The 8 Biggest Myths About Wealth, Poverty, and Free Enterprise

Jay W. Richards
Discovery Institute
July 24, 2012
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        In the twentieth century battle between communism and capitalism, capitalism won. Except for preachers of the misguided “prosperity gospel,” however, many of us still worry about capitalism. Some of the problems result from the word itself, which can conjure up images of greedy and cackling moneychangers. Some of our qualms stem from our everyday experience of greedy bosses and the rampant consumerism we see around us, or from our frustration that poverty continues to exist even in the United States. Some of our concern comes from fraud in companies like Enron. And some comes from the biases of media and academics, who more often than not are still hostile to free market ideas.

        There is a perfectly defensible definition of “capitalism,” and I often use the word myself. It if causes you or your friends to have a visceral reaction, there are other near synonyms such as “free enterprise” that work just as well. When I use these words, I am referring to an economic system with rule of law and secure rights of private property and contracts, in which individuals and businesses are largely free to buy, sell, and trade goods and services with each other without coercion, and in which the prices of goods and services are largely shaped by the underlying supply and demand, rather than political fiat. Whatever word we use, that’s what I am referring to.

        Terminological twitches aside, most of the problems people have with free enterprise derive from believing eight myths about the system. These intellectual impediments prevent us from the seeing the virtues of the free economy.

        While explaining the myths fully requires a book (Money, Greed, and God),1 it’s possible to summarize the basic ideas.

        You’ve probably asked questions like:

        Can’t we build a just society?

        What does God require of us as Christians?

        Doesn’t capitalism foster unfair competition?

        If I become rich, won’t someone else become poor?

        Isn’t capitalism based on greed?

        Has Christianity ever really embraced capitalism?

        Doesn’t capitalism lead to an ugly consumerist culture?

        Do we take more than our fair share? That is, isn’t our modern lifestyle causing us to

        use up all the natural resources?

These are all good questions. To get the right answers, though, you have to avoid the eight myths.

 

 The Nirvana Myth 

        The Nirvana Myth is comparing capitalism with an unrealizable ideal. It’s not simply the belief that good will triumph in the end or the belief that the kingdom of God is already present—though not yet fully realized—in history. It’s the delusion that we can build utopia on our own if we try hard enough. It makes every real society look intolerably wicked, since no real society can measure up to utopia. Without this myth, the popular but deadly communist experiments of the twentieth century could never have gotten off the ground.

        When we ask whether we can build a just society, we need to keep the question nailed to solid ground: Just compared to what? It doesn’t do anyone any good to tear down a society that is “unjust” compared to the kingdom of God, if that society is more just than any of the ones that will replace it. If you compare free enterprise with the live alternatives, however, it wins hands down.

 

The Piety Myth

        Spiritually you’re better off a little mixed up about economics than indifferent to human suffering. Economically, though, only what you do is important, whatever your reason. As the French philosopher Etienne Gilson famously said: “Piety is no substitute for technique.” In the Piety Myth, we mistakenly focus on our good intentions rather than on the real and often unintended consequences of an act or policy. Well-meaning people have supported all manner of bad policy—price and rent controls that create shortages, high minimum wage laws that harm the poorest of the poor, foreign aid that funds dictators—for noble motives. The motives didn’t change the results.

        “The art of economics,” said economic journalist Henry Hazlitt, “consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”2 If we want not just a heart for the poor, but also a mind for the poor, we first have to learn the art of economics.

 

The Zero-Sum Game Myth

        There are three kinds of games: win-lose, lose-lose, and win-win. Win-lose games, like basketball, are sometimes called “zero-sum games.” When the Celtics and the Bulls compete, if the Celtics are up, then the Bulls are down, and vice versa. The scales balance. It’s a zero-sum.

        Besides lose-lose games, which most of us avoid, there are positive-sum or win-win games. In these games, some players may end up better off than others, but everyone ends up at least the same if not better off than they were at the beginning.

        Millions of people think that free trade is a dog-eat-dog competition, where winners always create losers. This is the zero-sum game myth, which leads many to think that the government should somehow redistribute wealth. While some competition is a part of any economy, of course, an exchange that is free on both sides, in which no one is forced or tricked into participating, is a win-win game. When I pay my barber $18 for a haircut, I value the haircut more than the $18. My barber values the $18 more than the time and effort it took her to cut my hair. We’re both better off. Win-win.

 

The Materialist Myth

        A similar myth leads people to think of the economy as some fixed amount of material stuff—money in safes or gold bars in a vault. Since two firms competing for one customer can’t both get the customer’s money, we might think the whole economy looks that way: Wealth itself isn’t created, it’s merely transferred from one party to another.

        A common image of this “Materialist Myth” is a pie. If one person gets too big a slice, someone else will get just a sliver. To serve it fairly, you have to slice equal pieces.

        But this isn’t how a free economy works. Over the long run, the total amount of wealth in free economies grows. We can create wealth that wasn’t there before. The “pie” doesn’t stay the same size. In a free economy, someone can get wealthy, not merely by having someone else’s wealth transferred to their account, but by creating new wealth, not only for themselves, but for others as well.

 

The Greed Myth

        Friends and foes of free enterprise often claim that it is based on greed. Writer Ayn Rand even claimed that selfishness is a virtue. But greed, according to the Christian tradition, is one of the seven deadly sins. If “capitalism” is based on it, then Christians can’t be capitalists.

        In truth, Adam Smith and other capitalist thinkers did not believe this “Greed Myth.” Rather, Smith argued that capitalism, unlike static and command economies, can channel even greedy motives into social beneficial outcomes. “In spite of their natural selfishness and rapacity,” Smith wrote, business people “are led by an invisible hand . . . and thus without intending it, without knowing it, advance the interest of the society . . .”3

        Rather than inspire miserliness, capitalism encourages enterprise. Entrepreneurs, including greedy ones, succeed by delaying their own gratification, by investing their wealth in creative but risky ventures that may or may not pan out. Before they ever profit, they must first create.

        In a fallen world, we should want an economic system that not only channels greed into productive purposes, but unleashes human ingenuity, creativity, and willingness to risk as well.

 

The Usury Myth

        In several places, the Bible condemns charging interest on money. In Exodus 22:25, for instance, God tells the Hebrews: “If you lend money to my people, to the poor among you, you shall not deal with them as a creditor; you shall not exact interest from them.” So for centuries, Christians, along with pretty much every traditional culture, forbade charging interest on money loans.

        But eventually, the West developed banking systems that allowed banks to lend money that had been deposited. They charged interest because the loans were risky and prevented the bank from using the money for other purposes. The banks also paid interest to the depositors for the risk they assumed. This system allowed wealth to be created much more quickly than it had been before. Christians eventually realized that such loans were different from an ancient Hebrew charging interest to his poor kinsman on money that wasn’t doing anything anyway. The sin of usury involves exploiting someone in their poverty, like loan sharks do, and doesn’t describe modern business loans.

        Still, some Christians continue to treat banking, and any work with money, as if it were the root of all evil. That’s the usury myth. The love of money may be the root of all evil, but money itself is not.

 

The Artsy Myth

        Many Christians hear “capitalism,” and they think “ugly.” They assume that capitalism leads to the “commodification of everything,” as Jim Wallis puts it—which turns “all values into market values, gutting the world of genuine love, caring, compassion, connection, and commitment for what will sell, for example, on a television show.”4

        The problem here is not capitalism per se but with consumerism. (Identifying capitalism with consumerism I call the “Artsy Myth.”) Consumerism is a form of gluttony, even idolatry, in which we make food, drink, and stuff our highest loyalty.

        But the sorry symptoms of consumerism aren’t unique to capitalism. Rather, they derive mostly from the materialist worldview that seems to be everywhere.

        Moreover, thinkers as diverse as Karl Marx and Max Weber have understood that what sets capitalism apart is not consumption. Consumption is part of every human life and economic system. Capitalism requires that not all wealth be consumed, but that some be saved, risked, and invested. That means that consumerism is, in the long run, contrary to capitalism.

 

The Freeze-frame Myth

        This myth involves believing that things will always stay the same. For instance, many of us worry that since there’s a finite amount of oil, at some point we will run out if we keep consuming it at current rates.

        That’s true, but it still won’t happen. Supply, demand, and human creativity will see to that. Long before oil becomes really scarce, oil prices will rise so high that it will no longer be an economical form of energy. That high price will encourage inventors and entrepreneurs to seek out new forms of energy to replace oil. This is what has happened historically with every resource. We will always need energy, of course, but we won’t always use the same source of energy.

        Also, we should remember that few resources are resources without human input. Oil was just an irritating pollutant until we realized it contained lots of energy, figured out how to refine and store it, and invented machines that could use it. We don’t just use resources; using the raw materials God has created, we create new resources.

        In fact, over time, the matter in a material resource matters less than the mind that transforms it—manure into fertilizer, oil into gasoline and kerosene, sand into computer chips and fiber optic cables, light into lasers. As economist Julian Simon once said, man is the “ultimate resource.” This is perhaps the greatest truth of economics.

 

        The problems with all these myths are easy to get. They’re also easy to forget. Learn them, however, and you’ll not only avoid policies that do more harm than good; you’ll understand and be able to defend the virtues of economic freedom.

 

Jay W. Richards, Ph.D., is Director of the Center on Wealth, Poverty, and Morality at the Discovery Institute, author of Money, Greed, and God: Why Capitalism is the Solution and Not the Problem, and co-author with James Robison of the New York Times bestseller Indivisible.



 [1] Money, Greed, and God: Why Capitalism is the Solution and Not the Problem (San Francisco: HarperOne, 2009).

 [2] Henry Hazlitt, Economics in One Lesson (New York: Three Rivers Press, 1979), p. 17.

 [3] Adam Smith, The Theory of Moral Sentiments, Part IV, chapter 1.

 [4] Jim Wallis, God’s Politics (San Francisco: HarperSanFrancisco, 2005), p. 355.