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Self-interest and Capitalism Are Not Synonymous

Summary:
“I am in favor of self-interest and thus of capitalism. It follows that I may legitimately judge any public policy according to whether or not it furthers my personal interest.” This is a paraphrase of what an intelligent Twitter correspondent of mine seems to believe. Although he does know something about business and economics, he is completely wrong on that point. It is not because one favors self-interest that one must support capitalism. (I take capitalism in the sense of free markets or economic freedom.) Socialism and its extreme of communism are also based on self-interest, both in the sense that many or most who support such systems believe it is in their self-interest to do so, and in the sense that individuals living under those regimes continue to act

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“I am in favor of self-interest and thus of capitalism. It follows that I may legitimately judge any public policy according to whether or not it furthers my personal interest.” This is a paraphrase of what an intelligent Twitter correspondent of mine seems to believe. Although he does know something about business and economics, he is completely wrong on that point.

It is not because one favors self-interest that one must support capitalism. (I take capitalism in the sense of free markets or economic freedom.) Socialism and its extreme of communism are also based on self-interest, both in the sense that many or most who support such systems believe it is in their self-interest to do so, and in the sense that individuals living under those regimes continue to act mainly out of self-interest. Any observation of socialism in the real world should make this obvious. My correspondent could as well favor communism—and, smart as he is, if communism came to be established in America, he could probably become a successful apparatchik.

Whether there exist other motivations than self-interest or whether all motivations can be subsumed under it (Mother Teresa claimed that her abnegation made her perfectly happy) is a valid question. But even one thinks that altruism cannot be reduced to self-interest, this is not a reason to believe that more benevolence, abnegation, or charity exist under socialism or communism than in a free-market society. If anything, observation strongly suggests the contrary.

The superiority of free markets is that they efficiently reconcile the personal interests of the different individuals in society. Efficiency means that free markets lead each individual to serve his fellow humans while pursuing his own self-interest, and this in a way that promotes general prosperity. In a socialist or crony-capitalist context, economic interactions become a zero-sum game.

Under a communist regime, the plumber defrauds you on repairs because he knows that the baker cheats him on the weight of bread. There is little competition to push cheaters out of the market, and thus no incentive to offer good prices and quality. If your windshield wipers are stolen from your car, which was apparently so common in communist Russia that people removed them at night, you will try to replace them by stealing some yourself. Self-interest, but not economic freedom. Nina and Jean Kehayan, two French communists who lived in Soviet Russia with their children for about two years, came back rather disillusioned and recalled their experience in their 1978 book Rue du Prolétaire Rouge (“Red-Proletarian Street”).

Evaluating public policy in a classical liberal or libertarian perspective amounts to asking not whether it furthers my interests or yours instead, but to which extent it allows free markets and their supporting institutions to work; to which extent it allows people to trade according to their own reciprocal interests; or, in certain cases, to which extent such policy emulates the workings of free markets.

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