It is possible, of course, to be both a supporter of capitalism1 and a good person, if one carefully protects a certain innocence or ignorance. One can even be an idealist. But idealistic supporters of capitalism are fatally confused. The most common idealistic reason for supporting capitalism is the idea that capitalism favors freedom. The supporters of the Libertarian party -- some of them anarchists -- are committed to this mistaken belief. Here are some reasons why it is unreasonable to support capitalism.
There are few enough Libertarian Socialists on the ground. By comparison, there seem to be a pretty considerable number of Libertarian Capitalists. So why not just join forces with the Libertarian Capitalists? For starters, they are not libertarian enough. From a Libertarian Socialist point of view, they are fakers. Fake libertarians.
To the Libertarian (or Cooperative) Socialist, a system in which bosses lord it over workers on the job is a system inconsistent with liberty. Libertarian Capitalists have a more "moderate" ideal of freedom, in which bosses are OK. I think their ideas on this rest on false distinctions and sophistry, but I'm willing just to admit that our ideal of liberty is more demanding than theirs is. For now, that will do.
But there are other reasons why Libertarian Capitalism is fatally confused. Even if your ideal of liberty, unlike mine, has no problem with bosses, you ought to think things through a little more carefully. What I want to say is that Libertarian Capitalism is a self-denying and self-frustrating concept, even in terms of its own values. I am saying that a Libertarian Capitalist society, if it were ever established, would soon build up government far beyond any Libertarian minarchist limit, limiting liberty and moving away from capitalism (as the minarchist capitalism we began this century with has in fact done).
There are two reasons for this. One has to do with inequality in economic opportunity, and the other has to do with efficiency in production.
Marxism holds that capitalism has an inherent tendency to impoverish the workers. In 1965, I didn't feel that was true, but by 2005, after thirty years of falling real wages, I'm pretty worried that it might be. Anyway, even if it were true, it might not worry a Libertarian Capitalist very much. Equality is a socialist value, but not a capitalist value. (I'm not saying that there are no capitalists who value equality, only that equality is not among the common values of capitalists as it is for socialists). However, Marxism also holds that the result of this impoverishment is destabilization and a revolution destined to destroy capitalism. In the dawn-light of the twenty-first century, that does not seem to be the only possibility. Capitalism can disappear gradually as well as suddenly. In the twentieth century, capitalism showed a chronic inability to keep the "reserve army of the unemployed" from growing, and in practice, has found no alternative to putting many of them on the dole -- except putting them in prison, which is costlier. The idea that this tendency would disappear in a "Libertarian Capitalist" minarchist society is just naive. So we have good reason to think a capitalist minarchy would disappear gradually, if not suddenly. (The twentieth century has seen both things happen. The capitalism that Marx knew did collapse suddenly, if without revolution, in 1929. The capitalism that emerged from World War II in Europe and North America, while never minarchist, has been gradually eroded by the growing "reserve army of the unemployed.")
These comments were first written before the Asian financial crises in 1997-98. At that time, the magazine U. S. News and World Report had a headline: "Who Lost Capitalism?" A bit premature, I thought -- just a bit! The mild recession, stagnation, and bear markets since March 2001 have simply shown that capitalism is what it always was: unpredictable, arbitrary, capable of enriching some and impoverishing many without much real cause, as logical and fair as a nightmare. Any day now, it may be your nightmare, however clever and well informed you may be. For a system based on the exploitation of the majority, it cannot be otherwise.
Adam Smith certainly proposed a limited agenda for government, but he did allow for a positive government role in the economy, if some useful projects could not be carried on by businessmen at a profit. John Stuart Mill enlarged on that thought with an example: a lighthouse. What is it about the lighthouse that makes it so different from, let us say, potatoes grown and sold by a farmer living onshore?
These two conditions mean that the lighthouse is, in the jargon of economics, a "public good." The indefinite article is very important here. if we speak of "the public good" we are using a phrase which, however vague, is the common property of generations of political discourse. When we speak of "a public good" we are using a term coined by Paul Samuelson, and we are not really talking politics at all, but technology. "A public good" is a good like the lighthouse: a good whose costs are all overhead costs and for which it is not possible to make payment a condition of benefiting.
Mill was willing to have the government provide lighthouses because it seemed that a profit-oriented market system would not provide them, since beneficiaries could not be required to pay, except through a tax system2. The items on the minarchist agenda -- defense of the peace and maintenance of basis of the economic system -- are also public goods. But it seems there are many items that are public goods that are not on the minarchist agenda -- like lighthouses. Thus the minarchist capitalist society would be inefficiently deprived of many public goods3. This probably would not lead to revolution -- societies can endure a great deal of inefficiency without revolting -- but it would be unstable in a libertarian context, since people are free to discuss, advocate, and associate among themselves. It is likely that they will associate themselves to advocate the efficient production of public goods by the government. Thus a democratic capitalist society will move away from minarchism toward an expanded government; and this growth of government is a result of capitalism, inherent in capitalism per se. Thus, again, minarchist capitalism is self-denying, unstable, inconsistent4.
Conversely, a consistent minarchism must have some sort of answer to the question, "Who will produce public goods, and how will they be paid, if not through government?" To the best of my knowledge, one school of Libertarian thought has an answer to that question: Guild Socialism.
To put it a little differently, public goods and similar problems create situations in which people can benefit from organizing themselves for common action -- one of those cases in which organization increases "freedom to." And people will seize that freedom and that opportunity if they have to. Libertarian Capitalists overlook this fundamental and very important freedom: the freedom to organize. in fact, capitalism requires that this freedom be suppressed -- and capitalist societies have suppressed it, and do suppress it. Thus, "Libertarian Capitalism" is a contradiction in terms in yet another sense.
What about a classless "capitalist" society? That is, a society in which everyone lives off the profits of ownership, and no-one needs work for a living?
We can envision such a society as science fiction. Suppose there were robots capable of doing every form of human work that might otherwise have to be paid for, and suppose the robots were equally enough distributed so that everyone could live off the produce of her or his robots. Then we would have a classless society of capitalists. Unfortunately, the technology to produce such robots seems far off. The robots of today can do pretty well at the work of a mathematician -- but they cannot begin to make the bed, clear the table, or take out the garbage! It is the unskilled work the robots cannot do -- which might tell us something about the dignity and humanity of the tasks we call "unskilled!" Perhaps someday "unskilled" and "semiskilled" robots will be available. In the meanwhile, a classless society of capitalists remains nothing more than fantasy.
And yet some distinguished economists seem confused on this! Some seem to imagine that we already have a classless society. Responding to the report5 that American real wages have been falling persistently for years, a corporate economist says "We are all capitalists. We own pensions that are invested in corporations. Very few workers do not have a stake in capital." The implication is that workers do not lose by falling wages. On its own terms, the comment is an exaggeration. But even if it were true that "Very few workers do not have a stake in capital," the implication, that workers are not harmed by falling wages, would be bad arithmetic. If wages fall, where are the pension contributions going to come from?
Nevertheless, the quotation raises a point that must be addressed in any modern discussion of the classless society. Some things have changed since the nineteenth century. In nineteenth century industrial society, workers did not have pensions. If they were fortunate enough to live to be old, workers had to depend on their children and neighbors for support -- or on charitable institutions, the poorhouse, or starve. That is not true today, for many workers, and that is something to be thankful for.
But does it mean that "we are all capitalists?" No. Conservative economists often point out that income inequality must be judged on a life-cycle basis. People are poorer in youth than in vigorous maturity. When we look at their incomes over the whole life cycle, we see less inequality than we see when we ignore this fact. This perspective also clarifies the class nature of our society. It is still necessary for workers to work for most of their lives to get a living and a pension. And there is still the owning class, that needs not work at all, if they choose not to.
Yet we can imagine a society in which hereditary wealth has been utterly eliminated, and everyone works and earns a wage and a pension, and the society might be organized as ours is, in profit-oriented corporations. The workers' pension funds would own the shares in these corporations. It would be a classless society, but not a free society. These hypothetical worker-pensioners would still have bosses lording it over them for every day of their working lives. And even if it is a real possibility, that is not good enough, for a Cooperative Socialist. It would not be a Cooperative Commonwealth.
We are left two conclusions. First, the only real possibility for a classless society in a modern world, without robots of a kind technology cannot now build, is a society in which all share the necessity of work. And second, societies with the economy organized by the state or into profit-seeking corporations might be instances of a classless society of workers, at least as a matter of logic. But they cannot realize the ideal of freedom, so they are not alternatives to a Cooperative Commonwealth.