Societies can range from the very ordered, with everyone fulfilling a predetermined role, to very disordered, where no one even has a role, although of course most fall somewhere in between. Both have something good that can be said for them. In societies that are very ordered there is the potential for equality amongst most citizens. And in societies that are disordered there is a greater potential for change that can improve the lives of everyone. On the other hand societies that are very ordered tend to stagnate, and can often become dictatorships with widespread social injustice. And in societies that are disordered there is rarely any justice to begin with.
Ideal capitalism is a society that is almost maximally disordered, and is in many ways very close to anarchy. Everyone is attempting to make the most money possible, and so is in competition with everyone else. Thus they attempt to make the best products possible, and so the standard of living is constantly on the rise. Of course not everyone can be successful in this system, some people lose out, sometimes by making bad choices and sometimes by bad luck. And this is what I meant by social injustice, as in a system that is fiercely competitive some will always end up pushed down, out competed, and it is hard to say that such outcomes are desirable. Still, we can defend this system by arguing that on average people are better off, even if there is the occasional loser.
Of course there is also various forms of managed capitalism, ranging from the enforcement of contracts to corporate capitalism. Each move away from ideal capitalism has its benefits. Enforcing contracts that people enter into paves the way for people to come together and undertake larger projects than they would be able to individually. Taxation allows the existence of public goods, investments that everyone benefits from, and from which people can’t be excluded, that otherwise wouldn’t be created. Government regulation allows for the minimization of negative externalities (where costs are pushed onto people other than the producers and consumers). Finally corporate capitalism allows for the creation of institutions that have a motivation to plan for, and invest in, the future, since they will “outlive” their members.
And from corporate capitalism it is a short step to fascism (defined as a government run by corporations) or communism. The benefit of such a move is that by combining the corporate sector with the government social justice can be increased. The government could ensure that everyone had a job and is paid well enough to live comfortably, at the cost of giving up some freedoms. Many people think that this obviously sounds like a bad idea, but really all of these steps, from ideal capitalism to communism have been a process of giving up various freedoms in the expectation of some benefits. So let us assume that our maximally ordered society wouldn’t be taken over by a dictator. Is it then a desirable outcome?
I think most people’s opinion is that it is not, even if social justice could be potentially increased. I will assume for the moment that this is not because most people are employed and have enough to live on, and thus aren’t bothered by the problems of the people at the very bottom, instead I will assume that it is because by making that move we are giving up some essential freedom that we shouldn’t. The really interesting problem is justifying our decision that we can’t make this transition while at the same time justifying the others. A quick list of some of the other freedoms that have been given up:
Contracts – the freedom to change your mind
Taxation – the freedom to use your money as you wish
Regulation of Externalities – the freedom to use your capital (run your business) as you see fit*
Corporations – the freedom to compete (successfully) as an individual
So why did we accept giving these freedoms up? The answer is that a society we formed by giving them up was by some better by some standard. Specifically they brought benefits to everyone, or almost everyone, while moving to a completely regulated society (done justly) brings benefits only to those at the very bottom. Whether this is a good reason or simply a selfish reason I will leave up the reader. Personally I think we have already given up too many freedoms, that our society has become too ordered. My reason for this belief is that I think we have lost some long term stability in the move to corporate capitalism, but that is something I have already discussed.
* Some argue that you can’t simply run things as you see fit, you aren’t allowed to use a gun as you see fit just because you own it. In response it has been proposed that if one doesn’t like how a certain machine is used (maybe it produces toxic byproducts) it should simply be banned, with existing owners being reimbursed for their losses. By simply taxing or fining the owners of such machines (or forcing them to clean up, a form of taxation) you are putting them in an unfair situation, since getting out of business takes money (even if you simply stop producing you need to play rent / taxes on land, pay workers for some time, ect) and so some may be forced to work just to say afloat even though they aren’t making enough money to justify it. This isn’t an economics blog, so I won’t go into any more details. Oh and you can’t simply ban them either, since society depends on certain chemicals the production of which necessarily creates unwanted wastes.