Socialists’ Claims About Capitalism 3

Behavioral economists have proven that humans are irrational.  All market economics is predicated on two assumptions that are false:

  1. Humans are rational economic actors
  2. Market pricing accurately reflects the values people place on goods and services

First, the inability to replicate behavioral economists’ findings has largely discredited the field.

Second, trying to decide what’s “rational” is tricky.  We tend to think that someone is acting rationally if their actions help them achieve their goals, and that they’re acting irrationally if their actions cause them to fail.  But the observer may not know or completely understand the actor’s goals.  Or the observer may have information that the actor doesn’t have.  If the actor has mistaken beliefs, he may be acting in ways that – if his beliefs were true – would be logical.

I’m skeptical of claims that people are generally irrational.  If that were true, then humanity could not have survived.  Assuming the theory of evolution is correct, people must have acted rationally more often than not.  And “more often than not” is good enough for progress to occur and for the two assumptions of market economics to work more often than not.


Capitalist economies are subject to bank runs, panics, and recessions.

From early in the 19th Century through the 1990s, many U.S. states prohibited branch banking. The result was thousands of small banks with undiversified loan portfolios at the mercy of local economies. Banks routinely collapsed when crops failed, produce prices fell, or large companies went bankrupt. This was not a failure of the free market but of government regulation.

Virtually every recession and depression in history was preceded by an inflationary boom. Governments cause inflation by debasing the currency – either by mixing base metals with the gold and silver in the nation’s coinage or by resorting to the printing press. The injection of new money into an economy creates a temporary boom, which inevitably turns into a bust when the flow of new money stops or slows.


Capitalism puts economics ahead of a clean environment.

An improving economy and a cleaner environment go hand in hand. A clean environment is a “luxury good” that poor people typically can’t afford.

The United States and Western Europe have restored the environment over the last half century as they became wealthier. The Thames River, for example, is no longer the open sewer that it was in Shakespeare’s time. London’s “fog” and Pittsburgh’s smoke-filled skies are things of the past.

By contrast, pollution in places like Venezuela, China, Iran, Cuba, and North Korea is far worse than in the west.

A key difference between capitalist and socialist countries is respect for property rights. As far back as Aristotle, people recognized that, “men pay most attention to what is their own; they care less for what is common; or at any rate they care for it only to the extent to which each is individually concerned.” The phrase “tragedy of the commons” refers to the tendency for unowned or communally owned resources to be overused and abused.

The whole point of socialism is to turn everything into a “commons.” The results have been horrific.


Capitalism is racist.

Free enterprise makes discrimination costly. For example, southern bus companies opposed Jim Crow laws that required blacks to sit in the back of their vehicles. Angering customers is bad for business as is having to leave seats unfilled when there are too few customers of the “right” color.


Child labor is a feature of Capitalism.

Throughout most of human history, child labor wasn’t a “problem,” it was simply what children had to do to survive. Only when capitalism magnified the ability of one person to produce enough to support a family was child labor no longer a necessity.

Child labor laws weren’t enacted in the United States until they were largely unnecessary because relatively few children worked. When similar laws were passed in countries where productivity had not yet risen sufficiently, children continued to work because the only other option was starvation. Unfortunately, with no recourse to the law, they were exploited far worse than before.


Capitalism oppresses women.

Capitalism liberated women. Women are “second-class citizens” in societies in which possessing brute strength is a matter of life and death. This reality wasn’t changed by waving banners in street demonstrations. It was changed by the vast gains in productivity brought by the Industrial and Information Ages. Now that free market innovation has made brains more important than brawn, women are more than able to compete with men.


Richard Fulmer worked as a mechanical engineer and a systems analyst in industry. He is now retired and does free-lance writing. He has published some fifty articles and book reviews in free market magazines and blogs. With Robert L. Bradley Jr., Richard wrote the book, Energy: The Master Resource.