Critics often label capitalism as unfair. They say a system based on free markets and limited government control leads to wide disparities among the rich and poor. David Rose, professor of economics at the University of Missouri at St. Louis, challenges that argument. Rose discussed the fairness of capitalism with a John Locke Foundation audience earlier this year. He also spoke with Mitch Kokai for Carolina Journal Radio. Here’s part of what Professor Rose had to say.
Kokai: Is it safe to say that by opening the doors through capitalism to people making lots of money, that we have greater opportunities to help those who are at the low end because of all that money that’s flowing to the people who are making a lot of money?
Rose: Yeah. I mean, there are positive things for people at the lower rungs going on in several directions. First of all, you can’t give away money you don’t have. And a system that allows people to make a lot of money produces a surplus that they can then use to, literally, directly help poor people in a way that we normally think of.
Now, that’s important. But I don’t think that’s anywhere near as important as the less-direct approach or less-direct effect, I should say, which is that in a capitalistic society, the economy is growing rapidly. People have very strong incentives to come up with new and better ways to do things. So total output per person rises more rapidly than under any other kind of system.
What that means, then, is that people who are able to capture a lot of those rents are very highly talented people. They have skills that are highly sought after. Those people don’t want to make that money and then bury it in their backyard. They want to buy stuff. They want to go places. They want to do things. Well, all of those things increase the demand for labor of people who do things like run hotels or own restaurants and so on and so forth.
And, you know, if you go back 50 years, 100 hundred years, many of these jobs would’ve been pretty unpleasant kind of jobs. But today, they’re really not. And as long as a person is paid really well to wait tables or paid really well to be a cook in a nice restaurant, or paid really well to work behind a desk at a fancy hotel — these are not bad jobs. And people can have a good life doing the kinds of things that, you know, depends upon each person’s personality, but some people are very personal and like those sorts of things.
… I don’t want to get into what’s best for people, but my point simply is that the kinds of things that the people who make a lot of money in a capitalist system, that they want to do, they’re willing to pay other people to do it, and as other people — poorer people — get more money, their willingness to do these things goes down, which means you have to pay them ever more.
Which is one reason why if you go to a place like the United States and walk around in a poor neighborhood, you don’t see a lot of agony. Many people are actually having a good time, doing things they want to do. I’m not making light of poor people, even in America, but my point is they are not to be confused with poor people in truly impoverished countries.
Capitalism is about opportunity, not equal outcome.