubtedly a question of critical importance, I believe there is another question that is equally, if not more important. That question is: can we make the question of location easier, or perhaps less important, than it is today, and if so, how? I believe we can, and I believe that this is a matter of culture more than it is of economics.
Imagine an ideal world, where individual interests are one with society. In this world, the choice between the extremes would not matter (assuming zero transaction costs). In a strict capitalism, the wealthiest would donate their wealth in accordance with social interest, and would only endure as much unhappiness in their work as society would find prudent. Similarly, in a strict communism, everyone would work precisely as much as social interest demands, and the productivity problem would disappear. Every point on the continuum would be the same.
Clearly, it is not the case that individual interests are one with society, nor is it likely to ever be the case. However, it is easy to imagine a world where individual interests are more aligned with society than they are now. There are certainly some hard-working people in the world who seem to have an unlimited capacity for giving. Surely we can imagine everyone embodying these same qualities.
It is of significant import that our capacity for responsible work ethic and generosity are closely related to our choice of location on the continuum. If we agree that greed is what makes capitalism bad, and that laziness is what makes communism bad, then it follows that generosity cures capitalism and that responsible work ethic cures communism. [Note that there is a bit of feedback loop here: if generosity leads to pure redistribution then we would need work ethic too, lest we get an Atlas Shrugged situation, but I think this is solved by informed and directed generosity].
From my limited perspective, I see that our present capacity for generosity far outweighs our capacity for responsible work ethic. Bill Gates has given more than half of his wealth to charity, and plans to leave his kids with less than 0.1% of his wealth upon death. It’s easy to give, and giving always feels good. I also think generosity is something we can teach. If the vices of capitalism are unacceptable at present, I think we might consider looking first not to forcible redistribution of property, but to creating a culture of sharing and generosity.