The Market Will Set You Free

Feb 03, 2020

It’s time for free-market capitalism to reclaim its legacy as a creator of prosperity — not just for citizens of the Western world, but for people everywhere. It’s not capitalism that has to justify itself; it’s everything else. Why? Because everything else has resulted only in poverty. Does that surprise you? Are you skeptical? Andy Puzder, author of “The Capitalist Comeback,” has the charts and data to prove it.

This video is part of the Robert W. Plaster Foundation Playlist: Free Enterprise Will Set You Free

Study Guide

There is no substitute for free market capitalism as a promoter of human prosperity—certainly not socialism.: When countries embrace the free market, their economies markedly improve, as demonstrated by British economist Angus Maddison. Western Europe’s GDP per capita increased dramatically during the industrial revolution, then even more sharply in the decades after World War II when it fully embraced the free market. Japan’s GDP per capita likewise rose sharply after WWII as the U.S. helped the Japanese transition to a democracy and a free market capitalist economy. Eastern Europe took off after it was released from the Soviet Union and socialism in 1991. China did likewise after it shifted away from strict socialism and implemented some limited free market policies.
View source; Citing Maddison’s research, noted New York University psychologist Jonathan Haidt, points out that the data reveals that “capitalism changed the West and Japan in the blink of an eye, and it foretells a similar transformation in the rest of the world.”
View source; Related video: “Capitalism vs. Socialism” – Andy Puzder
View source
In 1820, 94% of people lived in extreme poverty. Thanks to capitalism, by 2015, that number had declined below 10%.: In 1820, 94% of people lived in extreme poverty, according to World Bank data. Thanks to capitalism, by 2015, that number had declined below 10%, single digits for the first time in human history. “Over the last 25 years, more than a billion people have lifted themselves out of extreme poverty, and the global poverty rate is now lower than it has ever been in recorded history. This is one of the greatest human achievements of our time,” said World Bank Group President Jim Yong Kim.
View source; Related reading: “Why Socialism Failed” – Mark J. Perry
View source; Related video: “Why Capitalism Works” – George Gilder
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The United States has led the world in GDP per capita because of the founders’ embrace of free market principles.: The United States has led the world in GDP per capita—the best measurement of a country's standard of living—because of the fortuitous coincidence of the rights and values espoused in the Declaration of Independence and the founders’ embrace of the free market, as expressed in “The Wealth of Nations” by Scottish economist and philosopher Adam Smith.
View source; Democratic President John Kennedy encapsulated how capitalism benefits people from all over the economic spectrum in society in his famous quote promoting significant 1963 tax reform, cutting income taxes from a range of 20-91% down to 14-65% and cutting the corporate tax rate from 52% to 47%: “A rising tide lifts all boats.”
View source; Related video: “As The Rich Get Richer, The Poor Get Richer” – Daniel Hannan
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It’s not those who advocate for free market capitalism who need to justify their actions. It’s those advocating for socialism.: As documented by Swedish economic historian Johan Norberg, since 1990, hunger, poverty, illiteracy and child mortality have all declined significantly with the decline of socialism—even while the global population increased by 2 billion.
View source; As author and former CEO Andy Puzder argues, societies that embrace the free market offer better job prospects, better wages, and more personal freedom, while socialism inevitably results in the reduction of economic opportunities and individual choice. “Capitalism leads to economic democracy,” says Puzder. “Socialism leads to the economic dictatorship of the elite.”
View source; Opposing capitalism and market liberalization doesn't help poor people in the long run, it hurts them. Capitalism creates better goods for cheaper prices. According to economist Milton Friedman: “The great achievements of Western capitalism have redounded primarily to the benefit of the ordinary person.”
View source; Related reading: “Progress: Ten Reasons to Look Forward to the Future” – Johan Norberg
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As free market capitalism has grown, global inequality has fallen. Yes, the rich are getting richer, but the poor are getting richer faster.: The expansion of the free market has led to dramatic improvement in the lives of people all over the world. In 1990, 35% of the world's population lived in extreme poverty; in 2013, that number dropped to 10.7%.
View source; The worldwide infant mortality rate per 1000 births fell from 64 to 31 from 1990 to 2015.
View source; The average life expectancy has risen from 52 to 71 since 1960.
View source; From 1976 to 2016, the world literacy rate has risen from 68% to 86%.
View source; Capitalism lowers inequality, but even when people advance ahead of us financially, their productivity helps society.
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The most rapid declines in poverty are happening in countries that are adopting free trade policies.: Compare growth rates in free-trading Colombia, which has averaged 4% annual economic growth since 2010, and protectionist Venezuela, which has suffered years of economic contraction and high run-away inflation.
View source; Free-trading Vietnam has pulled ahead of protectionist Laos, seeing annual real GDP growth of over 6% since 2015, with only 11% of its population living in poverty, compared to 22% in Laos.
View source; After economic liberalization in 1979, China has experienced tremendous growth, averaging 9.5% annual growth over the last two decades.
View source; Countries that have embraced socialist policies, like North Korea, Zimbabwe, and Cuba have remained stagnant.
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The expansion of the free market has helped slash the percentage of those living in extreme poverty from 35% to 10% in 25 years.: In 1990, 35% of the world's population lived in extreme poverty; in 2013, that number dropped to 10.7%. During that time the free market expanded significantly.
View source; Capitalism lowers inequality. While the rich do get richer in capitalism, the poor get richer too — and they've been doing so at a higher rate.
View source; Related video: "If You Hate Poverty, You Should Love Capitalism" – Arthur Brooks
View source; Related reading: "Free to Choose" – Milton Friedman and Rose Friedman
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Capitalism is not about greed. It's about incentivizing people to match their skills to their goals and create earned success.: Capitalism is not about greed. It’s about creating an environment in which people match their skills to their goals and use their skills to create earned success.
View source; The unique quality of capitalism is that it structures incentives so that the way to succeed is to offer a service to the people around you.
View source; Under every other system, you get ahead by sucking up to those in power: commissars, kings, or dictators.
View source; Related video: "Is Capitalism Moral?" – Walter Williams
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Capitalism caters more to the masses than the economic elite, making things increasingly more affordable for more people.: Economist Joseph Schumpeter on how capitalism caters to the masses, not the wealthy: "The capitalist engine is first and last an engine of mass production which unavoidably also means production for the masses. ... It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so on that are the typical achievements of capitalist production, and not as a rule improvements that would mean much to the rich man. Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within reach of factory girls in return for steadily decreasing amounts of effort."
View source; Related video: "Myths, Lies and Capitalism" – Arthur Brooks
View source; Related reading: "The New Road to Serfdom: A Letter of Warning to America" – Daniel Hannan
View source

Take a close look at this…Jonathan Haidt, the noted New York University psychologist, calls it "the most important graph in the world."

Why does he say that?

Because he knows this graph reveals a simple, inescapable fact: there is no substitute for free market capitalism as a promoter of human prosperity.

Let it be noted that Haidt is no one’s idea of a conservative. But when hard evidence stares him in the face, he’s not going to look away.

The graph is based on the research conducted by the late British economist, Angus Maddison. The numbers along the X-axis are years—two thousand of them. The numbers on the Y-axis are dollars—all of them, divided by the number of people on the planet. It’s what’s called GDP per capita, which is the world’s economic output divided by its population. GDP is considered the best measurement of a country's standard of living. And, in this case, the world’s standard of living.

Often when I show this graph to students, I get this comment: “That’s not capitalism; it’s just the impact of the Industrial Revolution.”

So I show them another chart by the Maddison Project. This one breaks the GDP hockey stick into regions. As you can see, there are a number of hockey sticks. But note that they don’t rise at the same time. The United States surged first.

Why?

Well, in a very fortuitous coincidence, the year 1776 witnessed both the signing of our Declaration of Independence and the publication of a book called The Wealth of Nations by the Scottish economist and philosopher, Adam Smith. In his book, Smith explained how to create a modern free market capitalist economy and the benefits of doing so.

America’s wise founders took Smith’s principles to heart, and within a mere 100 years—the blink of an eye historically—capitalism turned the United States from thirteen backwoods colonies into the world’s largest economy. And it has held that position ever since.

Western Europe shot up as well, but later. It rose steadily during the Industrial Revolution and then experienced a sharp rise after World War II when, between the end of the war and the mid-1960s, it fully embraced the free market.

Japan, too, shot up after World War II—surpassing Western Europe for the first time after the US helped the Japanese transition to a democracy and a free market capitalist economy.

Eastern Europe took off after it was released from the Soviet Union and socialism in 1991.

China did likewise after the Chinese moved away from strict socialism and implemented some limited free market policies. One can only imagine where China would be now if its leaders had fully unleashed the forces of the free market.

Yes—during this period of economic expansion, the wealthy got wealthier. That always happens when new wealth is created. But the middle class and the poor also greatly benefited.

Here’s another telling chart. This one is from the World Bank. In 1820, 94% of people lived in extreme poverty. Thanks to capitalism, by 2015 that number had declined to 9.6%—single digits for the first time in human history. Now, it’s still too many, but if we are going to reduce the number even more, we need to understand what caused the decline: free market capitalism.

If we combine the Angus Maddison hockey stick chart and the World Bank data on extreme poverty, what we get is something quite amazing: unprecedented global prosperity and an unprecedented decline in poverty across the globe over the past 200 years. That’s capitalism in a nutshell.

One more chart: Johan Norberg, a Swedish economic historian, shows us how well ordinary people do when they work in a free market economy.

Since 1990, hunger, poverty, illiteracy and child mortality have all declined significantly with the decline of socialism. This all happened while we added two billion more people to the world. Far more people; far less poverty. Better health outcomes; fewer babies dying. That’s what economic freedom—capitalism—can do.

President John Kennedy, a Democrat, said it best while making his case for significant tax cuts in 1963. He said, “A rising tide lifts all boats.” Kennedy didn’t believe that the poor only get richer when the rich get poorer. He believed everyone could get richer with economic growth. History has shown that he was right.

This whole capitalism vs. socialism debate is backwards:

It’s not those who advocate for free market capitalism who need to justify their actions. Rather, it’s those advocating for socialism—or any form of it—who have a lot of explaining to do.

I’m Andy Puzder for Prager University.

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