 I've enjoyed giving a talk on some of the objections to capitalism for the last few Mises universities, and every time I think I've got them all, there's somebody who comes up with some other kind of ludicrous objection that I have to. Well, I don't have to, but I might throw it in there, and this is a compressed, condensed list of some of the objections to capitalism. This isn't all of them, you can always find more. But I think it's important as you leave here and you've got all of this knowledge about Austrian business cycle theory and you know about money and the regression theorem and all of these things, praxeology, you're going to confront people for whom free markets are an alien concept, and their knee-jerk reaction is going to be that they don't work. In fact, I've had conversations with several people who, when I bring up the term free market, they think that means a market where everything is free. I talk about free market medical care, let's say, and they say, oh, well that's what we need, just like Europe. So it's distressing in a way that I have to address this kind of thing, but I will say, to start off, I'll let you look at this while I'm talking. I will say to start off that maybe I should stop while you read this, this is always fun. Every time you hear one of these arguments, you're supposed to put a marker in the spot, so I like the one about the, I like them all, but Nobel Prize winning economist Paul Krugman said, oh, well, I recant. So anyway, let me talk a little bit about the term capitalism. I use the term, yeah, I'll go back to it later if you want. I use the term capitalism here even though in a lot of ways I prefer the term free market, and I think free market is less ambiguous and it's especially less likely to be confused with crony capitalism, which is unfortunately what a lot of people think about when they think about capitalism. They don't think of capitalism in the sense of a free market order that encourages the development of capital, which then allows us to be more productive and wealthier. Instead, they think, well, this is just about corporations that lobby the government to get special privileges and keep out their competition and so forth, get subsidies, and they think of this as capitalism, and I like using that adjective in front, crony capitalism, because that's what that really is. So if you have a discussion with somebody about capitalism, you might want to get that straight from the very beginning to make sure you're talking about the same thing. We're not for corporate welfare. We're not for special privileges granted by the government to some firms or some other business entities that would give them an advantage in the marketplace. That's not capitalism in the true sense. So I would say free markets might be a preferable term. Nevertheless, Mises wrote a book called the Anti-Capitalistic Mentality, and that's where a lot of this is coming from. My own views have been, of course, very profoundly shaped by Mises and his argumentation on this kind of thing has been of the very highest quality. We're always going to be facing new objections, and some people will say, well, that was Mises and that was way back when, but now we have new technology and that's allowed us to dispense with this needless capitalistic system. So let me go through a few of these. I think there's nine on this list. We'll see how many we can get through in 45 minutes here, or 40 or whatever got left. First, you've seen this one. You take a history class. You're likely to be confronted with this kind of argument that the capitalistic society was terrible for workers, that this initiated child labor and that it made working conditions awful and people became poorer as they moved into the cities and crammed into densely packed, unsanitary housing. And we had urban epidemics of various diseases because of this, this factory system was so terrible. I think it's important to remember here that a lot of the objections to capitalism came not from the workers who, after all, were looking out for their own interests when they moved into the urban areas to take jobs at these factories. Mises points out in his little book, Economic Policy, which I believe is available as a PDF online. It's a great book. I've used it in classes and I encourage you to take a look at it if you haven't seen it. Mises says, it is a fact that the hatred of capitalism originated not with the masses, not among the workers themselves, but among the landed aristocracy, the gentry, the nobility of England and the European continent. They blamed capitalism for something that was not very pleasant for them. At the beginning of the 19th century, the higher wages paid by industry to its workers forced the landed gentry to pay equally higher wages to their agricultural workers so that they wouldn't leave. The aristocracy attacked the industries by criticizing the standard of living of the masses of workers. And he goes on, and I won't read it verbatim, but he goes on to say, look, these people that were winding up in these crowded housing in the urban areas and that had low wages and so forth. This was actually an improvement from what they had come from. The people were moving from a situation where they weren't sure if they were going to eat the next day to an urban industrializing environment where at least they had an increased stability of income and availability of food and other necessaries. So one of the proofs that this was actually improving the lives of the urban workers is that during this time, when you see all of these pictures of children coming out of Welsh coal mines and so forth, during that same period of time, the population of Great Britain was expanding rapidly. That can only happen if children who would have died in an earlier era survived and grew to be adults and had children of their own. That population explosion, which Malthus worried about, was a result of that improving standard of living. Today, Matt Ridley says, of Americans officially designated as poor, 99% have electricity, running water, flush toilets, and a refrigerator. 95% have a television, 88% a telephone, 71% a car, and 70% air conditioning. Cornelius Vanderbilt had none of these. Now, it's very difficult to look at modern society and argue that somehow capitalism has made us worse off. It can be done. I mean, people do it, but to objectively look at the wealth that capitalism has created and say, well, this is some sort of, you know, this is incidental to capitalism. It's not caused by capitalism. We'd be better off if we had socialism. Amis is in his book, The Anti-Capitalistic Mentality, which I mentioned earlier says that the truth is that the accumulation of capital and its investment in machines, the source of the comparatively greater wealth of the Western peoples, and not just Western now, of course, we've seen Pacific Rim countries and all the rest have enjoyed the same kinds of remarkable growth. He says these are due exclusively to laissez-faire capitalism. Now, I use occasionally in my classes a study called the Economic Freedom of the World Index. You can go to the Fraser Institute website or freetheworld.com and you can find the full report. They update this every couple of three years. And we can see that the more economically free, that is, the closer to free markets a country is, the wealthier it tends to be. Now, this particular graph shows the income share of the poorest 10% of the population. They've divided the countries up, and most countries are listed. They couldn't get data for some countries like Cuba and North Korea, but they do have most countries listed here, and these are divided up into quartiles. So the red bar is the lowest quartile, the least free countries, and the blue is the most free. The United States, anybody want to hazard a guess as to where it might be in the ranking of about 150 countries? About number 12, yes. We've been overtaken by Jordan and the United Arab Emirates, I believe. Chile, I think, is ahead of us now, which is interesting. So anyway, this indicates that the more economically free countries have a... If you look at the lowest 10% in those countries, it's about the same percentage of income going to that low-income group. The lowest 10% get about the same percentage of income regardless of how economically free the country is. Well, that being said, 2.5%, which is about what this is, 2.5% of a lot is going to make you better off, which is why we see this. The more economically free a country is, the higher the income of the poorest 10%. If you're in the top quartile of countries, then you're in the poorest 10%, you're earning maybe $11,400 a year on average. And in the least free countries, it's about $1,200 a year. Better to be poor than an economically free country. All right, well, moving on, what about this argument that capitalism is unjust? That capitalism is full of wealth distribution problems, that capitalism creates this wide disparity. Some people have higher incomes than others, and therefore we see this inappropriate distribution of wealth. Well, it is true that we have seen in some cases an increase in inequality among people in economically growing nations. Part of this is due to the tendency of wealthy or higher income people to marry each other. So if you're looking at household wealth, there's going to be a disparity because of that. Sometimes it's because of what's called the superstar effect. If you can sell your product to a wider market, you're going to tend to do very well. That's why actors today that are very successful, whose names you would recognize, tend to make a lot more money than even the most successful actors of 100 years ago. Because the capability to record your performance and distribute it to millions or even billions of people means that you can earn a higher income. Now, that's not unethical, but it does tend to produce some degree of inequality. But at the same time that we've seen this inequality, we've also seen massive improvements in incomes across the spectrum. So if you're concerned about how well off people are on average and how well off people are who are in the bottom 10 or 20 percent, then free markets are the way to go. If you're concerned only about how separated the high incomes are from the low incomes, then maybe you'll want to go with socialism. You might have a leveling, but at the same time that you get that leveling, you're going to see lower incomes across the board. There's been a lot of discussion about the disparity in wages between chief executive officers and ordinary workers or average workers in a firm. And that's a tremendous misunderstanding. First of all, a lot of times when you look at the data on these CEO salaries, it's the top 200 firms. And the top 200 firms are larger firms on average than they were years ago. That's part of the reason for the apparently growing disparity in wages. But if you look at all CEOs, the average CEO makes about the same income as a dentist in the United States. About $140,000, $150,000 a year. It's not something you'd regard as being some sort of overblown, massive income. F.A. Hayek said, once the rise in the position of the lower classes gathers speed, catering to the rich ceases to be the main source of great gain and gives place to efforts directed towards the needs of the masses. Those forces which at first make inequality self accentuating, thus later tend to diminish it. Bill Gates made his billions selling software to people who were in the middle class and sometimes not even the middle class. The path to riches is in retailing to the center of the American consuming population or worldwide consuming population. Sam Walton made billions not selling to people who were super rich but selling to the masses. That's the incentive that is created. You innovate for the masses, you innovate for mass production so that the ordinary person can afford a refrigerator, an air conditioner, a TV and so forth. So I mentioned some of the reasons for inequality. Let me just structure that a little better here. As I've said, there's a superstar effect. That's partly the increased specialization and international division of labor. There's increased immigration. That has an effect as well. I won't go into the details here for the sake of time. And as I said earlier, higher earners tend to marry each other more often than they once did. It may be easier to make a match given that the geographical constraints on finding a mate have been reduced. IQ scores are spreads, rather not IQ scores on average, but IQ scores spreads are shrinking as low scores rise. Also, if you look, and this is from Matt Ridley here, if you look at British aristocrats, they're six inches taller on average today than they were in 1800. Sorry, they were six inches taller in 1800 than the common folk, and today the gap is only about two inches. If you look at height as a kind of a proxy for how well-fed someone was or how healthy someone was in childhood, that is indicative of a narrowing of the gap. I mentioned the CEO worker compensation ratio. I had a student recently provide me with this chart on a paper that she got from the Economic Policy Institute. I always pay special attention when I see something from EPI. It's almost like shooting fish in a barrel, but it shows an increase in the ratio of CEO salaries to worker salaries, but I want you to notice something I pointed out earlier. It says, in the 350 publicly owned U.S. firms with the largest revenue each year. Now, those firms are much larger than they were before. If you look at 1980 or so, the 350 largest firms in the United States or largest revenue firms in the United States were much smaller than they are today. So the argument is this is some sort of failing of capitalism because CEOs in these firms are making an average of about $15.2 million a year, whereas the average worker is making $52,000 a year. As I said, CEO salaries on average are not that high, not nearly that high. In fact, this is a list of occupations and average annual wages from a couple of years ago, and you can see here that chief executives rank below psychiatrists, family practitioners, orthodontists, surgeons, anesthesiologists, and so on. They make about the same as dentists. As I said, this is not some kind of blown-out compensation. Martin Feldstein pointed out in 2008 that wages have tracked with productivity. Total employee compensation as a share of national income has remained very steady, about 62 to 66 percent from the 1960s forward. So this idea that somehow you've got this transfer of income from the working class. I really don't like that term. It implies that CEOs don't work. But from the working classes to upper-level management and so forth, that proportion hasn't changed very much. This article appeared just last month on Mises Daily. I encourage you to take a look at it. It's a great little article on CEO pay and greed. And Matt points out in this article that the average size of a company on the S&P 500 has changed. He quotes Gabet and Laundier. I'm not sure about that, but this NBER study showed that there's been a six-fold increase in CEO pay between 1980 and 2003, and they say that can be fully attributed to the six-fold increase in market capitalization of large U.S. firms during that period. Next, what about this argument that capitalism doesn't promote real happiness? I'm wealthy, but I'm sad. Americans are notorious for being heavily medicated for various psychological problems. Please believe me, I'm not mocking that, but I would say that part of that is because we can afford to medicate ourselves. I'm not convinced living in a poorer society where your infant children are more likely to die, where you can't communicate with your loved ones as easily, where you can't travel to see faraway places, where you're uncomfortable, where medical care is hard to come by. I'm not convinced that a person in that circumstance would necessarily be happier. Now, part of the reason for this criticism is because of a 1974 study by a guy named Richard Easterlin who apparently found that in wealthier countries people are not as happy, and in poorer countries they are happier. In fact, some people latched on to this like the nation of Bhutan latched on to this idea, and they tried to start using a gross national happiness index instead of GDP. Now, GDP has got many problems as you hopefully know by this point in the week, but despite that measuring happiness and trying to use that as a measure sounds a little bit like you're trying to avoid looking bad internationally. Now, two 2008 studies show that that so-called Easterlin paradox doesn't exist, as I'll quote Matt Ridley again, as he says, rich people are happier than poor people, rich countries have happier people than poor countries, and people get happier as they get richer. It pretty much covers the different dimensions of that change. He says the earlier study simply had samples too small to find significant differences. You can see this. This is from Gallup poll on the horizontal axis there. You've got GDP per capita in 2003, adjusted for inflation, and then no adjustment for inflation. This is a snapshot, so there's no time here. Then the vertical axis is mean life satisfaction, and the size of the circles there indicate the population of the country. It looks to me, just doing a little armchair regression here, that there's a positive correlation between the GDP per capita and how happy people report themselves to be. Denmark is commonly cited as anybody here from Denmark? I'm not going to pick on Denmark, it's okay. But Denmark is commonly cited as being a country that's happier than the United States. And see, they're so socialist and they're happier than we are in the United States. That's kind of the argument. Well, they're not that much more socialist than we are here, first of all, and they don't have some of the problems that the United States has that don't have much to do with the presence of markets. Nevertheless, it is a pretty obvious correlation. So, is living a longer, healthier life because you've got greater wealth to be able to live a longer, healthier life? Is that somehow going to be a bad thing, something to cause us to question markets that generate that wealth? Typically, people in wealthier countries have better education. As I said, lower infant mortality, more varied and consistent diet, easier communication with family and friends and the rest. Now, a critic of markets named Cameron Mofeed has argued against markets saying that economic considerations have displaced, quote, values such as faith, spirituality, justice, love, compassion, sympathy, empathy, and cooperation. Markets don't involve cooperation, I guess. Well, I think that's a perversion of the term economic. Economics is about how we use resources to accomplish goals, resources of many kinds, goals of many kinds, not all of which involve the accumulation of more material stuff. So, if I want to be compassionate to my neighbor, if I want to give food to my neighbor or provide shelter to my neighbor, that involves using resources to accomplish that goal. Compassion requires more than telling my hungry neighbor be warmed and fed. I have to actually organize resources if I'm going to act on that compassion and produce something, produce heat and produce food for that neighbor rather than just say be warmed and fed. That's human action. That brings us into the realm of praxeology. That brings us into the realm of economics. So, if we are actually to act on our faith, if we are to act on our compassion, all of these things that Mofi claims are neglected by free markets, we have to actually use economic means. Mofi says physical wealth must once again go hand in hand with spiritual, moral, and ethical wealth. Now, that's what I call a straw man. There's no economist worth assault. I can think of maybe a few that... Well, no economist worth assault is going to say, well, all wealth is physical. It's not. Wealth is what allows you to accomplish your goals. There's also nothing in economics that says that your goals can't involve non-material accomplishments. There's nothing at all inconsistent with free market economics. If you decide you would like to dispense with all of your material goods and go live on top of a mountain in relative solitude and maybe subsist on donations brought to you by people who want your advice. That's fine. It's nothing in economics that suggests that that's inconsistent with free markets or that there's nothing about that lifestyle that free markets reject. We have goals of all kinds as human beings. Well, then there's this one. This is one of my favorites since my field in graduate school was environmental economics. I looked at environmental regulation and there's this argument that capitalism is just going to disfoil the environment and make us all worse off. Mises says in the anti-capitalistic mentality, only romantic prepossession can induce an observer to ignore the fact that more and more citizens of the capitalistic countries live in an environment which cannot be simply dismissed as ugly. Now, ugly, of course, is a subjective idea. I don't know what you think of these buildings here, but these were built under a socialist regime. It'd be interesting to take a poll and find out how many people would regard this as beautiful compared to the kinds of dwellings that we see in countries that are more inclined toward capitalism. Well, then we have, of course, the criticism of firms that are disfoiling the environment by their relentless search for profits. Matthew Novak had an article in Mises' Daily several years ago where he pointed out that the BP oil spill is not without the fingerprints of government intervention. He said the government specifically passed laws that gave the oil companies incentives to drill far offshore, that is, in deeper water where the risk is presumably higher. In addition to the higher risk of accidents, the cost of solving any problems are necessarily greater in 5,000 feet of water than in, say, 250 feet of water. The tax rates were different. They were lower as you went further offshore into deeper water. Well, of course, that's going to provide entrepreneurs with an incentive to drill in deeper water and incur those higher risks. This is the share of Gulf of Mexico federal outer continental shelf natural gas and oil production from depths greater than 200 meters over about an eight-year period, nine-year period preceding the BP Gulf oil spill. And you can see that the proportion coming from deep water wells was increasing over time. Now, I may discuss more of this in my talk later this week on environmental resource economics, but I will point out another factor here that may have played a role. And that is that the federal law limits liability for damages caused by offshore oil spills. Now, that limit can be waived, but the limit statutorily is $75 million, which is pocket change compared to the kind of damage that we see coming from spills like this. Now, would a company be more likely to pay attention to safety procedures and safety equipment and so forth if they knew that the liability that they faced was going to be coincident with the amount of damage they caused? Nuclear power plants, I understand, also are subject to the same cap. Are you going to pay more attention or less attention to the possibility of damage when you are told by the federal government, if you make a billion-dollar mess, you only have to pay $75 million of it? I'd suggest that that might have had an impact as well on the company's behavior. All right, what about this one? Corporations are full of scandal and extortion. Stephen Weinberg wrote, and this is just unbelievable to me that somebody could say this, but he said, for many Americans, the danger of tyranny lies not in the government, but in employers or insurance companies or health maintenance organizations from which we need government to protect us. To say that any worker is free to escape an oppressive employer by getting a different job is about as realistic as to say that any citizen is free to escape an oppressive government by immigrating. You are trapped in your job. Somebody's got a gun to your head making you work. Now, I mentioned in an earlier talk this week that I had received a summons to serve on a jury. What would have happened if I had decided I really don't want to do that work? I've got other things I'd rather do. I think it was actually going to be this week. They don't want me in a jury anyway. I believe in jury nullification, so they would have just pulled me off that jury as fast as they found that out. In fact, I did put that on my form. They ask you all these questions that you have to answer by law, like what bumper stickers are on my car. If I go to work for Walmart, they're not going to care, but somehow Walmart's more oppressive in this guy's view than the government, which can literally at the point of a gun make me go serve on a jury. Now, there's nothing about capitalism that endorses unethical business practices, and we do see unethical business practices. I'm not trying to create some kind of idea that business is nirvana. But once those scandals are discovered, the market quickly discounts the value of the firm stock, and they sometimes go bankrupt as a result. So let's compare this to the state. Does the state have scandal, unethical conduct, exploitation? Does the state promote social goals better than corporations? Now, I hope you pay close attention to Bob Higgs' talk on war and government growth, but that's one of the first things I think about when I think about the state and social goals. The state pointed a gun at millions of people's heads and required them to go off and shoot other people. We get millions of people just in the last century that have died from government-induced famine, not to mention genocide. There's corporate welfare, political scandal, bribery, corruption, police brutality, regulation that kills people, fascism, more war, and somehow Weinberg says that we need to worry more about our HMO than government. Last year, I latched onto this thing about Uber, and there's this website that complained because Uber had a new policy that forced riders to pay a dollar safety fee. So they said the response of UberX users in the days ahead will be telling. It is entirely possible that people will recoil at Uber's deployment of the well-worn libertarian strategy of forwarding the costs of compliance with regulation on to customers. I don't know if you know much about taxis, but you know that they are protected by a licensure regime. So for example, if you ride in a taxi in New York, if it's legal it's going to have a bronze medallion on the hood that says that the owner of the taxi, which is probably not the driver, paid some six-figure fee for the privilege of driving a taxi. The owners of those medallions, those taxi medallions, don't want to lose the value of those medallions. So they object to Uber and Lyft and other competitors. And this is not new. I mean, we've seen other competition that's emerged in years past, jitneys and so forth. But what about this well-worn libertarian strategy of forwarding the costs on to consumers? What, your taxicab owner didn't raise fares because of the protection from competition, really? And this guy's worried about a dollar that he might have to pay. Now, I'm short on time, so I won't go through. I had a little section here on, I don't know if you listened to Econ talk, but there was an interview between Mike Munger and Russ Roberts on this issue of Uber. And Munger was trying to say that taxi drivers or taxi cab owners might need to be compensated if the value of the medallion dropped due to the introduction of Uber as competition. I object strongly to that kind of compensation. I don't think that they should have had that license in the first place and I don't think they're entitled to compensation when the value drops. But if you want to ask me about it later, I'll go into more detail. Capitalism is racist and sexist. Now, very quickly, in a free society, people are allowed to have whatever tastes and preferences they like. But ignoring productivity to favor one group over another is going to come at a cost. Government intervention, on the other hand, can shield people from the real economic consequences of their views. I've got some articles I can point you to on the streetcar segregation that went on in some states a hundred years ago or so. And it was the streetcar owners that wanted desegregation. It was the state that required that segregation to continue in spite of the fact that it cost the streetcar owners to have empty seats that could have been filled by a person of either color. They didn't care who sat in the seat as long as they paid a fare. They faced the cost of this kind of segregation. I can point you to some articles on that if you're interested later. Then there's this argument that capitalism is prone to bubbles and panics. You've had a lecture already on Austrian business cycle theory and you know by this point that government intervention actually produces these bubbles. It's not the random ups and downs of the market and this animal spirits driving panic and everybody runs like lemmings off a cliff because somebody decided that they didn't trust the stock market anymore. That's a very short-sighted view of what's really going on. The government manipulation of interest rates is critical to understanding why we have those bubbles. Very quickly again this argument that capitalism won't pursue important projects. Now I wrote a little article for Mises Daly several years ago on the ending of the space shuttle program which I was happy to see. It was an enormous waste. They had projected initially that it would cost under the space shuttle program $15 per pound to put stuff into orbit. It turned out to be about $27,000 per pound and yet this went on for well over three decades. There are other ways to get stuff into orbit and the private sector is finally getting a good shot at making that really work. Bill Anderson said in an earlier piece, I think it was also on the Mises website, he said we have no evidence that the space program has created on its own any of the new technologies that make our material lives better. Instead the program has utilized existing technologies. In large part I think that the space program has ended up being some kind of public theater. Oh look at the cool pictures from Mars or Pluto or whatever it is. And yeah they're cool and maybe the private sector would have done some of that as well but we don't look at the cost because the state can simply take the resources used for those programs whether you think that they're valuable goals or not. Finally capitalism leads to the production of objectionable goods and services. So pornography, prostitution, drugs and so on. Mises has some good things to say about this in his little book Economic Policy which I mentioned earlier, please read that. He's got some things to say about how people smoke in spite of the fact that we think they shouldn't. And yet he says freedom really means we allow people to do these things and we don't try to stop them by using police force. We use persuasion, voluntary interaction instead of coercive force. A free society does not condone the production or consumption of, or rather, Mises argues that people will sometimes consume what's not good for them but a free society doesn't dictate what people ought to do with their resources. Alright I am out of time I will stop here and I've got office hours later in the week if you have questions.