The Case Really Matters

All decent people want the poorest in society to have better lives, and this idea is fundamental to everything I write in this blog, in my poems or elsewhere.

In 1966, when I started my university course, Ayn Rand published a collection of essays under the title ‘Capitalism: The Unknown Ideal’. I first read the book in 1973 and found it well worth re-reading in 2008.

Rand argued that ‘capitalism’ is a badly misunderstood term, and that this matters. As she saw it, in the nineteenth century ‘capitalism’ came to mean a political system in which the owners of industrial facilities, such as cotton mills, exploited ‘labour’ - people who worked with their hands. Ayn Rand disagreed profoundly with this view.

The nineteenth century interpretation was converted into the ideology of Communism, by Karl Marx, in which there would inevitably be conflict between ‘labour’ and ‘capital’, and it has had profound consequences for mankind ever since. Communism produced humanitarian and economic disasters, causing the death of literally millions of people, and the impoverishment and misery of many millions more. But it also prepared the ground for the establishment of the British Labour Party and similar left-of-centre political parties around the world.

Capitalism with a small ‘c’ is not a political ideology, it is simply an economic mechanism that, in purely pragmatic terms, works — it brings home the bacon.

It’s clear to me that just about everyone wants a bit more bacon, that is, to improve their standard of living by having access to more and better food, shelter, goods, services and cultural experiences. 

Communism as an ideology finally failed in the closing decades of the twentieth century. It then became clear to all politicians that capitalism is the only economic mechanism capable of producing sustainable surpluses. These permit both improved standards of living and financing of the functions of government.

The best-known demonstration of this is China, which ditched the Communist lunacy of Central Planning following the death of Mao Zedong in 1976. Capitalism (small ‘c’)  has since allowed it to become the world’s second largest economy (and it seems likely soon to become the largest). But other countries such as Japan, Singapore, Hong Kong and Taiwan, showed China the way.

However I think it’s more important to try to understand the meaning of capitalism (small ‘c’) for moral, not economic or political reasons. And that is why Ayn Rand wrote her essays.

In this, original, sense of the word, it just describes the effects produced when individuals save part of their earnings and apply them to improving productive processes in such a way that output rises, manual work becomes less onerous and the prices of goods and services fall. 

Saving — keeping back something from your earnings — and applying savings in an attempt to improve future wellbeing converts savings into capital, a simple process that most people seem never to have grasped.

This straightforward and entirely apolitical process is capitalism with a lowercase ‘c’ in distinction to its portrayal as exploitation of 'the workers', Capitalism with an uppercase ‘C’. The case really matters.

It is hard to believe that it took almost the whole of human history to discover that the application of savings to improve productivity allows living standards to rise so decisively; this was akin to discovering the goose that lays the golden egg. 

Historically, whenever there was a surplus - perhaps due to chance good harvests, or the discovery of gold or silver mines - the surplus was consumed in pretty short order by warfare or the coercion of whole populations to build useless monuments such as pyramids, temples or cathedrals, thought to satisfy the demands of jealous gods.

It was only the slow advance of more humane civilisation and social organisation that allowed surpluses to build up and be available to fund the productive processes. These allowed the accumulation of wealth to ‘take off’ — to reach such a level that even the poorest in society could benefit. Of course, when Henry Ford demonstrated that cheaper products create larger markets even the economically illiterate began to sit up and take notice.

Until the discovery of the capitalist economic system, social organisation throughout human history was done on the basis of coercion. The strong lorded it over the weak, paid scant regard to their well-being and treated them as mere commodities - serfs, servants or slaves. 

Capitalism (small ‘c’) entirely changed the way society works and has allowed the plenty that so many of us enjoy today despite the enormous increase in world population (from less than one billion in 1800 to seven billion now).

Of course, once the powerful began to understand that there was a goose laying golden eggs they decided to interfere and grab much of the benefit for themselves. They used the power of legislation to establish rules, regulations and taxes that gave them control of much of the wealth generated. Clever inventors and entrepreneurs were permitted to get on with production while the political elite siphoned off much of the profit. This eventually led to the political scepticism felt today almost everywhere you care to look.

For example, we have the irony of the Chinese Communist Party controlling a state with the world’s most dynamic (capitalist) economy, the Russian system of political oligarchy in which the state places production in the hands of compliant thugs. But there is also the American system where lobbyists exert undue political influence by financing the US political machine in exchange for favours, and we should not overlook what goes on in Europe where lobby groups gain control of legislation through the powers of the European Union. So it goes. In no country of the world have those who have the political power been able to resist interfering with the productive genius of small ‘c’ capitalism.

The consequences are always most tragic for the least well-off, who are repeatedly disempowered and cheated. I have recently seen the justifiable anger of the Brazilian people, caused by corruption at the heart of their democratic institutions and it saddens me deeply.

The golden goose of productive capitalism depends on the ideas of individual people thinking their own thoughts in their own time. It depends, entirely, on individual creativity which works best when there is individual freedom. And individual freedom means being allowed to do whatever seems best to you so long as it does interfere with the rights of other people. This is the moral case for capitalism.