Adam Smith was not an economist. Capitalism’s forefather was, instead, a moral philosopher who spent much of his time pondering human nature. His most enduring insight was that a people free to work for their own self-interest would meet the needs of the larger society; that an unrestricted, competitive market — as opposed to the government-protected mercantilism of his time — would empower workers and consumers alike. His theory would eventually dominate the world’s major economies for nearly 250 years; but lately, cracks have appeared in popular support for America’s capitalist foundation. A 2021 Axios poll found that only 42 percent of adults ages 18 to 24 held a positive view of capitalism, while 54 percent saw it negatively — and that view crosses party lines. That same year, just 66 percent of Republicans, 18 to 34, saw capitalism as a positive force, down from 81 percent in 2019. Is it time to rethink the system Smith built?
Still the best option
Winston Churchill once said that “democracy is the worst form of government except for all those other forms.” The same could be said of capitalism. Though imperfect, it’s the best method for combating poverty and allowing people the best chance to find financial stability and success. It’s also the best system for countering stagnation by incentivizing growth and innovation. Even self-proclaimed socialists are often not mad at capitalism itself as much as adjacent policies, like lacking social safety nets and rising inequality, that could be fixed without abandoning capitalism.
The data validates capitalism’s effectiveness: Since it became the dominant economic philosophy around the world, extreme poverty has declined by orders of magnitude. In 1820, according to economists from the University of Paris, 84 percent of the world’s population lived in extreme poverty. That dropped to 66 percent in 1910 and by 2018 it was down to 8.6 percent. The reason capitalism “brought about the greatest reduction of poverty in human history,” writes New York Times columnist David Brooks, is simple: Compared to centrally-planned economies, capitalism is much more adaptable. “Capitalism creates a relentless learning system,” Brooks, who once identified as a socialist, wrote. “Socialism doesn’t.”
Where socialism excels, Brooks argues, is in incentivizing corruption and cronyism among government officials. When their plans fail and goods become scarce, abuse becomes inevitable because they hold all the power. “A system that begins in high idealism,” he writes, “ends in corruption, dishonesty, oppression and distrust.” To be fair, capitalism can be ripe for abuse, too, Brooks acknowledges.
But the answer to that abuse, he insists, is not another plan, but better capitalism. “Markets are morally neutral,” writes BYU economics professor Phillip J. Bryson. That neutrality means they can be tweaked to benefit everyone. “A big mistake those of us on the conservative side made was to think that anything that made the government bigger also made the market less dynamic,” Brooks writes, citing countries like Denmark and Finland as examples of wide-open markets that also have policies to help spread the wealth. “The only reason they can afford to have generous welfare states,” he adds, “is they also have very free markets.”
A ‘new kind of capitalism’
Since the presidency of John F. Kennedy, American wages (accounting for inflation) have been stagnant, while the wealthiest 10 percent of Americans — the top 1 percent, especially — have expanded their share of the nation’s wealth. University of California, Berkeley, economics professor Gabriel Zucman wrote that income inequality was worse in America in 2019 than it was in the period that preceded the Great Depression. Millennials are the first generation of Americans since the 1930s who are worse off than their parents in taking the first steps toward accumulating wealth. Despite being the most highly educated generation, many millennials don’t have the financial capability to save money for a home or retirement like their parents did. Amid skyrocketing housing prices, food prices, interest rates and mounting student debt, the American dream of hard work begetting opportunity has instead become a social media rallying cry of “Eat the rich!”
Beyond economic impacts, so-called “late capitalism” — a term generally denoting modern capitalism dominated by multinational corporations and concentrated wealth — has also commercialized many aspects of existence. In “24/7: Late Capitalism and the Ends of Sleep,” Columbia University art professor Jonathan Crary explores how capitalistic impulses to spur growth and innovation will stop at nothing. “Because capitalism cannot limit itself,” he writes, “the notion of preservation or conservation is a systemic impossibility.”
Billionaire hedge fund manager Ray Dalio, an outspoken critic of capitalism’s weaknesses, says the system’s proponents have two choices. “All good things taken to an extreme become self-destructive,” he wrote in 2020, “and everything must evolve or die.” He prefers the former.
According to some researchers, the evolution has already taken root. Rather than the “neoliberal” capitalism evangelized by figures like Ronald Reagan, which favors deregulation, large corporations and low taxes on the wealthy, the so-called “New Economics” promoted in a November report by the progressive Roosevelt Institute describes a movement toward worker empowerment, higher taxes on the wealthy and more government influence. “Whether or not this new approach marks a long-lasting shift remains to be determined,” the report’s authors wrote, “and whether this shift goes far enough depends on the outcome of politics and policy fights ahead.”
This story appears in the January/February 2024 issue of Deseret Magazine. Learn more about how to subscribe.