In honor of the Pope’s visit, let’s explore the theological undertones of Why Not Capitalism?

In Why Not Socialism?, G. A. Cohen attempts to argue that socialism is inherently superior, from a moral point of view, to capitalism. The only reason to put up with some form of capitalism, he thinks, is that we’re not morally good enough to make a feasible form of socialism work. As I explain in Why Not Capitalism?, though, his argument is fallacious.

One way to read Cohen and me (even if Cohen and I don’t share this theology) is to ask the following question: What institutions would human beings live under, if Adam and Eve had not fallen, but if they still had to work for their daily bread?

Cohen notes that many defenses of inequality cite the supposed inevitability of wrongful human selfishness,. They cite human being’s inherently sinful nature:

A prominent factual defense of inequality traces it to a supposedly ineradicable human selfishness. This defense says that inequality is ensured by something as original to human nature as sin is, on the Christian view of original sin: people are by nature selfish, whether or not that is, like being a sinner, a bad thing to be, and inequality is an unavoidable result of that selfishness, whether or not that inequality is just.[i]

[i] Cohen 2000, 118.

But, Cohen responds (and I agree), these kinds of arguments do not show us that inequality, or that institutions relying on selfishness, are intrinsically good and just. At best, they show us that inequality is inevitable, and that institution which harness selfishness may be instrumentally valuable. Cohen ends up saying that, sure, given how bad human beings are, the smart thing to do might be to have capitalist institutions, but, still, if we were good, then we would be socialist.

In Why Not Capitalism?, I describe a capitalist utopia that is morally flawless even from a left-wing point of view. But another way of reading it is that the Mickey Mouse Clubhouse Village describes how human beings might live together had there been no original sin, but if they for some reason still needed to work for their daily bread. The Mickey Mouse Club Villagers live in a state of grace.

Sinless human beings could, and probably would, be capitalists. To show that, I need to do two things:

1. Explain why private property in the means of production would be valuable to sinless people.
2. Explain why sinless people could, and would, engage in for-profit market transactions.

Here’s an excerpt from Why Not Capitalism? offering part of the explanation for point 2. This argument refers to the Calculation Problem of Socialism, which, to G. A. Cohen’s credit, he accepts. The argument here can be summarized as follows:

1. The Calculation/Knowledge/Information Problem: Coordinating an economy of millions of people requires market prices.
2. Gains from Trade/Gains from Scale: A large-scale economy allows for greater specialization, innovation, and gains from trade, which can dramatically improve everyone’s welfare and positive freedom.
3. Benevolence: Morally perfect people would be extremely benevolent, and would thus want to take steps to improve everyone’s welfare and positive freedom.
4. Now, assume the Mickey Mouse Clubhouse villagers are morally perfect, and are aware of points 1 and 2.
5. If so, then the Mickey Mouse Clubhouse villagers will want to use extensive markets, unless there is some other strong objection to markets.
6. Under ideal conditions in which everyone is sinless, there are no remaining objections to such markets (as the rest of the book shows).
7. Therefore, the Mickey Mouse Clubhouse Villagers will want to use extensive markets.

An excerpt:

Economists have long understood that in a market economy, the systematic effect of private citizens’ pursuit of private ends is to create background conditions of wealth, opportunity, and cultural progress. Each of us does as well as we do because of the positive externalities created by an extended system of social cooperation. This extended system of cooperation explains why each of us in contemporary liberal societies have our high standards of living and easy access to culture, education, and social opportunities. We are engaged in networks of mutual benefit, and we benefit from other people being engaged in these networks. When we go to work in business, we help create, sustain, and improve these networks of mutual benefit. When things are going well—and overall they tend to go well—we create a series of positive externalities through our innovations, through the division of labor, and by helping to create economies of scale.

This is all true of real-world markets. Would it be less true of markets in utopia, if utopia even has such markets? Keep in mind that in utopia, by definition, people are too nice to cause certain problems that occur in real-world markets. In utopian capitalism, you don’t have to worry about deception or “information asymmetries”—the mechanic never charges you for unnecessary work, and the used car salesperson always tells you the whole truth about the car. In utopian capitalism, you wouldn’t have to worry about exploitation—the buyer wouldn’t dare take advantage of your bad luck in order to offer you a low price. In utopia, no one tries to corner the market through monopolies or monopsonies. In utopia, everyone gladly contributes his or her fair share to public goods, knowing full well that everyone else will too.

Recall from chapter 1 that all economic systems need information, incentives, and learning. By “information”, I mean that people need some signal that tells them how to coordinate their actions with others. By “incentives”, I mean that people need something that induces them to act on that information. And by “learning,” I mean that, since in the real world people respond imperfectly to information and incentives, we need something that trains people to respond better. In real-world conditions, socialism faces an incentive problem.

In utopian conditions, socialism’s incentive problem disappears. However, the information problem remains. Thus, under utopian conditions, if people want to benefit from having a large-scale division of labor and being able to cooperate and work together with hundreds of thousands, millions, or billions of others, they will need to use markets.

In real-world capitalism, we often make trades with people for whom we have only minor, diffuse concern. In utopia, though, everyone is motivated by a strong desire to promote the common good and the good of all. But this a reason to use markets, not a reason to avoid them. In an ideal society, everyone is supposed to be motivated to promote the good of all, not just her own good. But, if so, then most people will be strongly motivated to participate in markets. If they want to coordinate their mutual activities to promote everyone’s good as best they can, the most effective way is through trade on the market. Market prices convey information about the relative scarcity of goods in light of the effective demand for those goods. Market prices thus tell producers and consumers how to adjust their behavior to scarcity and demand. When it comes to making maximal use of the information needed to run a large economy, nothing beats the market.

To illustrate this, imagine that Mickey Mouse could have a magic wand that would make everyone 30 times richer over a period of 200 years. Mickey, being benevolent, would of course wave the wand.

Now, suppose instead that Mickey Mouse could come up with an ideal economic plan, as old-fashioned socialists wanted. Imagine Mickey Mouse is some kind of noble philosopher-king (or philosopher central-planner). He determines a way for us to work together, to divide up tasks, to cooperate, and so on, such that if we follow his plan, then over the next 200 years, we will all become 30 times richer. In utopian conditions, people would want to go along with Mickey’s plan voluntarily, because they would see that by going along with the plan, they promote the good of all. In utopian conditions, people would want to come together under Mickey’s guidance to produce such wonderful outcomes. (I’m sure Mickey would as best he can make provisions for ensuring that people get jobs and tasks that they enjoy, so that they all have good lives as they go along with his plan.) When everyone follows Mickey’s advice, it is kind of like waiving the magic wand.

The problem, of course, is that we don’t have any such magic wand, and Mickey Mouse just isn’t smart enough to come up with a functionally equivalent economic plan. Mickey is God-like in his moral character, but not in his brainpower. But the good news is that mainstream economic tells us that the market economy is, fundamentally, the same as the philosopher-king Mickey or the magic wand.[i]. While Mickey would have offered suggestions as part of his plan, the market instead offers prices, profits, and loses. And so, just as publicly-spirited, benevolent people would want to go along with philosopher-king Mickey’s plan, they would want to participate in the market and respond to the signals the market sends. To follow the price signals of the market just would be to serve the common good of each and all.

That’s not to say that everything in capitalist utopia will be done via for-profit business. Capitalist utopia would probably have a robust civil society, full of not-for-profit institutions and communal spaces, just as we see in the Mickey Mouse Clubhouse Village. But it can benefit from having for-profit businesses too. In fact, for large utopias of thousands of people or more, markets become imperative. Mickey Mouse and Donald Duck can practice pure socialism on a small scale. Though they are nice enough to make it work on a large scale, they aren’t smart enough to make it work on a large scale.

So, one reason to have markets in utopia is to ensure that people are prosperous and enjoy extensive positive liberty…

[i] See, e.g., Krugman and Wells 2009, chapters 1, 2, 4, passim; Mankiw 2008, 8-12, Part III; Weil 2009, chapters 2, 10-12, 17; Ekelund, Ressler, and Tollison chapters 1-4, 12-13; Alston, Kearl, and Vaughan 1992; McConnell, Brue, and Flynn 2010, chapters 1-4, 7, 9, 11, passim; Schmidtz and Brennan 2010, chapters 2 and 4.

So, Pope Francis, you are right that some of the features of real world capitalism are morally undesirable. But even more so are many of the features of real world alternatives to capitalism. The reason is that people suck, or, as you would put it, that they’re fallen. If we want to know what institutions are best to implement in the real world, we need to ask, how will different institutions perform in light of the fact that people can be corrupted, and part of what corrupts them are the incentives these institutions create? But let’s not confuse that with a different question, which is what institutions would be most desirable from a moral point of view if human beings were morally flawless, without sin. There, the answer is, I think rather, clearly anarcho-capitalism, not of Murray Rothbard’s variety, but of Mickey Mouse’s. If you’d like to see why, read my book.