The wealth of generations - Capitalism and the belief in the future

The 22nd Annual John Bonython Lecture, The Centre for Independent Studies,

The Sofitel Wentworth, Sydney, Tuesday 11 October 2005
Langham Hotel, Auckland, Thursday 13 October 2005


Belief in the future is perhaps the most important value for a free society. It is what makes so many interested in getting an education, or investing in a project, or even being nice to their neighbours. If we think that nothing can improve or if we think that the world is coming to an end, we don’t work hard for a better and more civilised future. And we will all be miserable.

Enlightenment philosophers created the belief in the future in the 17 th and 18 th centuries, by letting us know that our rational faculties can understand the world, and that with freedom we can improve it. And economic liberalism proved them right. When Adam Smith explained that it’s not from the benevolence of the butcher that we expect our meat, but from his self-interest, it was much more than an economic statement, it was a world view. It was a way of saying that the butcher is not my enemy. By cooperating and exchanging voluntarily, we both gain, and make the world a better place, step by step.

Since those days, mankind has made unprecedented progress, but astonishingly most of us don’t see that, because of ancient mental mechanisms that were developed in much more dangerous days, when one man’s gain was often another man’s loss. Tonight I will discuss what they are and how to deal with them, and I think that a good place to start is with an ideology that has made the most of those mental mechanisms: Socialism.

Karl Marx explained that capitalism would make the rich richer and the poor poorer. If someone was to gain, someone else had to lose in the free market. The middle class would become proletarians, and the proletarians would starve. What an unlucky time to make such a prediction. The industrial revolution gave freedom to innovate, produce and trade, and created wealth on an enormous scale. It reached the working class, since technology made them more productive, and more valuable to employers. Their incomes shot through the roof.

What happened was that the proletarians became middle class, and the middle class began to live like the upper class. And the most liberal country, England , led the way. According to the trends of mankind until then, it would take 2 000 years to double the average income. In the mid-19th century, the British did it in 30 years. When Marx died in 1883, the average Englishman was three times richer than he was when Marx was born in 1818.

The poor in Western societies today live longer lives, with better access to goods and technologies, and with bigger opportunities than the kings in Marx’ days.

Ok, said Marx’s evil apprentice Lenin. We might have been wrong about that. But the working class in the West could only become richer because they are bribed by the capitalists. Someone else would have to pay the price for that bribe – the poor countries. Lenin meant that imperialism was the next natural step of capitalism, whereby poor countries had to give up their work and resources to feed the West.

The problem with this argument is that all continents became wealthier, albeit at different speeds. Sure, the average Western European or American is 19 times richer than in 1820, but a Latin American is 9 times richer, an Asian 6 times richer, and an African about 3 times richer. So from whom was the wealth stolen? The only way to save this zero-sum theory would be to find the wreckage of some incredibly advanced spacecraft that we emptied 200 years ago. But not even that would<