Financial History Issue 127 (Fall 2018) | Page 13

EDUCATORS’ PERSPECTIVE In Defense of Capitalism Part IV: The Promise and the Peril The Promise Throughout his career, the late Hans Rosling expressed amazement at the gen- eral lack of understanding of the current state of the world. Rosling went around the world asking questions, based on sta- tistics from the United Nations and the World Bank, to people from all walks of life. Most of them were unable to answer his questions correctly. Consider the fol- lowing question from Rosling’s posthu- mously published book, Factfulness. In the last 20 years, the proportion of the world population living in extreme poverty has: A. Almost doubled B. Remained more or less the same C. Almost halved According to Rosling, only 7% of the people asked knew that the proportion of the world population living in extreme poverty has almost halved in the last 20 years. Most did not know that the major- ity of the world population now lives in middle-income countries, that 80% of the world’s population has some access to electricity and that the average life expec- tancy in the world today is 70 years. Rosling attributed such ignorance to our preference for negative news stories. “Stories about gradual improvements,” he noted, “rarely make the front page even when they occur on a dramatic scale and impact millions of people.” It is amazing that Rosling never mentioned capitalism’s role in our improving world environment, but its contribution to improving life for millions is incontrovertible. For most of recorded history, accord- ing to economist Deirdre McCloskey, the average person consumed about $3 a day. Today, the average person consumes about $30 a day. “The heart of the matter,” she declares, “is 16. Real income per head nowadays exceeds that around 1700 or “Commerce, which has enriched the citizens of England, has contributed to their freedom, and this freedom has in turn stimulated commerce…Posterity will perhaps be surprised to learn that a small island that had but little lead, tin, fuller’s earth, and coarse wool, became by its commerce powerful enough in 1723 to send three fleets at the same time to three separate parts of the globe… All this is cause for justifiable pride to an English merchant and allows him to compare himself, not without reason, to a Roman citizen. Indeed, the younger son of a peer of the realm is not disdainful of commerce. Lord Townshend, a minister of state, has a brother who is content to be a London merchant. At the time when Milord Oxford governed England, his younger brother was a business agent in Aleppo, whence he did not wish to return and where he died.” — Voltaire 1800 in, say, Britain and in other countries that have experienced modern economic growth by such a large factor as 16, at least.” This economic miracle is the direct result of capitalism. McCloskey argues that the miracle began in Holland where society’s elites finally began to accept the idea that honor and dignity could be ascribed to a career in business. “It became honorable…to invent a machine for making screws or to venture in trade to Cathay.” This great “Revaluation,” as McCloskey terms it, was the spark that set off the capitalist revolu- tion, which spread to England, Scotland and France. Philosopher Michael Novak posited that, “Of all the systems of political econ- omy which have shaped our history, none has so revolutionized ordinary expecta- tions of human life—lengthened the life span, made the elimination of poverty and famine thinkable, enlarged the range of human choice—as democratic capital- ism.” This is the great promise of capital- ism, a promise that continues to this day. The Austrian economist Friedrich Hayek (1899–1992) understood capital- ism’s uncanny ability to raise living stan- dards. However, as journalist John Cassidy By Brian Grinder and Dan Cooper Photograph of Austrian economist Friedrich Hayek, circa 1950. Hayek understood capitalism’s ability to raise living standards and also realized capitalism does not work in every situation.  |  Fall 2018  |  FINANCIAL HISTORY  11