We’ve all heard it before: “Oh, capitalism may be better than some alternatives, but it is still a bad way to go.” This is a commonly held view by many people around the world, that although better than socialism, capitalism is not the best way to promote economic growth. For advocates of the free market, this can be one of the most annoying things to hear. How could capitalism, the system of free enterprise that has created massive quantities of wealth and brought billions out of illness and poverty, be undesirable? It certainly wasn’t socialism or central planning that devised the Industrial Revolutions. How then does one respond to those who are unwilling to fully accept that capitalism is the best economic system? Thankfully, Dr. Peter Leeson, an associate professor at George Mason University, has come up with a great answer in his new paper entitled “Two Cheers for Capitalism”. In the paper Leeson argues that capitalism, as a path toward development, deserves three cheers (not the two that most people reluctantly give it). Professor Leeson, author of the new book The Invisible Hook: The Hidden Economics of Pirates, that capitalism is the best possible path for development for both economic growth and quality of life reasons. Here is a key quote from the paper:
"My findings are straightforward. The two cheers for capitalism view is wrong. Although many relationships in the social sciences are unclear, capitalism’s relationship to development isn’t one of them. Unless one is ashamed of unprecedented increases in income, rising life expectancy, greater education, and more political freedom, there’s no reason to be a milquetoast defender of capitalism. This is what sprawling free markets have meant for countries that became more capitalist over the last quarter century. On the other side, there’s no evidence that countries that eschewed the global trend toward freer markets and embraced substantially greater state control performed better on any of these indicators. On the contrary, they performed demonstrably worse. I also find that the two cheers for capitalism variant that desires markets, but “within reason,” is wrong. There is no evidence for a Lorenz curve-type relationship between capitalism and development. Rather, this relationship is linear. Maximal capitalism begets maximal development."While some of the data used isn’t perfect, the arguments put forth by Leeson all strongly suggest that capitalism does indeed deserve three full rousing cheers. Leeson too deserves three cheers as well, both for his highly readable and relevant paper, as well for the fact that today is his birthday. I was lucky enough to take a class of Leeson’s during my time at GMU and I can attest that he is both a gentleman and a scholar. So three cheers for both capitalism and Peter Leeson!