Why Capitalism?
Allan H. Meltzer (View Bio)
Oxford University Press, 2012
Today, capitalism is the economic system that guides most of the world—having overcome unremitting intellectual hostility, as well as military hostility from Communist nations in the Cold War. Yet even China and formerly socialist India have embraced market economies.
Capitalist systems are not rigid, nor all they all same. Capitalism is unique in permitting change and adaptation, and so different societies tend to develop different forms of it. What all share is ownership of the means of production by individuals who remain relatively free to choose their activities, where they work, what they buy and sell, and at what prices. As an institution for producing goods and services, capitalism’s success rests on a foundation of a rule of law, which protects individual rights to property, and, in the first instance, aligns rewards to values produced. Working hand in hand with the rule of law, capitalism gives its participants incentives to act as society desires, typically rewarding hard work, intelligence, persistence and innovation. If too many laws work against this, capitalism may suffer disruptions. Capitalism embraces competition. Competition rewards those who build value, and buyers with choices and competitive prices. Like any system, capitalism has successes and failures—but it is the only system known to humanity that increases both growth and freedom.
Instead of ending, as some critics suppose, capitalism continues to spread—and has spread to cultures as different as Brazil, Chile, China, Japan, and Korea. It is the only system humans have found in which personal freedom, progress and opportunities coexist. Most of the faults and flaws on which critics dwell are human faults. Capitalism is the only system that adapts to all manner of cultural and institutional differences. It continues to spread and adapt, and will for the foreseeable future.
"The book is short — just 160 pages — but its simple, clear, and direct language makes a big point: that capitalism 'is the only system known to humanity that increases both growth and freedom.' As a result, far from ending, capitalism has spread to formerly socialist or communist enclaves such as Eastern Europe, India, and even China. The book is not simply a paean to capitalism, though. It's also a look at some of the problems the country is facing, including the decline in the value of the dollar, the financial crisis and its aftermath, and the federal debt and deficit. Mr. Meltzer's three laws of regulation help in part to explain the crisis. The first is that 'lawyers and bureaucrats regulate,' but 'markets circumvent regulation.' Second, and related, is that 'regulations are static. Markets are dynamic.' Third, 'regulation is most effective when it changes the incentives of the regulated.' While Mr. Meltzer does not favor a return to a gold standard for the dollar, he does acknowledge that when it existed, 'governments could not run large, continuous, peacetime budget deficits.'… The list of living Americans who served in both the Kennedy and Reagan administrations and who are still writing books and teaching courses is a short one, a fact perhaps not lost on the students who fill up Professer Meltzer’s elective class on capitalism at Carnegie Mellon’s Tepper School of Business. The university limits the size of the class to 60, and Mr. Meltzer mentions that even some other faculty members show up. For those of us who haven't had the opportunity to be colleagues or students of Professor Meltzer’s, Why Capitalism? is an excellent introduction." — Ira Stoll, New York Sun
"Meltzer brings forth argument after argument to show how for all of its flaws, 'there is no better system for providing growth and personal freedom' than capitalism. Grounded in Kant's dictum that 'most of the faults and flaws on which critics dwell are human faults,' Meltzer defends capitalism while criticizing communism and socialism, the role of government and governmental policies (both historical and current), and the idea of redistribution of income. Too-big-to-fail and fiat currency also have their place in the mix, his choice of topics being both timely and pertinent. Out of these topics, it is government's reach, policies, regulations, and expansion that seem to have captured the author's attention. He sums up his stance succinctly: 'Much regulation invites corruption, arbitrary decisions, and circumvention.'... The book is both powerful and opinionated." — Publishers Weekly
"A concise alternative to current economic policies for those who look with suspicion at the writings of economists and financial specialists. The author presents three main reasons why capitalism should be defended…. and he argues forcefully for the case that capitalism can change and reform itself…. A lively, politically challenging contribution to a developing discussion on how to change international monetary arrangements." — Kirkus Reviews
