In this series of posts, I will look at the standard arguments for capitalism and at some common objections to them. My goal is to briefly summarize a familiar debate without taking a side. In order to keep things brief, I will not include replies to the objections.

The Incentive Argument

Private property rights are a characteristic feature of capitalism. Private property rights incentivize economic activity by rewarding people who engage in it. Without the prospect of reward, there would be much less economic activity. Economic activity is good, so an economic system that generates more of it is to be preferred.

Objections

Distribution

The size of the economic pie matters, but the way that it is distributed matters too. The market distributes wealth in a way that is unequal, or unfair, or does not maximize utility.  

Externalities

Sometimes the market creates the wrong incentives. For example, sometimes there is an incentive to pollute, or overfish, or overuse antibiotics. Also, sometimes there is not enough incentive to do scientific research or get vaccinations.

What these examples have in common is that some of the costs and/or benefits of a transaction are not borne by the parties to that transaction. Economists call costs that fall on third parties “negative externalities” and benefits that fall on third parties “positive externalities.” When externalities are present, the market does not produce an optimal outcome. Sometimes, government intervention can improve the outcome.

Selfishness and Greed

Capitalism encourages selfishness and greed. Selfishness and greed are vices, and a social system that encourages vice is worse than one that encourages virtue. Furthermore, a virtuous citizenry is the foundation of a successful society. If vice becomes too widespread, the bonds that hold society together will deteriorate.  

Unjust Original Acquisition

As things stand, property is distributed in a way that reflects historical injustices. A private property system leaves this tainted distribution in place.

Other Motivations

Personal gain is not the only thing that motivates people. We are also motivated by concern for others, by moral and religious commitments, by an impulse to create, and so on. For this reason, even in the absence of the profit motive, we will still be productive.