The Virtues of Capitalism
by Ari Armstrong, July 13, 2000
It's a familiar refrain. Socialism is the morally ideal system, but it is condemned by human weaknesses, so only capitalism is practical. So suggests CU law professor Paul Campos in his June 6 article "10 percent rule drives the system" in the Rocky Mountain News.
Campos begins by pointing to a problem in modern society: the tendency of some drivers (ten percent) to wait until the last minute to merge when one lane is blocked. Instead of everyone merging smoothly and keeping up speed, a few try to speed ahead in line, thus slowing down traffic for everyone.
If just one person could speed ahead in line, he or she could make up a little time. But many people are tempted to speed ahead, thus ruining the flow for everyone. This problem generalizes to a major branch of economics.
According to Campos, "The 10 percent rule ensures that capitalism, which takes advantage of our baser instincts and helps make them socially productive, will almost always be the more efficient form of social organization." In other words, Campos believes capitalism harnesses that destructive behavior which otherwise causes some drivers to screw up traffic, and turns it into productivity.
But Campos has got it exactly backwards. Capitalism rewards those with the moral maturity to cooperate with others and develop their productive skills, while it punishes those who seek to benefit at the expense of others. Capitalism allows people to solve the problems of mutually destructive behavior.
The more capitalism takes hold in a society, the more cooperation is achieved and the greater the level of civilization. Of course, capitalism can't solve all our problems. The late merger problem remains, even though it only occurs when a road is under construction. (Our roads are mostly socialized; roads that operated on the free market would probably do better at avoiding such problems.) If Campos wants to claim that capitalism somehow harnesses mutually destructive behavior, he might as well claim that aspirin works by taking advantage of the pain of a headache.
An old economist's trick is sometimes used to demonstrate -- theoretically, of course -- that items such as lighthouses and dams could not be built by the free market, because potential payers would be tempted to "free ride" off the efforts of others. The trouble with this armchair theorizing is that things like lighthouses and dams have, it turns out, indeed flourished in the free market. People found creative ways to cooperate their way around the "free rider" problem.
Land owned by no one suffers from what is called the "tragedy of the commons," meaning that since no one owns the property, no one takes care of it and everyone overuses it, often to the point of ruination. Capitalism is essentially the history of overcoming the tragedy of the commons with property rights, law, and social cooperation.
Thus, Campos is simply wrong to associate the rational self-interest prevalent in the free market with the type of mutually destructive behavior displayed by intentionally late mergers. He writes that "capitalism's success is a monument to both the ubiquity of selfishness and greed and the capacity for rationalizing these vices under the benign rubric of 'self-interest.'" There is a legitimate difference between rational self-interest, which rests upon the social reality that people best succeed through cooperation rather than through destructive conflict, and short-sighted egotism, which is not really self-interest at all.
It is said that capitalism survives by competition. Yes, but this is not the competition of the brute animal world, the competition of force. Instead, capitalism thrives because people compete to cooperate with one another. A market is simply a social arrangement in which people are free to cooperate with whomever they please.
Socialism, on the other hand, rewards mutually destructive behavior and punishes cooperation and productivity. In socialism, the late mergers rise to the top. Socialism is the institutionalization of the free rider problem.
In socialism, different interest groups fight to grab the levers of power. These groups lobby the government for subsidies and favoritism at the expense of the rest of society. In socialism, those most adept at using the brute force of the state rise to power over the rest of us.
Campos is on the right track, then, when he says, "The 10 percent rule helps explain why socialism always fails." However, socialism is not otherwise a benevolent system. Campos is wrong when he continues, "Socialist political and economic schemes would work beautifully if everyone treated each other halfway decently most of the time." As Ludwig von Mises and his student Friedrick Hayek have shown, even socialists motivated to help people cannot in fact do so, because in their fatal conceit they try to run the lives of others without the requisite knowledge to do so effectively. The desire to run others' lives is itself a fundamental moral flaw, making socialism rotten to the core.
Thus, when Campos mocks capitalist theorists like Ayn Rand and Adam Smith, he is off the mark. Campos writes, "So you sit in the right lane, watching [late mergers] whiz by, and wonder: Who are these people? Investment bankers? Scientologists? People who've read too many Ayn Rand novels?" He continues, "If Adam Smith were alive today, his SUV would be hurtling past yours, to the very end of the left lane." However, that sort of mutually destructive behavior is really the trait of socialist systems and leaders.
Ayn Rand and Adam Smith stand for the voluntary, cooperative arrangements of the free market, through which people overcome brute force in order to trade for mutual benefit. Socialists, on the other hand, advocate the use of physical violence to achieve social ends. Campos identifies a real problem in society, but he confuses the cure for that problem, capitalism, with the metastasized version of the disease, socialism.