Capital Myths

In a couple years they have built a home sweet home
With a couple kids running in the yard
Of Desmond and Molly Jones
--The Beatles

Rare these days to find a market-grounded economist at Harvard. But Prof Jeff Miron goes against the grain here to falsify three myths about capitalism.

Pro capitalism is the same as pro big business. Capitalism is defined as ownership and control of productive assets in private hands. There is no government intervention. Consumers benefit and standard of living increases when producers compete to satisfy market needs. Large businesses often seek anti-capitalist remedies to reduce competition and protect profits. These remedies generally come from government e.g., trade barriers, subsidies, and, yes, regulation. Regulation raise barriers to entry, thereby squelching competition. Big business and big government are good friends.

Capitalism generates an 'unfair' distribution of wealth. Capitalism rewards productive effort. Those who successfully meet market needs of the market are rewarded by buyers via trade. Those who are less successful get less. Attempting to redistribute wealth more evenly reduces incentive to satisfy consumers, and general standard of living falls.

Capitalism was responsible for the recent financial crisis. Many times on these pages we've observed that current markets are not free but hampered. In fact, they have been trending toward the other end of the spectrum, socialism, for some time. As Dr Miron observes, no one who is being intellectually honest can truly think that we had capitalism anywhere close to its pure sense prior to the meltdown. Given the extent to which government was (and is) intervening across the board, it is more reasonable to conclude that interfering with capitalism generates crises and recessions.