The reason things continually improve under capitalism is because of the nature of market transactions. People don’t exchange with each other unless they both feel they benefit. Also, the freedom of the individual to choose is what prevents capitalism from spiralling out of control. It has built-in feedback mechanisms which prevent that from happening.
For example, when the price of a commodity goes up, it suddenly opens the market up to replacements which were too expensive before, but no longer are. If there is a glut of labor, the price of labor goes down until people find it valuable, and those people get hired again. If there is a shortage of a certain type of labor, wages rise, which attracts people into the field.
In fact, it’s government which is unstable, and which is the real threat to peace and prosperity, because government has the power of force and is therefore able to short-circuit the natural feedback mechanisms of supply and demand.
Let me give you a perfect example of the difference: In Canada, Atlantic fishermen lobbied the government for aid, on the grounds that fishing is seasonal and they should be able to collect unemployment benefits during the winter months. The government allowed this, which short-circuited the mechanism which would have fixed this ‘problem’. Now we have a permanent underclass dependant on government largesse to maintain their lifestyles. And once their income becomes tied to the whim of legislators, they begin agitating for more, or complaining when they get less. Atlantic Canada is not really very happy about their economy.
Now look at Atlantic U.S. states like Maine. They have the same problem, don’t they? Well, no. Because the government never bailed them out. So the market took over. Smart people noticed that there were a lot of people looking for work in the winter, so seasonal businesses showed up. Atlantic U.S has evolved summer and winter economies. The people there have good standard of livings and unique lifestyles that they enjoy.
I’ve often said that the difference between central planning and the market is that the market is like the natural forces holding a pencil in balance when it is suspended from your fingers. If it gets pushed away from vertical, gravity pulls it back again. Likewise in the market, if the price of something goes up, forces arise to compete and offer alternatives, or to build more of the thing until prices stabilize again. As people satisfy their needs, they move on to new things. New markets open up to meet new demands, and capital and labor flow into them, as if guided by an invisible hand.
Government, on the other hand, is like trying to balance a pencil on your fingertip. The pencil starts to tip, so you have to notice this and react by moving your hand to keep it balanced. That’s what government tries to do. It tries to solve problems by pushing and pulling at society from the top down to ‘fix’ problems that crop up. Taken to its extreme (socialism or communism), government even tries to solve the problems of day-to-day supply and demand from the top down - with predictable (and unstable) results. Shortages, gluts, inefficiencies, etc.
Empirical evidence backs this up. Look around the world, and show me a capitalist economy that melted down or spiraled out of control. I, on the other hand, can show you all kinds of countries that spiraled out of control and became basket cases due to flawed government policies.
It’s a good thing to be skeptical of markets, because they can have their problems as well. What distresses me is that the same people who seem to be ultra-skeptical of markets tend to accept the efficacy and efficiency of government as a given. You worry about how the market treats health care? I’m TERRIFIED of what government can do to it. You should be too, given its track record.
Government should always be the tool of last resort, applied sparingly, after much deliberation, and only when all other alternatives are exhausted. It should not be used like a giant fix-it man, to be applied willy-nilly to ‘solve’ every problem we face. That’s the road to poverty and disaster.