Teaching about Free Markets Doesn’t Have to Be Complicated

By Matthew Hennessey

Monday, April 25, 2022

 

Note: The following is adapted from chapter one of Visible Hand: A Wealth of Notions on the Miracle of the Market by Matthew Hennessey.

 

I went to high school in the late 1980s. It was the Reagan era, a prosperous and hopeful time in much of the country. You’d have thought that living in a flourishing and peaceful land would have fostered in adults an interest in teaching children the fundamentals of the market economy.

 

In fact, it was the opposite. Adults weren’t any more interested in talking about economics than I was in hearing about it. The only economics on offer came delivered in the oddly wrapped curricular package labeled “social studies” — a pre-woke bouillabaisse of history, criticism, theory, and popular nonsense about the shortcomings of market capitalism.

 

What is capitalism? The word gets bandied about a lot. How many people have a firm handle on what it really means? Merriam-Webster describes capitalism as “an economic system,” and it’s easy to see why they do — part of a dictionary’s job is to keep up with how words are used and understood in real life.

 

But that makes it sound as if capitalism were manufactured on purpose in a factory somewhere and maintained by a set of trained mechanics. It wasn’t and it isn’t.

 

The root is capital, a word with many possible meanings that in this case, as my succinct colleague Barton Swaim put it in a 2019 Wall Street Journal op-ed, refers to “money used to invest or build and so earn more money.” Capitalism, therefore, could refer to a number of things.

 

The best definition of capitalism, I contend, is that capitalism is what capitalists do — it is the sum total of the actions of those private entrepreneurs who use money to invest or build so they can earn more money. That’s capitalism. Add up all the investing and building of all the capitalists in a free market and you’ll get something that resembles a “system.”

 

It looks to have been constructed and maintained but is in fact what the Austrian economist Friedrich Hayek called a “spontaneous order.” Everyone is tending their own garden. It’s completely voluntary. “The system” is merely a summa of individual choices and voluntary market transactions. No one manages or controls it. No one could.

 

A socialist economy, on the other hand, is a system for sure. The government, not private actors, decides how to invest and what to build. Participation is, for the most part, not voluntary. Socialism is what socialists do — they make plans.

 

A socialist economy “must be created, planned, vigilantly monitored and forcefully regulated in order to function,” Swaim notes. “But a market economy has no plan.” In the words of the 18th-century Scottish philosopher Adam Ferguson, capitalism operating in a free market may look like a man-made mechanism. In fact, it is “the result of human action, but not the execution of any human design.”

 

In my high school we never even got the dictionary definition of capitalism. Instead we learned about the economic inequality of the Gilded Age — Andrew Carnegie and Pittsburgh smog, John D. Rockefeller and the monopoly of Standard Oil. Even if we didn’t understand what free silver was in practical terms, we knew that William Jennings Bryan viewed it as a matter of economic justice for the little guy. Teddy Roosevelt was a hero for busting the trusts.

 

All of this was predicated on the assumption, still so popular, that economic growth is a zero-sum game. If John D. Rockefeller gets a piece of the pie, it means you can’t have one. The rich get rich on the backs of the poor. Capitalism is fundamentally exploitative.

 

In the United States, at least, this is demonstrably untrue. The poorest American in 2022 is hundreds of times wealthier in real terms than the wealthiest American in 1776. He has greater access to essentials, like good food and quality housing, and enjoys a life expectancy that is essentially double what it was at the founding of the country. Rising societal wealth has financed medical and technical marvels that would have made Benjamin Franklin let go of his kite and stay in his bath for a week.

 

You don’t have to be an economic historian or a Nobel Prize winner to understand how far humanity has come; just look at the footwear. The Minute Men and milkmaids of the Revolutionary era would have killed to get their hands on a pair of cheap, durable, comfortable, stylish, and, most of all, easily replaceable Nike sneakers.

 

What free market capitalism has done for this country — and others — is nothing short of a miracle. Our ancestors, if they could see us, would be amazed by our wealth and comfort. And yet most teenagers graduate high school with only the dimmest impression of what markets are and how they work.

 

The first economics most teenagers learn is the economics of celebrity. From watching the careers of their favorite athletes, movie stars, and musicians, a simple reality becomes clear: Famous people get rich. The surest route to material wealth is to be blessed with physical attractiveness or an outsized talent in a profession with the means to compensate you for it.

 

It’s lamentable that celebrity is the entry point to economics for so many of us. Before we know anything about how a household works, before we understand what our parents do for a living and how it relates to our general welfare, before we ever hear the words “supply” and “demand” spoken by someone who knows why they matter, we know that Leonardo DiCaprio makes $35 million per movie and that some kid from Indiana became a billionaire by making videos on TikTok.

 

Things would be so much better if this distorted worldview could be interrupted before taking hold in young minds and replaced with some real talk about trade-offs, incentives, choice, and competition. I think schools should teach economics — the real kind, not fairy tales about lottery winners, movie stars, and athletes, and not horror stories about monocled, wealth-hoarding Monopoly men. Kids can handle the real stuff. It’s not nearly as complicated as most credentialed economists insist on making it. Start from the start.