The debates leading up to the election this year will no doubt invoke the “American value” of capitalism. But what, exactly, does that mean? And what should it mean?
I’m no economist, but I took a few economics courses while earning an undergraduate business degree. Growing up in a capitalist society, I thought I understood the basic concepts underlying capitalism — free markets, competitive advantage, and so forth.
Then I actually read The Wealth of Nations by Adam Smith, the founding work that described what we call capitalism in the first place. That was a game changer.
We’re all probably familiar with Smith’s ideas at some level.
The market regulates itself, as each of us operates based on our own self-interest. Businesses try to earn profits, and consumers try to meet their needs at the best prices. The market ensures that the demand of consumers is met with supply from business.
The government’s job, the doctrinaire thinking goes, is to get the heck out of the way. It doesn’t set prices or quotas. It just lets the market function.
Adam Smith cast this arrangement in glowing terms in 1776. He was describing England during the Industrial Revolution. He thought it was amazing that millions of individual actors, each operating based on self-interest, could so efficiently revolutionize society without any central planning at all.
Only, he was wrong…