In Defense of Capitalism and Small Government

It is becoming more and more difficult to defend being a supporter of capitalism and small government.  This is justified in part because of the rise in economic inequality and the abuses of power and influence by the super-rich.  However, that does not mean that capitalism is, in a strict sense, to blame and that the government must take a greater and greater role in the economy.

First of all, capitalism requires a certain social and moral environment to function properly. Adam Smith was by training a moral philosopher and The Wealth of Nations should always be read with that in mind.  He assumed that the majority of people in an economy, even--and maybe even especially--the rich, would be reasonable moral and ethical people with ties to their community if not also their nation.  Without these things, the 'invisible hand' will not work, and inequality will be out of control.  But that is another topic for another post.  But here is a quote to help support this point:

“In The Theory of the Moral Sentiments, Smith emphasized that trust, responsibility and accountability exist only in a society that respects them, and only where the spontaneous fruit of human sympathy is allowed to ripen. It is where sympathy, duty and virtue achieve their proper place that self-interest leads, by an invisible hand, to a result that benefits everyone."
-- Roger Scruton

What I want to focus on here is government involvement in the economy.  This, to put it simply, is the difference between capitalism and socialism, or communism when it is most extreme.  It could also be referred to as the difference between a free market economy and a command economy.  Or catchier yet, a demand (and supply) economy versus a command economy. 

Capitalism depends on markets that are made up of people and groups acting of their own initiative and according to their own judgment about what is in their own self-interest.  These are organic and complex relationships between different and differing entities.  Through these networks, people and institutions make the decisions about what to produce, how much and how.  They are never totally efficient, but nothing ever is.  This system distributes the planning and decision making among many people and relationships; it is like cloud computing or crowd sourcing economic decisions.  When these organic networks fail to be efficient or effective in a major way, the government is there to step in—hopefully temporarily—to correct the problem.  That is how I understand capitalism and a free market economy, and that is what I am in favor of.

Communism and socialism are different forms of a command economy.  The government, and its experts, plan and control the decisions: almost completely in the case of communism and to varying degrees in the case of socialism.  It decides what to produce, how much and how. The smooth functioning of the economy depends on the data, intelligence, etc. of the officials in charge.  Of course the experts can never make perfect predictions and plans.  When things go wrong the kind of organic relationships that a market economy depends on need to take hold and fix the problems in an impromptu way. 

The most extreme form of command economy, communism, usually has the government actively dismantling and suppressing those relationships because they often interfere with the calculations and actions they have to make and take to get the economy to function smoothly. As a result, when needed those networks are usually not up to the task of stepping in and fixing problems that arise from miscalculations.  In the case of a socialist economy, the more the government is in involved, the less people feel the necessity or obligation to get involved.  But this takes bit more explanation I think, so let me use an example.

When something or someone else takes over doing something for people, people tend to lose a sense of responsibility for that activity and later the ability to do it.  If that continues the can even lose the ability to sense that it needs to be done or that it is important.  Take typing on a smart phone for example.  Smart phones (much more so than MS Word on the computer) corrects all sorts of errors that people make when writing.  They also add things like spaces so that we don’t have to. 

How many people don’t pay attention to spelling or punctuation/spacing anymore because of that?  I admit that I have never been a good at spelling on my own, but when I use auto-complete I notice that I get even worse.  I am not even trying to spell the word or pay attention to what I am typing, I simply plunk in a few letters and then let the program sort it out.  That is part of why I have not used auto-correct for a long time.  I let it suggest words, but I choose them and make myself at least try to spell them right.  If I don’t pay attention to spelling, my ability to spell gets worse.

What about spaces and punctuation?  Very often I see commas and periods with spaces before then or no space after.  (I am after all a teacher and look at all Word documents with “Show/Hide” on.)  I have students that claim to have never been taught that there should never be a space before a comma or period, there should be two after a period (or one, depending on the style manual you follow) and only one after a comma.  But even in people that I am sure know better, they still are sloppy with these conventions when using auto-correct. 

These are very simple things to do and to know how to do.  For so many people they became habit to do right, and we don’t even think about them.  But if the program takes over doing them, we lose the habit, sometimes lose the knowledge, and we also don’t make a point of explicitly teaching younger generations how to do it on their own—and as a result some never know what is right or wrong and just let the program do what it will and assume that is right. 

A lot of people (if any bother to get this far) will say that I am taking too large of a leap here when I compare government programs and involvement to auto-correct, but I really don’t think that I am.  If someone or something else takes a responsibility away from you, you can lose skills, forget knowledge and even forget how things ought to be.  Those that never knew will never learn and may never know. 

Now, I am not against government intervention, just the same as I am not against auto-correct.  It would take me much longer to write anything on my phone if it weren’t for some of those neat automated functions… and it would take me much longer to write this without the little red and blue lines that MS Word puts under so many things that I type when I am on a roll.  But they need to help us to implement what we know faster and more effectively.  They need to help us, not replace our knowledge and skills.  The same is true of government involvement in the economy and society; it needs to step in and help when necessary, not replace the actions of individuals and the functioning of communities, etc.  It is these responsible individuals and functional communities that are the foundation of society and of a functional capitalistic economy. They are also the safety net, the correcting factor, when a command economy's planning fails or fall short.

Herbert Hoover was afraid of the changes in American society that Roosevelt’s New Deal was going to bring.  Yes, Hoover should have done more to deal with the Great Depression, but I think he was right in warning that Roosevelt may have been doing too much.  Hoover cautioned that an increase in permanent government agencies would take responsibility (and liberty) away from the average American and society in general.  This would harm the determined, communal and independent spirit and make people more and more dependent on the government.  I think he was right. 

Yes, Franklin Roosevelt did a lot to bring about recovery from the Great Depression, and that should not be denied.  But that doesn’t mean that the permanence of those things and the effects of them can’t and shouldn’t be examined and questioned.  FDR’s cousin Teddy Roosevelt did a lot to help the American economy and the average worker during his presidency, and he did it by making tough decisions and convincing (sometimes forcing) people to act in ways that benefited society as a whole.  He didn’t do so by creating permanent institutions to deal with problems in bureaucratic and impersonal ways.  Personally, I don’t think the difference between the two Roosevelts can be over stated.  The right actions and decisions at the right time can often help the economy (and the average worker) just as much as the creation of a new government program or agency.  But the former doesn't run the risk of eroding the culture of responsibility and awareness that is so important for societies, communities and an economy to function well.

This is why I am in favor of capitalism and small government.  I have little faith or trust in any organization and body of experts (and the data necessary) to effectively control the economy without the corrective force of those organic relationships that those very organizations tend to erode.  I have much more faith in the ‘organic’ networks that capitalism relies on.  But for those networks to be well developed there needs to be a sense of community and common good, moral and ethics. There also needs to be a flexible and responsive, but small, government to step in when necessary to deal with any serious crisis that may arise.