Economic Nonsense: 18. Capitalism is disreputable because it is based on greed

This is a misinterpretation. Capitalism is based not on greed but on the legitimate aspiration of people to better their lives. Adam Smith spoke of “The uniform, constant, and uninterrupted effort of every man to better his condition,” and of course it applies equally to women. It is this desire to better their circumstances that leads people to forego present consumption in order to achieve greater returns in the future. They invest in order to increase their wealth. That investment supplies funds to companies and provides the capital which they turn to advantage for the benefit of their investors.

This is not greed; it is one of the most benign things that people have done. Far from showing greed to the detriment of others, it gains its returns by providing the goods and services that people want and need at prices they are prepared to pay. It is based not on selfish greed but on co-operation to mutual advantage. The investors make it possible for consumers to satisfy their wants, and they themselves make gains in the process.

Capitalism is benign because it is based on trade, and every act of trade is an exercise in co-operation in which people exchange what they have for what they prefer. Capitalism has to be social; that is how it works. Greed is selfish, not social.

The desire of people to better their lives is part of what it means to be human. We do not adapt to the environment as other animals do; we adapt the environment, and we do it in ways that are calculated to improve our lot. We seek greater security, greater command of the essentials of a decent and acceptable life. Capitalism is the most efficacious way we have yet found of achieving these objectives.

Logical Fallacies: 15. The red herring


The latest in Madsen Pirie’s series on Logical Fallacies: ‘the red herring’.

You can pre-order the new edition of Dr. Madsen Pirie’s How to Win Every Argument here

Economic Nonsense: 17. The Industrial Revolution brought squalor and impoverished the poor

Life for poor people, which meant most people, was pretty miserable before the Industrial Revolution. It was short, full of toil and deprivation. Most worked on the land, rose at dawn, retired at dusk, and did hard physical labour. Starvation was an ever-present threat, and subsistence depended on adequate harvests. A bad year could be fatal. Life expectancy was low, diets were poor and disease was rampant.

Movement into the towns and factories spurred by the Industrial Revolution was a step up for the overwhelming majority. They earned wages. They lived in housing that is today thought squalid, but was in fact an improvement on the pitiful country hovels they had lived in previously. Their food was better and life expectancy began to rise. They began to be able to afford luxuries such as pottery, metal utensils and tea.

The myth that the Industrial Revolution brought squalor and deprivation was propagated by Friedrich Engels amongst others, who failed to compare conditions in industrial towns with the conditions they replaced. It was a commonplace error until T S Ashton published “The Industrial Revolution” in 1949, showing how it brought social and economic progress, and lifted the living standards and life chances of millions.

It was the Industrial Revolution that generated the wealth that paid for advances in public health and sanitation. It led to the conquest not only of extreme poverty, but of curable and preventable diseases. Far from bringing poverty and misery to the masses, it did the opposite, lifting their material conditions at a rate and to a level never before witnessed in human history. It was one of the most benign events that people have brought about, and it set the world on an upward course which still benefits millions of people today.

Plain packaging: stop the nonsense

The Adam Smith Institute’s President, Dr. Madsen Pirie, recently spoke at the “Stop the Nonsense” evening by Forest, Parliament Street & Liberal Vision. You can watch his speech below.


Maybe there is no zero lower bound on interest rates

Tim Worstall has a fantastic piece on Forbes which neatly lays out a lot of the monetary policy views I have been making the case for here on the blog.

In it he:

  • Shows that many securities can hit yields below zero (such as, most recently, European governments’ bonds), implying that the Keynesian ‘Zero Lower Bound’ argument that monetary policy is impotent when rates hit zero is false or irrelevant
  • Argues that we should favour monetary stabilisation of boom-bust because it allows us to have a small state, which we have other good reasons for favouring
  • We have a nice natural experiment showing that monetary policy works—and fiscal policy is unnecessary—the Eurozone vs. the UK and USA. The former has not done QE and it has slumped continually; the latter have done QE and had moderate recoveries

A standard part of the standard Keynesian economics of our day is that fiscal policy becomes necessary at the zero lower bound. However, this standard part of the standard theory rather falls apart if we find that there is in fact no zero lower bound to interest rates. The case for fiscal policy, for stimulus, may therefore be rather weaker than its proponents suggest. And the thing is, we do seem to have evidence that there is no zero lower bound. This comes in two different forms: one that unconventional monetary policy can take the place of fiscal even at that lower bound, the other that, well, zero doesn’t seem to be the lower bound.

I hope you don’t mind a bit more of Tim, given that he already writes for us daily!