Friday, November 20, 2020

What Makes Capitalism Work?

     Many Americans today do not fully understand the concept of capitalism. Both its supporters and its opposition are guilty of this. Dierdre McCloskey believed that what many see capitalism as is the “immense accumulation of commodities,” as Karl Marx put it. McCloskey sees many Americans taking up this view and considering capitalism as “the accumulation of capital.” This is not the fundamental characteristic of capitalism, but it is a prominent feature of society in general. People have been accumulating capital in greater quantities throughout all of history and this has been largely independent from any specific economic style. McCloskey believes that the most central characteristic of capitalism to be innovation.

    One of Dierdre McCloskey’s most famous economic notions is that of the “ hockey stick.” It is known that for many thousands of years humans lived in collective poverty. When accounting for inflation, the money that most Americans were earning per day back then does not even come close to what they are receiving today, and this was the case too only about two-hundred years ago. She believes that this occurred for most of history, and just recently, a spike in prosperity occurred, this is the immediate and sharp spike on the graph, or the “blade” of the hockey stick. This same innovation which has brought most Americans, and the world, out of poverty is what she believes the key characteristic of capitalism to be. The reason many people may misunderstand capitalism is because of this spike. They simply have a different theory about what has made capitalism successful, and this same thought has twisted their view on it entirely.

    Some critics believe exploitation to be the cause of capitalist success. Some others believe that investment, or the accumulation of more capital, to be the reason for success. McCloskey argues that both things have been present for all human history and the sudden boom of prosperity has occurred just in the past two-hundred years. So, it cannot be those things that make capitalism what it is and make it successful. She believes innovation to be the driving force behind capitalism. “Trade tested betterment,” McCloskey writes is a feature of capitalism, and has innovated the market and brought up many great ideas. This is what has made capitalism work and is its primary attribute. Another argument against the accumulation of capital being the primary attribute is that capital is inherently useless without innovation. Poverty cannot be reduced, and the economy cannot grow simply due to investment in capital. If businesses continue to accumulate capital without innovating and coming up with new ideas and technologies, the benefit will quickly begin to subside, and the blade of the hockey stick will begin to flatten.

No comments: