The Politically Incorrect Guide to Capitalism

A few quotes from Bob Murphy’s The Politically Incorrect Guide to Capitalism for later reference.
I highly recommend this book, which touches on virtually all the controversial subjects and debunks a great number of faulty arguments against capitalism. It will make you think about and maybe re-assess commonly accepted myths. The casual tone and short chapters make for an easy read.


Capitalism is the system in which people are free to use their private property without outside interference. That’s why it’s also known as the free entreprise (or free market) system […]

Better be at the mercy of an employer in a free market – where you have a choice, the employer has competitors, and the worst he can do is cease giving you his money – than to be at the mercy of a state bureaucrat who makes choices for you with the force of the government behind him.

Are we simply to assume that powerful people in a capitalist system are evil, while powerful people in other systems are benevolent?

Ironically, another consequence of rent control is that it places an extra burden on […] “disadvantaged” groups. Because landlords can no longer rent to the highest bidder, other criteria are used to ration the supply of housing to the demand for it.

Discrimination is bad for business
Unfortunately, neither the United States nor any other country has an entirely free labor market, and so we can’t count on market forces to eradicate the unjust discrimination that offends most people.
It remains a mystery why leftists trust government to reform an unjust society. After all, any prejudices harbored by the people at large will be be reflected in the government officials they elect. The only difference is that bureaucrats don’t face the same free market penalties that employers (or customers) do for following their prejudices.

The sad fact is, people are motivated by all sorts of bad ideas [war, slavery, etc.] that keep us poorer than we otherwise could be. Beyond this general fact of human condition, here’s another: people will always lobby the government for privileges, even though everyone would be better off it all privileges were eliminated. The institution of slavery was just a particularly horrific consequence of this fact.

What’s the difference between bald eagles, white rhinos, and giant pandas on one hand, versus talking parrots, dairy cows, and thoroughbred horses on the other? Answer #1: All of the former are endangered species, while the latter are in plentiful supply. Answer #2: It is illegal to trade in the former, while the latter are brought and sold in the open market. This is no coincidence. When someone has well-defined and secure property rights in a reproducible resource, he has every incentive to ensure its continued existence.

[Julian Simon considered the human mind to be] the “ultimate resource”. A rising population meant more geniuses to solve the practical problems of food production and cramped living quarters. Julian Simon’s proof that additional people contribute more to society than they take? As population grows, so do real wage rates.

As Friedman points out, licensing doctors stifles research in unapproved areas, discourages them from testifying against each other in malpractice suits, and creates a sort of labor union problem where skilled doctors waste time performing routine medical procedure that, were it not for the AMA rules, could be handled by nurses.
The impossibility of any individual or small group conceiving of all the possibilities, let alone evaluating their merits, is the great argument against central government planning and against arrangements such as professional monopolies that limit the possibilities of experimentation.

Despite their possibly noble intentions, the end result of city planning was exactly the opposite: neighborhoods that were the most carefully “engineered” were the ones that ended up the most decrepit. The late Jane Jacobs in her 1961 classic “The Death and Life of Great American Cities” […] explained the surprising connection between zoning regulation and crime. She pointed out that public safety is best ensured when people voluntarily look after their own streets […].

What [Meyer and Finney] do claim is that the official reports rely on a faulty method: by studying only the data taken from crashes in which a fatality occurred, researchers would understandably infer that airbags save lives on net.
[But] In a severe accident, airbags can save lives. However, they are inherently dangerous and pose a risk to the occupant. Our analyses show that in lower-speed crashes, the occupant is significantly more likely to die with an airbag than without.

More generally, we must ask ourselves, how are bank runs possible?
By shielding banks from their contractual obligations, government policies encourage recklessness.

Because they leave out intermediate goods, GNP data grossly [exaggerate] the level of consumption in the economy… Naturally, this high level implies that the US economy is consumer-oriented, that changes in consumer spending – not investment or business spending – are the key to economic growth or decline.
[…] the conventional GDP (or GNP) exaggerates the relative importance of spending – both by consumers and by the government. […] In 2005 personal consumption expenditures were 70 percent of GNP. [… After correcting the accounting method], we find that consumer expenditures represent only 32 percent of total economic activity in 2005, while business spending accounted for 62 percent […].

Critics of capitalism think (wrongly) that the profit and loss test is arbitrary and crude. On the contrary, it provides an indispensable barometer of the consumers’ preferences over how resources are deployed. For example, when people say that government needs to subsidize a stadium or bus service, because “it wouldn’t be profitable for private business,” what that really means is that consumers would rather spend their money on other goods and services that would be profitable. By taxing their money and spending it on the stadium, the government hasn’t suddently changed people’s tastes or created resources out of thin air. No, all that’s happened is that the government has overridden the voluntary choices of the public and instead forced them to spend their money on the politically favored items.

[Outsourcing] makes our economy more efficient and makes America richer.
[The workers’] loss is more than counterbalanced by the gain of the shareholders of the corporation. How do we know that the winners win more than the losers lose?
We know the corporation must gain more than the laid-off workers lose by the following considerations. If the proposition weren’t true – in other words, if the displaced workers lost more in wages by switching to a different job than the corporation saved in production costs – then the corporation wouldn’t have outsourced the jobs in the first place.
Although the affected workers are hurt by an innovation in their particular trade, obviously all workers (in their capacity as consumers) benefit from the labor-saving machinery in general. The same is true of outsourcing.
[There are also benefits to people’s investments in form of retirement savings]

[…] the Fraser Institute’s famous studies (available at that demonstrate that freedom – especially economic freedom – strongly correlates with a country’s economic strength. Freedom works in practice, not just in theory.

The hated “markup” (the difference between the farmer’s price for his goods and the retail price to the consumer) is proportional to the importance of his actions: the middleman makes the most profit when he ships goods from areas of relative plenty (low price) to areas of relative scarcity (high price).
Beyond actualy transportation of goods, middlemen also provide more intangible services due to superior knowledge or economies of scale.



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