What critics keep getting wrong about capitalism

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The Stanford Encyclopedia of Philosophy is not a publication most would be familiar with. It is meant as a repository of overviews of big topics in philosophy broadly defined, inclusive of political theory. As such, entries added to it are unlikely to generate strong responses by the experts deeply familiar with each individual entry. Every rule has exceptions though.

Recently, Chiara Cordelli, a political philosopher at the University of Chicago, delivered her ‘three years in the making’ commissioned piece on ‘capitalism’. The piece went viral. The reason that it sparked such attention is that it read to many as basically a rehash of old online talking points spewed by more refined trolls. That is unfair but there is truth to the claim that there is no smoke without fire. It is indeed a boring ‘takedown’ of capitalism.

Let me be precise here: the problem is not that the entry is critical of capitalism. There is nothing wrong with criticising capitalism, Friedrich Hayek, Milton Friedman or classical liberalism. The problem is that much of the discussion does not pass even a modest ideological Turing test. An ideological Turing test asks whether one can state an opposing position so accurately that its proponents would recognise the argument as their own before one proceeds to criticise it. Here, too often, they would not.

This points to a common reflex in debates over ‘capitalism’ and ‘neoliberalism’. The vocabulary is often not used to define but rather rationalise already-held ideological priors. The characteristics one dislikes are incorporated into the definition of the system, after which those same characteristics are rediscovered as criticisms of it. The conclusion has, in part, been smuggled into the premises. But these end up being recycled over and over as one scholar states it before another regurgitates it back as fact and so forth.

Some examples help show this usual reflex. When describing the ‘market capitalism’ advanced by Hayek and Friedman, Cordelli claims that they believed capitalism required ‘complete, private, and unregulated markets’, and that this stemmed from their acceptance of a ‘general equilibrium’ view, with the implication that ‘capitalism goes wrong when it is politically interfered with’. But both claims – which underlie much of the entry – are massively incorrect. Not minor quibbles, mind you, but major and easily verifiable errors. Friedman initially advocated antitrust laws and, while he moderated on this front later in life, he still believed they did some good. He supported a negative income tax – a variant of a guaranteed minimum income – and schooling vouchers. Hardly the mark of someone who believed in the complete absence of political interference. Hayek for his part rejected the idea of general equilibrium altogether and preferred to speak of competition and markets as discovery processes. He defended regulation of natural monopolies and he also spoke in favour of some basic welfare state functions.

But this is not new. This description of Hayek and Friedman – and others like them – has been there since the 1960s and it can be found in the work of many. So too are the replies pointing all of this out. The claim has been recycled and vomited back. The replies have been ignored – the mark of the inability to undergo the key Turing tests I mentioned. Thus, the entry massively misrepresents what it dubs ‘normative defences’ of capitalism.

And then, the preferred views of the entry’s author also eschew major criticism raised at it. The best illustration of this is visible in the considerably detailed treatment that Karl Marx gets. Marx is presented as complete, coherent and accurate. No mentions are made of the fact that ‘Das Kapital’ self-contradicts itself via the well-known transformation problem. Marx first argues that the value of commodities is determined by the labour required to produce them (i.e., the labour theory of value). This is the key foundation of ‘exploitation’ theory in Marxist theory. But he later recognises that competition tends to equalise profit rates across industries. For that to happen, market prices must diverge from labour values. The problem, then, is explaining how one gets from labour-determined values to observed competitive prices without abandoning the labour theory of value itself. Marx never provides a fully consistent solution to that transformation. And no solution to the problem exists.

It explains why Marxist predictions fail to materialise. The most obvious example is that wages and incomes for unskilled workers were rising while Marx was writing his works. Not only that, he was writing in Britain – a society where inequality was actually falling! Moreover, in the the United States – the country most often described as most capitalist by Marxists then and now – even socialist writers like Charles Spahr produced data which, when used with subsequent works, show massive growth in living standards at the bottom while inequality between the top 1% and the bottom 90% either stagnates or actually declines.

Not only did Marx predict that capitalism would generate pauperisation, he also added that it generated persistent pressure to lengthen working hours and lower labour’s share of national income. Historical evidence runs strongly against these predictions: working hours have fallen dramatically since the nineteenth century, both annually and as a share of waking life – with only modest influence on unions or legislation. Marx’s prediction about labour’s share of income also fares poorly empirically, as many studies find that greater economic freedom (a proxy for capitalism) and globalisation are associated with a larger share of national income accruing to labour. In fact, in causal empirical tests, economies that become more capitalist (by liberalising) tend to show rising boats for everyone. Taken together, these findings suggest that some of Marx’s central empirical predictions about capitalist labour markets have been contradicted rather than confirmed by subsequent economic history.

All of these massive holes in the Marxist account of capitalism are ignored and set aside. The criticisms are still presented as high-quality despite the fact that they have repeatedly failed to generate the predictions they are supposed to.

This is precisely where the usual reflex in debates over ‘capitalism’ becomes problematic: early and criticised claims (even debunked ones) are built into the description of capitalism itself and then rediscovered as criticisms of it, even when the empirical evidence points in the opposite direction. Once repeated often enough, such claims pass from one scholar to another as established facts, with the original empirical proposition increasingly insulated from serious testing. The entry falls prey to this and while it does offer insight into how some people think about capitalism, it is merely a sophisticated rant – nothing more.

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