Can Capitalism Survive? Ben Rogge on Capitalism's Future

Unlike the authors discussed in previous Liberty Classics, Rogge’s work did not break new theoretical ground or provide the basis for new and related research agendas. His contribution was communicating to non-specialists the scholarly work of others in interesting and accessible ways, which is what good teachers do. Few economists perform this function effectively enough, however, to become, solely on the basis of that performance, highly regarded by many of the most prestigious economic scholars of their day. Ben Rogge did. He knew that sharing with the general public existing economic knowledge, much of it going back to Adam Smith, is a more productive activity for most economists than trying to impress other economists with esoteric analysis to develop “new” economic knowledge.4

Many people have heard the term “creative destruction” and a few will know it was coined by Schumpeter to explain the productivity created by profit-seeking entrepreneurs and businessmen. But unless they are professional economists it is doubtful they will ever read Capitalism, Socialism and Democracy or know that Schumpeter thought businessmen were more likely to compromise with bureaucrats and politicians in support of anti-capitalist policies than to resist such policies.5 Indeed, it is unlikely that many economics professors today have read Schumpeter, and even less likely that their students will be exposed to his contributions or to those of other giants in the history of economic thought. Thank goodness there are still important exceptions to this statement!

More troubling is that few academics in the social sciences and humanities today are willing to defend capitalism, and too many of them are hostile to it. Rogge quotes Schumpeter suggesting one reason an academic is likely to be antagonistic to capitalism arises “from the fact that his main chance of asserting himself lies in his actual or potential nuisance value.” (page 28) This is not as flippant as some might think, given the spitefulness of many academics. This spite is likely the result of the aggravation of academics to the “widening gap between their own incomes and those of the businessmen,” (page 29) which they seem to believe is the result of the inherent fraud and unfairness of capitalism.6

Why is this opposition of any consequence given Rogge’s discussion of Schumpeter’s resounding ‘yes’ to the question of whether capitalism can survive? Hasn’t capitalism been successful at “producing over time continued improvement in the economic wellbeing of the masses?” That answer is illustrated with Schumpeter’s observation, quoted in Rogge that, “Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist of providing more silk stockings for queens but in bringing them in reach of factory girls in return for steadily decreasing amounts of effort.” (page 17)

If indeed the masses benefit so much from capitalism, the casual reader of Rogge’s book might conclude that the political influence of those masses in favor of capitalism would cancel out the antagonism of the relatively few businessmen, academics, and bureaucrats. If they keep reading, however, Rogge explains that “the masses of the people [lack] any real understanding of the system that has heaped riches upon them or any instinct to defend from attack the central figure in that system, the businessman.”7 Rogge also believed that the biggest problem in making the case for capitalism is not convincing the masses of the “efficiency of the free-market system in promoting economic growth, in raising levels of living… but rather [convincing them of] its consistency with certain fundamental moral principles of life itself.” (page 40; emphasis in original)

Further, as Rogge also points out, “the profit-directed activities of the businessman are [considered] antisocial” and probably immoral, by many. Yet, a complete case for capitalism cannot be made without explaining the importance of businessmen maximizing their profits within the law. So, as important as Rogge thought making a moral case for markets and business is, he spent little time attempting to do so. He does make a humorous, but modest, effort, however, with this statement (page154):

• I make no claims for the superior moral fiber of the businessman, but I will say this: A basically dishonest man can survive longer in the church or the classroom than he can in the grain exchange or the furniture business. The penalty system in the business world operates with some real precision and certainty, largely unencumbered by a mystique of occupational sanctification.

Making the case for capitalism on the ability of markets to promote economic growth and increased living standards may not be as important as making the moral case, but it is easier for economists to do, which is what Rogge did in his chapters on profits and labor markets.

But I want to return to the hostility to capitalism we can expect from businessmen and academics, respectively. Rogge tells us he takes no pleasure in reporting “that the course of events is lending ever greater credibility to the Schumpeter thesis.” (page 31) Following Schumpeter, Rogge argued that as firms became larger in response to efficiencies of scale, the importance of individual entrepreneurs is diminished relative to that of teams. Entrepreneurs become less heroic and more obscure figures, widely thought of, when thought of at all, as more interested in profits than people. Rogge asks, “when did you last see a businessman treated sympathetically in a novel or a play? Whose name is better known to the American people: Ralph Nader or the president of General Motors or General Electric?” (page 32) As Rogge puts it, “capitalism created the organization man—and the organization man is indifferent to capitalism.” (page 27) As government regulations and subsidies increase, the profitability (and possibly the survival) of large corporations becomes less dependent on satisfying the preferences of consumers and more on capturing the government benefits that undermine capitalism.

Regarding academics (or intellectuals8), Rogge asks:

• Do we, or do we not have a surplus9 of intellectuals? Are they or are they not, by and large, critical of the American businessman and of the system of which he is a part? Do they or do they not ‘nurse left wing and scowling minorities, sponsor doubtful or submarginal cases’ (such as the lettuce boycott)? Do not these critics of capitalism control the world of the academy? (pages 31-32)

To ask these questions was to answer them. Many of the problems Rogge saw with higher education were caused, or at least aggravated, by “below-cost pricing”. Briefly stated, he argued that increased reliance on tuition, along with private-sector loans, to finance colleges and universities would better ration admission to those most capable of benefiting from higher education and motivate them to take advantage of their capability once admitted. Related, by tying professors’ incomes closer to students’ fees, Rogge asserted their incentive to take their teaching seriously would increase, and they would spend less class time expounding ideological views unrelated to the subject matter being taught.10

Economic productivity has clearly increased since Rogge died in 1980, with consumers of American businesses and students in higher education benefiting from some of the resulting changes in these institutions. Unfortunately, not all those changes have benefited consumers and students, and many of them have further reduced the prospects of free-market capitalism. The business climate has become increasingly less favorable to maintaining capitalism because of the threats and opportunities businessmen face from an increasingly intrusive government. A clear threat comes from a minefield of uncertainty resulting from a host of complex, inconsistent, and arbitrarily enforced regulations (federal, state and local) that do even more today to distort and undermine market decisions than when Rogge was writing. Admittedly, many regulations are sought by businesses, particularly large businesses, which serve to protect them against the competition of smaller businesses, which reduces “creative destruction” and therefore the dynamic efficiency of capitalism. Tax breaks, import restrictions, export subsidies, and certain environmental regulations are examples of political opportunities for businesses to profit from rent-seeking activities that destroy wealth instead of engaging in capitalistic activities that increase wealth.

But it would be changes in higher education that would really give Rogge the educator a nasty jolt if he returned to a university campus today. He would be encouraged and pleasantly surprised when he saw how much tuition had increased. He would be even more surprised, but hardly encouraged, when he found out how much government is subsidizing colleges and universities despite the higher tuitions. Rogge’s enthusiasm would lift when told that most universities, including the most prestigious, are emphasizing the importance of diversity and the basic humanity of people from all over the world in an effort to reduce prejudice and promote international peace. He would assume that such a curriculum included the study of markets and capitalism as the most effective way of achieving those noble objectives. As Rogge, in another collection of his articles, wrote:

• The process of voluntary exchange tends to be “civilizing” in its social impact on the parties involved, including a greater awareness of each other’s basic humanity and a reduction in sheer uninformed prejudice. This civilizing influence, combined with economic interdependence created by trade, tends to reduce conflict between the parties involved and to make for more peaceful relationships, both within a country and between countries. (A Maverick’s Defense of Freedom, pages 373-374)

But again, he would be disappointed upon discovering that the dominant view of market capitalism by campus diversity advocates and many students is that it allows the powerful and privileged to maintain their underserved wealth and status by exploiting underprivileged minorities. Indeed, favorable statements about capitalism and the importance of bourgeois values are considered hate speech (or even acts of violence) by those dedicated to creating welcoming campus environments so underrepresented minorities will no longer have to live in fear on such threatening campuses as the University of Pennsylvania, Berkeley, UCLA, Yale, and many more.11

Rogge’s disappointment would be further deepened by finding out that recent polls show that more millennials, those born between 1982 and 2002, would prefer living in a socialist or communist country than in a capitalist one.12 But he might receive a slight lift when he visits an economics principles course and finds out that economists are not responsible for the poor understanding of economics by today’s students. This comfort is minimal though, since it is based on seeing that economics isn’t being taught any worse than it was forty years ago when he wrote, “College Economics: Is it Subversive of Capitalism?” (page 130) At that time, Rogge answered no it wasn’t, because the level of teaching in the introductory course “is generally of such poor quality that the students are neither subverted nor enlightened—primarily they are bored.”

This represents a tremendous opportunity wasted during Rogge’s day, and still today. Over one million American college students take an introductory economics course each year, which is the best opportunity most will ever have to understand how market capitalism makes it possible for billions of strangers to help each other obtain two essential ingredients to human flourishing—prosperity and freedom—by engaging in a mutually beneficial process of productive cooperation.13 This doesn’t mean college students aren’t hearing some interesting lectures on economics and capitalism. They are just not hearing them in economics courses. As Rogge points out, the student receives “the true economic nonsense of the left in his courses in literature, history, political science, social psychology, sociology (one of the worst offenders), and philosophy.” (page 131)

From all accounts, Rogge was a cheerful man, willing to enter the arena of intellectual combat even when the prospects for victory were bleak. He continued making his case for capitalism with a smile on his face and lots of humor until the very end, even though he agreed with Schumpeter that making the case for capitalism was an uphill, and likely futile, fight. It should be no surprise that Rogge quoted Schumpeter’s famous statement that “[t]he report that a given ship is sinking is not defeatist. Only the spirit in which this report is received can be defeatist: The crew can sit down and drink. But it can also rush to the pumps.” There is still a lot of pumping to do.

References

Lee, Dwight R. (2016). “Teaching the first economics course as if it is the last,” Journal of Business and Management, Vol. 22, No. 2 (2016): 101-113. A Festschrift Volume on the Economics of Education in honor of James L. Doti and Lynne P. Doti.

Mac Donald, Heather (2018). The Diversity Delusion (New York: St. Martin’s Press).

Rogge, Benjamin A. (1979). Can Capitalism Survive. (Indianapolis: Liberty Fund, Inc.).
Rogge, Benjamin A. (2010). A Maverick’s Defense of Freedom (ed.) Dwight R. Lee. (Indianapolis: Liberty Fund, Inc.).

Schumpeter, Joseph (1975 [1942]). Capitalism, Socialism and Democracy (New York: Harper Colophon).

Footnotes

[1] Obviously, people can be recognized as strong advocates of something while explaining that it is subject to grave threats. But when they are, they typically suggest steps than can be taken to moderate the threats, if not eliminate them entirely. Neither Schumpeter nor Rogge provide such hope. Schumpeter (pages 424-425) states “Marx was wrong in his diagnosis of the manner in which capitalist society would break down; he was not wrong in the prediction that it would break down eventually.” Rogge (1979, page 40) admits “I do not expect to see such an economy [a market economy with a minimum government] in my lifetime or in anyone’s lifetime in the infinity of years ahead of us.” He does offer very cautious hope for limited progress from education in his last chapter.

[2] Joseph Alois Schumpeter. Capitalism, Socialism, and Democracy. Harper & Brothers, 1942.

[3] Benjamin A. Rogge. Can Capitalism Survive? Liberty Fund, Inc., 1979. Available online at: https://www.econlib.org/library/LFBooks/Rogge/rggCCS.html.

[4] I understand that these two activities can complement each other, but for most economists they don’t.

[5] Businessmen frequently seek such policies as a way to restrict the entry of competitors into their industry. Rogge (1979, page 32) hints at this by paraphrasing, without elaboration, Adam Smith’s comment about never knowing much good done by a businessman who affected to trade for the public good.

[6] From Rogge (1979, page 29) paraphrasing Schumpeter.

[7] This is consistent with a public choice explanation, but Rogge doesn’t expand the explanation by considering the lack of motivation for an individual consumer to exert political influence to protect widely dispersed benefits.

[8] Rogge points out that he uses the term intellectuals as defined by Schumpeter, which is broader than academics. But I am using it to refer to academics.

[9] Meaning, as you would expect of an economist, more than can get the jobs they were trained for and want at prevailing wages. While not true for all academic majors, this is clearly true for many social science and humanity majors.

[10] See Rogge (1979, Part VIII, Chapter 1) on “Financing Higher Education in the United States.

[11] If this sounds too bizarre to be true, see Mac Donald (2018, Chapter 12).

[12] See Bradford Richardson, “Millennials would rather live in a socialist or communist nation than under capitalism: Poll,” The Washington Times: November 4, 2017.

[13] For a detailed discussion of this wasted opportunity see Lee (2016).