The Truth about Unhampered Capitalism

By Tom Woods


I’ve been spending some time refuting common complaints against capitalism, as formulated by a Twitter critic of mine. Here are a few more.


(9) Capitalism creates inequality!


As Ludwig von Mises observed, in the old days the rich traveled in a coach-and-four while the poor traveled on foot. That is inequality. Today the rich travel in fancy cars while the poor travel in run-down cars. That is a dramatic reduction in inequality. This is all the more true when we consider that the amenities many poor people now have in their cars would have been unheard of in the richest people’s homes just four generations ago.


The American middle class and poor take for granted amenities that the greatest kings and queens of Europe could scarcely have imagined.


Over the course of the twentieth century the real incomes of the poor increased by 1900 percent, a far greater increase than any other economic group enjoyed.


Most arguments about income inequality are based on static analysis. They speak of the "lowest quintile" earning a certain amount in 1990 and a certain amount in 2000. We are then supposed to grieve over these numbers. But the numbers are so static as to disconnect them from reality. They neglect to add that people in the lowest quintile in 1990 are not the same people as those in 2000. Robert Murphy, quoting a 1995 report from the Dallas Fed, points out that fully 29 percent of those in the bottom quintile of income in 1975 had moved to the very top quintile by 1991. This movement among quintiles is not captured at all in the standard figures.


And the market economy has repeatedly tried to cut the most politically connected men of wealth down to size, but my critic’s own political hero, Barack Obama, has supported bailing them out. That is not the free market’s fault.


(10) Her complaints included a tweet directing me to the "Catholic Church condemning free-market philosophy."


Well, I have written an entire book on this, after all, not to mention quite a few articles (among them this, this, this, and this), so presumably there is a teensy bit to be said for my side of things.


(11) Unhampered capitalism yielded the terrible "robber barons" of the late nineteenth century.
First of all, it is clear from her other posts that my critic thinks unhampered capitalism is pretty much what we have now. We are supposed to overlook the 80,000 pages of regulation – all of which is innocently aimed at protecting the common good, of course – in the Federal Register added to the Code of Federal Regulations every year. We are not supposed to think about the hundreds of federal agencies (not to mention those of state and local governments), the millions of federal employees whose salaries are paid out of the productive labor of the rest of the population, and the trillions of dollars in taxes.



She likewise thinks the banking system is pretty close to a free market – after all, hasn’t she seen news reports about bank "deregulation"? To the contrary, the banking system is perhaps the least free-market sector of the entire economy. The whole system is overseen by the government-created Federal Reserve System, which presides over a system-wide cartel. It involves monopolistic legal tender laws, a monopoly of the note issue, artificial disabilities on other media of exchange apart from the depreciating dollar, and various forms of bailout guarantees. For a sense of what a free market in banking would actually look like, read Murray N. Rothbard’s The Mystery of Banking.


And that’s not to mention the layers of cronyism all through the federal apparatus, most obviously within the military-industrial-congressional complex. That’s another area I cover in Rollback. What does any of this have to do with capitalism?


Read the rest here.