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How Capitalism Will Save Us: Why Free People and Free Markets Are the Best Answer in Today's Economy Hardcover – November 3, 2009
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About the Author
STEVE FORBES is chairman, CEO, and editor in chief at Forbes Media and an internationally respected authority in the worlds of economics, finance, and corporate leadership. He campaigned twice for the Republican nomination for the presidency. His previous books include Flat Tax Revolution, A New Birth of Freedom, and the New York Times bestseller Power Ambition Glory.
ELIZABETH AMES is founder of BOLDE Communications, which advises corporate and individual clients on communications strategies. Her work as a writer and journalist has appeared in a variety of magazines and newspapers.
Excerpt. © Reprinted by permission. All rights reserved.
"Is Capitalism Moral?"
The Rap eCapitalism is an amoral, dog-eat-dog system founded on greed and the survival of the fittest.
The Reality eCapitalism is the world's most humane economic system, promoting the democratic values of a free and open society: hard work, cooperation, generosity, charity, and devotion to the rule of law.
Is capitalism moral? The question has been debated since before the days of Karl Marx. But it has more relevance today than ever in the wake of the recent financial crisis and recession.
Capitalism's critics insist that evidence of its "immorality" is everywhere—from the collapse of Enron in the early 2000s to the "predatory lending" that helped bring on the subprime-mortgage meltdown and subsequent recession to investment adviser Bernard Madoff's mammoth $50 billion Ponzi scheme that wiped out personal and institutional fortunes around the globe. These and other events, they say, demonstrate that the free market is a winner-take-all jungle, a place where the most ferocious and dishonest triumph, where nice guys finish last, where greed rules and people get ahead by exploiting others.
No doubt there can be bad behavior in a capitalist system. There is bad behavior in any society. However, when viewed as a system, capitalism is more moral than any and all alternatives.
Capitalism has produced the world's highest standard of living by promoting the moral values of cooperation, democracy, and free choice. Nobel Prize–winning economist and noted free-market advocate Milton Friedman frequently made the point that capitalism's foremost historic contribution has been its moral influence.
As we started to discuss in the introduction to this book, capitalism is not about selfishness, but about the needs and wants of others. Former U.S. ambassador, noted theologian, and author Michael Novak makes this point:
The capitalist economy is not characterized, as Marx thought, by private ownership of the means of production, market exchange, and profit. All these were present in the precapitalist aristocratic age. Rather, the distinctive, defining difference of the capitalist economy is enterprise: the habit of employing human wit to invent new goods and services, and to discover new and better ways to bring them to the broadest possible public.1
Adam Smith explained in his classic work The Wealth of Nations that the exchange of goods and services in a market takes place only if both sides benefit. Such mutually beneficial exchanges, multiplied by the hundreds of millions, form what Smith referred to as "the invisible hand." The classic example of the pencil illustrates how these exchanges spontaneously allocate resources in a way that benefits more and more people.
To see the benefits of the Invisible Hand, one need only look around at the profusion of entrepreneurial businesses in most American communities. The vast array of goods and services generated by our vibrant democratic capitalist economy is unequaled: from 24-hour gyms and copy centers to supermarkets with countless varieties of food to even day spas in airports. The open markets of democratic capitalism meet needs that people don't even realize they had. Who ever would have imagined, for example, that we would need social networking sites such as Facebook? Or that you'd want to get a massage at an airport? Millions of Americans—and people around the world—now use Facebook and other similar sites every day, and they benefit from an Internet industry that began in the United States.
Free markets don't just meet the needs of the majority. If there's something people want or need, entrepreneurs in an open market will figure out a way to provide it—from size 22 shoes to hard-to-find spare parts for home appliances.
Since the emergence of democratic capitalism in the last three hundred years, humankind has made more advances—in incomes, standard of living, social mobility, and longevity—than in all the previous centuries put together.
Those who buy into capitalism's bad rap fail to see the moral significance of democratic capitalism's ability to provide for people's material well-being. And yet, would anyone question the immorality of regimes such as Venezuela, North Korea, and the former Soviet Union, where restrictions on personal and economic freedom have caused citizens to suffer extreme deprivation, food shortages, and even famine?
Democratic capitalism is moral precisely because it gives people the greatest latitude to meet their needs and desires by serving those of their fellow citizens, and, through doing so, it generates broad-based prosperity.
Many people today have forgotten that, for centuries, China was technologically ahead of Europe in metallurgy and shipbuilding. Both Europe and China, for example, developed the compass. But Europeans were the first to use it in navigating and exploring the earth. Why? Because Europe had a religious belief in the necessity of progress that eventually became a key underpinning of capitalism.
Milton Friedman wrote that capitalism is about being "free to choose."2 That's why free markets have caused people around the world to move in the direction of democracy. Michael Novak has observed: "Every democracy on earth that really does protect the human rights of its individual citizens is based, in fact, upon a free capitalist economy. Empirically speaking, there is not a single contrary case."3
Free markets are about people expressing their desires, saying yes or no to a product or service by essentially voting with their money. Economist Walter Williams has written that, in contrast to state- dominated societies, capitalism respects "the sanctity of the individual" and is "rooted in voluntary relationships rather than force and coercion."4
In a democratic capitalist economy, people interact in networks of cooperation that teach discipline and moral lessons—from the importance of showing up for work and handling money responsibly to the value of teamwork. Americans take capitalism's moral ethos for granted. Cynics may ridicule chirpy fast-food servers who greet them with "Have a nice day." But this etiquette reflects an emphasis on meeting the needs of others that is not present in other societies.
For example, twenty years after the fall of the Soviet Union, visitors to Russia still complain about the sullen customer service. That's because Russia's formerly communist society was run by a repressive government that controlled all resources and imposed its agenda on citizens. People had to accept what they got, take it or leave it. The idea of freely meeting people's needs—and being polite to them—in an open market was largely alien to this culture.
Russians are only now learning customer-service values from Western businesses like McDonald's that have managed to gain a foothold in the country's difficult business environment. The story is often told that when McDonald's started in Russia twenty years ago, company trainers had to overcome the famously dour attitude of service personnel whose attitude was "We've got the hamburgers. The customers don't."5
The value capitalism places on meeting the needs of others doesn't stop with the marketplace. It has made America a more charitable nation. No citizens give more of their income and time than the American people. According to New York University professor Claire Gaudiani, the U.S. gives twice as much as the next most charitable country—about $300 billion each year. This generosity extends throughout all income levels and is not limited to domestic charities. Americans have sent hundreds of millions of dollars overseas to help those in need after natural disasters ranging from the Burmese cyclone to the Asian Tsunami.
To fully appreciate the morality of democratic capitalism, it helps to have lived in other societies. Author and human rights activist Ayaan Hirsi Ali was born in Somalia, spent time in Saudi Arabia, and later lived in the Netherlands, where she served as a member of parliament. She now lives in the United States. Having experienced a repressive terror state, a Middle Eastern feudal society, and a European social welfare system, she believes that the moral standards of American free enterprise "are far higher than those of history's other great powers."
Why? Because, she says, democratic capitalism is a "meritocracy" that offers people the greatest opportunity to pursue their own goals, to innovate and excel, both in their business lives and at home in their communities. Not only does Ali believe democratic capitalism to be more moral than the oppressive systems of the former Soviet Union, prereform China, and Saudi Arabia. She writes that it is also superior to the welfare states of Western Europe, whose statist economies "corrode" individual responsibility by encouraging dependency.
In a free-market society, where liberty comes first, individuals tend to be more creative and to innovate; in welfare states that assign priority to equality, the natural resourcefulness of human beings is perverted. To become successful, you must learn how to "work the system" rather than how to develop a better product. Risk is avoided, and individual responsibility is thwarted. Although superficially the system may appear fair, it promotes mediocrity and a sense of victimhood, and it discourages those who want to excel.6
Ali believes that the innovation and open exchange of ideas that are part of a free-market society make democratic capitalism best equipped to fix its flaws. For example, she says moral debates about issues such as pollution are conducted only in free-market societies. Based on her experience living in widely varying societies, she believes that democratic capitalism's entrepreneurial capitalists solve problems more efficiently than the bureaucrats of any government.
Ali readily acknowledges that our system of democratic capitalism is far from perfect—"There are many wealthy, decadent, and vapid people in America." However, she warns that the quest for moral perfection in a society can itself have immoral consequences:
In the course of history, the search for perfect societies—that is, the failure to acknowledge human imperfection—almost always ended in one or another form of theocracy, authoritarianism, or violent anarchy. But for those who seek to work with human flaws of every stripe, and to increase the sum total of individual happiness, the free market, combined with political freedom, is the best way.7
We wholeheartedly agree.
Q. But don't free markets rely on greed?
A. Free markets rely on trust.
Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through and captures the essence of the evolutionary spirit. Greed, in all of its forms—greed for life, for money, knowledge—has marked the upward surge of mankind."
That's how Gordon Gekko, the iconic Wall Street financier in the 1980s film Wall Street, famously—and cynically—summed up a widespread view of the free market economy—a place where all economic transactions, for good and ill, occur because of greed, the darker side of human nature.
Modeled on the notorious corporate raiders of the 1980s, Gekko was a fictional character. But his belief is shared by numerous individuals who see capitalism as immoral and based on greed.
Those who equate capitalism with greed will sometimes quote from the eighteenth-century Adam Smith classic The Wealth of Nations: "Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow citizens."
True, Adam Smith's brewer and baker give you dinner for a self- interested reason: they want your money. But self-interest isn't greed.
One of the seven deadly sins, greed means taking too much of something that you may not rightfully deserve. That is what Bernard Madoff was accused of doing, and that is why he went to jail. But his behavior, like that of any criminal, is an exception. People don't get ahead in a democratic capitalist economy by taking what they don't deserve. They may for a while, but, as the story of Bernard Madoff shows, sooner or later they pay the price.
Most of the transactions that take place every day in free markets are actually based on the opposite of greed: millions of people exchange goods and services in mutually beneficial transactions based on verbal promises or written agreements, cooperating with one another in "webs of trust."
We rely on this trust each day: The knowledge that the overwhelming majority of customers will pay. Or that we will get a paycheck from our employer every two weeks. Or that the dry cleaners will return our clothing cleaner than it was before. Without this kind of reliability and predictability, our economy couldn't function.
A prime example of capitalism's "web of trust": the auction site eBay, where customers buy and sell to one another anonymously, based on little more than a thumbnail product profile, a seller rating, and a credit card number.
EBay's sellers and buyers are not always honest. But most often they are. Without this expectation of reliability there could be no commerce. People would not be able to buy, sell, and create wealth—not only on eBay, but in any market.8
Trust, not greed, was the reason why so many people were duped by Bernard Madoff. Few people could anticipate his over-the-top villainy because such a willful violation of the rules is relatively rare. Madoff's annual returns to clients also appeared reasonable.
The idea that capitalism is based on greed is belied when taking a closer look at the great fortunes of the people on the Forbes 400 list of wealthiest Americans. Number 33 on the 2008 list, Jeff Bezos, founded the hugely successful Internet bookstore Amazon.com, which has since become an online megastore selling virtually anything. He built his $8.7 billion fortune not because of greed, but because he correctly saw the potential of emerging Internet technology to do a better job selling books than bricks-and-mortar retailers.
And what about Oprah Winfrey (number 155 in 2008, with a net worth of $2 billion)? Her story is well-known: born in Mississippi, she rose to become a TV talk show host, actress, producer, publisher, and owner of a media empire. Her productions and publications promote positive values of self-improvement. She has also built her fortune by bringing wealth to others, launching the media careers of personalities like Dr. Phil and Rachael Ray. As if all of this were not enough, she has donated millions to charity, including starting a school for girls in South Africa.
Henry Hillman (number 134 in 2008, with a net worth of $3 billion) was not self-made. He inherited his family's steel fortune. But he, too, has been anything but greedy. He has invested in real estate, medical technology, and other high-tech companies. Hillman has been one of Pittsburgh's most active philanthropists—a heavy supporter of medical and computer research. He has given some $20 million to cancer research and recently gave $10 million for a new computer science research building at Carnegie Mellon University.
Number 68 on Forbes' 2007 list was James Sorenson. The inventor, who passed away a year later at age 86, made a $4.5 billion fortune from medical devices, including a patented plastic catheter and a disposable surgical mask. Sorenson had more money than he could ever spend and nothing to prove. Yet he started another new venture, Sorenson Forensics, in 2006, shortly before his death. The company's genome-based technologies have helped solve cold-case murder mysteries. Asked why he risked his capital so late in life to start yet another new business, the habitual entrepreneur replied, "It soothes the soul to help people."
John Drummond isn't on the Forbes 400 list. His business, Unicycle.com, started out as a hobby. Drummond discovered that the unicycling he'd loved as a child could help him take off weight.
Yes, Drummond had a self-interested reason for building his business— he had been laid off by IBM and needed a job. But he also wanted the sense of personal fulfillment that comes from bringing something good to others. Drummond felt that people would enjoy unicycling and appreciate its unique, if quirky, value as a fitness workout. He succeeded because he was an innovator: he made a hard-to-find product more easily available over the Internet.
Today Drummond's business has franchises in eight countries, and he recently started another business, Banjo.com.
The claim that capitalism is based on greed is often used by politicians to sell solutions to economic problems that are supposed to be more moral—from taxes on windfall profits to government health insurance. These government-imposed remedies are supposed to deliver greater morality and fairness. But as we will show repeatedly in this book, they generally do neither. That's because political solutions are not developed to serve the Real World needs of people who make up a market but the narrower concerns of those who happen to be in power. They're frequently less fair, and less moral, than grassroots market solutions.
If greed is the one-sided taking of what does not belong to you, then what does one call pork-laden stimulus packages and other legislation that channel taxpayer money into things like "low bush blueberry research" and a water taxi service in, yes, Pleasure Beach, Connecticut —politicians' personal projects that produce few if any economic benefits. Whatever you may call them, such "solutions" divert capital that could have been put into productive innovations that would have created more wealth for more people. Is that moral?
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the history of capitalism and its stature in the world today. A must - read
background for understanding where we must take our civilization for
it to give us the best possible outcome and lifestyle.
"Along with bringing prosperity to millions, democratic capitalism has undermined political tyranny and promoted democracy and peace between nations of the world. It is, with doubt, the world's most moral system."
"Despite all the gloom and doom voiced by its critics, the free-enterprise system is--and has always been--the best way to unleash the creativity, inventiveness, and energy of people and mobilize them to meet the wants and needs of others. That's because free-market transactions, far from being driven by greed, are about achieving the greatest possible mutual benefit, not only for the parties directly involved but eventually for the rest of the society."
This book, in eight detailed chapters and an epilogue, explains why Capitalism is so superior to any other economic system that has ever existed anywhere in the world. Each chapter heading is a question that is explored in great detail. They include questions such as "Is Capitalism Moral?", "Isn't Capitalism Brutal?", Aren't the Rich Getting Richer at Other People's Expense?", "Aren't Higher Taxes the Price We Pay for a Humane Society?", "Don't Regulations Safeguard the Public Good?", "Aren't Free Trade and `Globalization' Destroying American Jobs and the Economies of Other Nations?", "Is Affordable Health Care Possible in a Free Market?", and "Isn't Government Needed to Direct the Economy?"
The co-authors do a superb examining and answering these questions and what emerges is a better understanding of what capitalism is and isn't. "...Wealth is produced in society by countless individuals seeking to meet their own needs by meeting the needs of others." It's impossible to provide even a clue to how well these questions are answered within the entire volume. The authors also provide lots of examples to back up their points. There are lots of "good" little devils helping edit the details.
"Markets are people voting with their money."
"Only government, with its immense market power, is capable of causing systemic economic upheaval on the scale of history's great economic failures. Through its ability to tax, regulate, and control the supply of money, as well as its political influence, government has more market power than many Wal-Marts and Googles put together. The creative destruction of free-market capitalism can create job losses and disruption within specific economic sectors. But only the action of government have the kind of impact on national--indeed, global--economy capable of causing a systemic meltdown on the scale of the Great Depression of the 1930s, the Great Inflation of the 1970s, and the economic crisis and recession of 2008-2009. Yet politicians and others who buy into the bad rap on capitalism almost always blame these traumas on `unfettered market'--responding with still more government `solutions' that only make matters worse."
After carefully reading this book most of the readers will probably agree that perhaps the title should be changed to read: "How Capitalism `MAY' Save Us."
Since this manuscript was completed, the government of the United States has taken several giant steps in directions that are certain to devastate the shaky and still recovering economy. Eventually the laws of supply and demand will reassert themselves and the USA will have to undergo an economic purging. When the dollar is near worthless, expenses will have to be brought into line with income. Because of his upbringing and gross inexperience in the private sector, the President has no idea how Capitalism works and is following in the footsteps of the two other Western Hemisphere countries whose leaders he admires--Castro's Cuba and Chavez's Venezuela. It `s not the President's fault, he simply has no idea what makes wealth and creates jobs. He is a self-confessed "wealth distributor" rather than a "wealth creator." His Karl Marx and Saul Alinsky inspired agenda will bankrupt the nation and turn all its citizens into serfs like in the good old days of Camelot and the Dark Ages. Americans won't like living in Obama's version of Robert Mugabe's Zimbabwe, Africa.
This is an important book for any would-be informed person to read. Our school system and media has failed utterly in teaching American economics, the free-enterprise system, and how and why capitalism works better than any other economic system that mankind has ever tried.
"Indeed, we may one day look back on the period of 1982 to 2007 as an economic golden age...we've come a long way. Not only `the rich' but people of all incomes today are doing better." Making changes to something that has worked well for so long should be made slowly and carefully examined for unintended consequences before making additional improvements.
Give this book to everyone you know, especially the twenty-somethings whose freedom will be so truncated by the economic mess we're leaving them. You could try giving it to your elected officials but they'll hate the way it questions their importance, genius, and power. (Note: For more information on the relationship between economics and liberty, be sure to check out The Liberty Fund's website, [...].) Thank you Steve Forbes and Elizabeth Ames!
This book, written by Steve Forbes, clearly addresses many of the misconceptions of free market capitalism, how government intervention in mant ways leads to unintended consequences, and how free markets are the best answer in today's economy.
The book was so informative and enjoyable to read, I could not put it down. I have given copies to friends and relatives.
I recommend that this book be required reading in college economic classes, since it clearly illustrates how the Real World operates.
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If you are already on-board with what Forbes has to say, you may find this book a...Basic Economics: A Common Sense Guide to the Economy Then you can skim the Forbes title.
Forbes, Ames, you can do so much better. And you know it.Read more