Widening gap between rich and poor a challenge for capitalism

Capitalism is a well-known paradigm that attempts to answer the question of what constitutes an economically just society through the production and distribution of economic goods. It is a classic example of a paradigm that was developed by studying what was going on in the real world and reducing it to abstract theory.

As practiced in most societies, capitalism is an inevitable outgrowth of the human instinct to trade goods with each other. This instinct seems to be as strongly hard-wired into the DNA of our species as the instinct to reproduce and has defied all attempts to suppress it. Various forms of capitalism have, over time and across countries, improved the lives of billions of people, especially since the collapse of the Soviet Union and China’s adoption of a form of state capitalism in 1976. But how effective is it when it comes to the just distribution of goods among members of society?

A late-night television wag once quipped that paradigms were the last refuge of the intellectually challenged. Preconceptions can be a useful starting point for organizing great masses of empirical evidence, but it is prudent not to edit the evidence to fit our normative theories about what the real world ought to look like.

This was the mistake made by the Medieval European philosophers who based their cosmology of an earth-centered universe on accepted Christian myths carefully propped up with Aristotelian logic. The result was the need for constant tinkering with their theoretical models to accommodate a growing body of astronomical evidence about how the known planets actually moved.

Not to mention centuries of embarrassment for the Roman Catholic Church after it forced Galileo to recant the evidence of his own eyes that supported the “heretical” sun-centered cosmology of Copernicus.

As capitalism matured and came to dominate western societies during the last two centuries, it attracted the attention of various writers who developed paradigms to explain it. Beginning with Adam Smith and proceeding through John Stewart Mill to today’s stained glass theorists of the Austrian and Chicago schools, these writers with the regularity of Swiss trains sought to purify their paradigms and give them a hard core of academic logic.

In Smith’s world, competition among those who pursue their own interest promotes the general welfare of society more effectively than the efforts of any individual who might deliberately set out to promote it. As he simply put it: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

Critics argue that, as currently structured, capitalism disproportionately benefits the wealthy and powerful. They say it exacerbates both economic inequality and other pressing societal problems, such as environmental issues.

Stated differently, one downside of capitalism as currently practiced is that it results in the rich getting richer and the poor getting poorer. This has led to unprecedented stagnation in American social mobility and been a major factor in the anger many Americans are expressing.

This condition is a real challenge in a country where, just this past November, we learned just how deeply economic and demographic factors has divided the electorate. To paraphrase Florida Sen. Marco Rubio, it is a country in which half the people absolutely hate the other half. The relationship between the haves and have-nots is dramatized by the media and by politicians firing up their base.

In any case, the practical test of a vision’s standing in the real world is whether it can consistently pass the French Revolution Test. That is, whether it can win acceptance by a sufficiently large majority of a society’s members to withstand the inevitable assaults from those who find it objectionable and seek to replace it with their own visions – by force, if other means fail.

Originally Published: February 18, 2017

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