You have been told that capitalism is a system made for the rich to exploit the working class. That’s false. The rich and poor existed long before capitalism, but with the advent of a free market economy, a new group emerged that had never existed before in human history: the middle class. Millions of people were raised out of poverty as they rose into the prosperous middle class, but not everybody was happy with this evolution of society.
A History Lesson
Let’s rewind to the birth of capitalism in its homeland, England circa 1850. Scientific development had sparked the industrial revolution, and people who were not members of the nobility started factories, hired people and produced cheap products. They became truly wealthy. The rich ruling class detested this change and loathed the up-and-comers who had gained wealth from hard work and ingenuity rather than an aristocratic bloodline.
At the beginning of the industrial revolution, almost all wealth was held by the nobility in the form of land. A hundred years later, a significant proportion of wealth was in the hands of the industrialists. No wonder the upper class hated capitalism.
In 1850, workers still had good reason to be discontent; working conditions were appalling and often dangerous. Because of this, intellectuals like Karl Marx found fertile ground for socialist ideas. Marx made a prediction, which was in line with the thinking of many economists of the day: The iron law of wages would ensure that workers were always poor, on the brink of destitution. He predicted that wages would fall as the rich got richer, and many workers rallied to his cause.
But then something extraordinary took place: The exact opposite of what Marx had predicted happened. Wages rose dramatically and lifted so many people out of poverty that it created an entirely new class of the working wealthy, which we now call the middle class.
The Middle Class
In the 1890s, the social reformer Charles Booth created an economic map of London documenting that a significant portion of London was still living in abject poverty, and this was later used to argue for the creation and expansion of the welfare state. However, he also inadvertently documented that capitalism had propelled most of London’s population into the middle class. While the intellectual elite ignored this, workers didn’t.
By the end of the nineteenth century, the ideas of Marx were largely abandoned in the West as wrong and irrelevant. The workers who had initially rallied around his ideas lost interest when their wages rose and their working conditions improved. Capitalism had lifted up the overwhelming majority of people and they were happy about it.
But two groups of people were still discontent. The lower class was lagging, often in a vicious cycle of social ills that perpetuated their problems. It’s not hard to understand why they would feel left behind.
Far more mysterious, however, was the other unhappy group: intellectuals, academics, and the super-wealthy. These days, uber rich leftists like George Soros spend an inordinate amount of time disparaging capitalism and trying to rally up the lower class to rebel against the middle class. As the number of have-nots dwindles, this group has adopted the strategy of appealing to racial minorities and renaming the middle class as beneficiaries of “white privilege” in order to turn the issue into one of race.
Their hatred of capitalism is harder to understand from a rational stance. Why would they hate a system that made most people wealthy? The answer is that they probably hate capitalism for the very same reason that the nobility hated it around 1800: It threatens their natural position of power at the top of the hierarchy. Academics and the super wealthy still have power, but it is so much less than they feel they deserve.
And it’s all because pesky capitalism created the darned middle class that severely undermined the power of the wealthy and the noble.
Middle Class Under Attack
You may have heard that the middle class in America has stagnated over the last 50 years, and the most common explanation floating around is hyper-capitalism. The rich are getting wealthier at the expense of the middle class and capitalism is to blame. But since capitalism created the middle class, it seems more likely that the opposite is the case: Free markets have been waning in America for decades, and that’s the true cause of stagnation.
We can show this to be the case by comparing the U.S. to some of the most capitalist economies in the world, such as the system in Singapore. Half a century ago, the South-East Asian nation was dirt poor, with little to offer but jungles and slums. Today, it is one of the richest and most vibrant economies in the world, where Singaporeans make more than the average American. Since 1990, their wages have risen over 60% faster than American salaries.
Notice that Singapore accomplished this while having unprecedented levels of sustainable immigration; 40% of the population are non-citizens. What’s their secret? Capitalism. They learned from the West and got rich using the method that we have forgotten and dismissed as outdated.
What has held America back? Taxes are undoubtedly part of the picture, but most of the problem can be attributed to regulation. Like leeches, swamp creatures in D.C. have sucked the vitality out of the economy, dragging the middle class down. Regulations are sneaky because they act like a tax but are invisible. Often, they have no other function than to make some bureaucrat feel empowered, and you pay the price in the form of rising house prices, slowing innovation, increased congestion and runaway inflation in education and health.
To reinvigorate the middle class, America needs to return to the system that created it in the first place. That can only be achieved by cleaning up the socialist smog that pollutes the minds of the brightest people in our universities. Only then can the swamp be fully drained.