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Capitalism By Its Very Nature is Socially Positive

Here’s a letter to the Washington Post:


In “Can capitalism be socially positive?” (August 28) you assert that “Income inequality is an inherent hazard of the capitalist system.” Hmmm….

It’s true that the incomes of denizens of rich, market societies differ more from each other than do the incomes of denizens of poor, nonmarket societies. It’s true also that income inequality is popularly denounced as both a source of strife and as evidence of economic malfunction. But apart from being used by demagogues to stir up strife and to build support for policies that foster economic malfunction, what evidence is there that income inequality is an “inherent hazard”?

Because in market societies the overwhelmingly dominant path to great personal riches is to improve the lives of fellow human beings – and because such personal riches are greater the greater are these improvements – unusually great personal riches are evidence of unusually great contributions to humankind. What about this evidence is hazardous?

Some will answer that the super-rich possess a disproportionate amount of “economic power.” But economic power is a nebulous concept. Neither as a private citizen nor as a business person can the likes of Jeff Bezos force me to patronize his companies or to work for him. If he wants some of my money or some of my services, he has to make me offers that I find attractive. Yes, Bezos has an easier time than I have to experiment with new businesses and products, but because he can compel no one to do business with him, his wealth falls if consumers reject his market offerings – as they are free to do.

Others will answer that the super-rich exert disproportionate influence in government. This power is indeed a genuine hazard. But it’s rooted in the power of the state, not in any “power” in markets. The most direct and certain remedy for this hazard is to reduce the power of the state.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030