The fundamental promise of capitalism is economic freedom. Cases of fraud, excess, and just plain bad practices like subprime lending are the natural side effects that accompany freedom and the individual’s right to pursue his or her financial goals no matter if they are wrong or right. Adam Smith had this in mind by advocating that economics should operate in a free and open market unmolested by politics or government. We know that is not entirely possible, even the poster child of capitalism, the United States, doesn’t actually practice pure capitalism, but we have been the closest to it. Nonetheless, capitalism is centered on the individual’s choice, rights and place in society. It is in essence based off of individualism.
The government’s only real role in a capitalist system is to provide order and freedoms so the economy can work. This laissez-faire system of economics relies on the networks of producers, consumers and markets that operate under the laws of supply and demand – not laws of government control or planning.
However, fear from the 1929 stock market crash followed by the Great Depression brought about great changes. Franklin Roosevelt’s New Deal administration poured government money into the economy to create jobs and to try to end the depression. The success of this has gathered mixed reviews from economist. This new form of economics was born from the 1930s, and thought of by the British Economist John Maynard Keynes. He revealed he had a new take on capitalism. Keynes believed that government intervention can help stabilize a capitalist economy. The theory in short was that the government could manage the market better than its natural laws could by manipulating, planning and controlling taxes, spending and interest rates. These practices were adopted and in 1946 U.S. Congress passed the Employment Act and for the first time, put our economic system in the hands and judgment of the federal government – killing forever laissez-faire economics in the United States.
We are facing, in our own time, concern and great debate over the virtues of a free market capitalist system. There are alarmist campaigning on fear and ignorance who are advocating further departure from capitalism by adopting an even stronger Keynesian model and potentially transforming America forever.
That is why it is thankful to have around people smart and wise enough to see the promises of capitalism and can articulate the miracle changes in livelihoods it has brought to mankind, and particularly in the U.S.
Terry Miller is just that type of person. He published an opinion piece in the Wall Street Journal “Freedom Is Still the Winning Formula” and in it he makes several indisputable claims on the superiority of capitalism and free market economies. “U.S. Gross Domestic Product was about $1.6 trillion in 1947 (valued in 2000 dollars), a little over $11,000 for every man, woman and child. In 2007, it was $11.5 trillion, or about $38,000 per capita. That’s almost a doubling of average incomes each generation, made possible by the free market’s efficiency in allocating capital and labor.”
Capitalism, the U.S. dance partner during this period of unprecedented economic growth, is, by the accounts of political leftists, no longer the smartest looking companion on the dance floor. They like the looks of other systems like socialism much better. Yet despite recent setbacks, they would be hard pressed to deny that capitalism steps out more nimbly than its rivals, and keeps up with the music far more surely.
For 15 years, The Wall Street Journal and The Heritage Foundation have been measuring countries’ commitment to free-market capitalism in the “Index of Economic Freedom.” The 2009 Index, published this week, provides strong evidence that the countries that maintain the freest economies do the best job of promoting prosperity for all citizens. [A Chart is included in the article at the WSJ. The U.S. ranks sixth on his chart, behind New Zealand and ahead of Canada. Hong Kong is first].
The positive correlation between economic freedom and national income is confirmed yet again by this year’s data. The freest countries enjoy per capita incomes over 10 times higher than those in countries ranked as “repressed.” This year, for the first time, the Index also correlates economic freedom with important societal values like poverty reduction, human development, political freedom and environmental protection. The linkages are robust, with economically freer countries performing significantly better on every indicator of well-being.
Those tempted to abandon the free market and capitalism in the current crisis need to look carefully at the record of countries moving down that path. In 2009, it is Zimbabwe that has lost the most economic freedom, dropping 6.7 points on the Index’s 0-100 scale and falling to next-to-last place. Deficit spending, the expropriation of land and resources, and government support of favored enterprises have destroyed the economy; hyperinflation and corruption have devastated the nation.
Venezuela recorded the second largest drop in the Index, losing 4.8 points as a result of price controls, currency devaluations, nationalizations and the corruption that characterize Hugo Chávez’s brand of Bolivarian socialism.
Be sure to read the entire article at the WSJ, here