A Review of Rainer Zitelmann’s ‘In Defense of Capitalism’

There’s a creeping victimhood within a U.S. conservative movement that has long decried the victim culture. This reveals itself most notably every time the Left “cancels” one of its ideological opposites. In his 2019 book The Smallest Minority, Kevin Williamson (not a victim) joked about how very interested publishers were in the aforementioned book after The Atlantic fired him three days into the job. The wildly talented Williamson quipped that overnight he was THE story on the Right, and it paid dividends. It arguably still does.

Since some on the Right (full disclosure: my policy views most definitely tilt libertarian) think the Left is out to get them and the people they admire, the path to fame, intense interest in your views, and relative fortune (this is, after all, writing and punditry) is to have those meanies on the Left “cancel” you. Yours truly once referred to it as the Right’s “Cancel Industrial Complex.” We’re all victims now, or something like that.

The new victimhood came to mind while reading Rainer Zitelmann’s new book, In Defense of Capitalism. From the book’s very first sentence capitalism is the wronged ideology. As Zitelmann puts it, “In the public mind, capitalism is associated with everything that has gone wrong with the world.” Not only is the latter not true, it’s just so whiny. Underlying the yelping is something like “that’s not fair.” Waaaah.

Oh well, as someone who believes deeply in the genius of capitalism, my view is that if Zitelmann is correct about the allegedly low global view of capitalism (he’s not), the fault must lie with the capitalists; that, or the true believers in capitalism. Think about it. If they’re actually losing such an easy debate, the fault clearly lies with them. Because the debate is simple. And if you’re scratching your head about its simplicity, just Google the satellite photos of North and South Korea at night, or visit Singapore after traveling to India. This is so very easy.

It brings to mind yet another lament from a Right that increasingly feels so wronged. It’s popular among politicians to complain that “they [hopelessly confused Left-wingers] are offering free stuff, while we’re offering spending cuts. We can’t win.” Zitelmann sadly joins this echo chamber. He writes that “It is easier to win elections with welfare promises and redistribution program than it is with free-market reforms.” Waaaaah, once again. Victimhood combined with falsehood combined with excuses. Indeed, if we ignore that there’s no discernable decline in federal waste at the least in the U.S. when the Right-associated Republicans control the purse, we can’t allow such nonsensical victimhood to go unanswered. Really, what’s so challenging about making a case against Nancy Pelosi, Mitch McConnell and Joe Biden allocating precious resources versus Jeff Bezos, Elon Musk and Fred Smith? In other words, the case for spending cuts is remarkably easy, except to the crybabies on Right who claim it isn’t. It was disappointing to see Zitelmann so comfortably caucus with this crowd in a rhetorical sense.

Only for the victim talk to continue. Zitelman suggests that a source of all the alleged skepticism about capitalism is the schools. Apparently those anti-capitalist meanies “know that most people today will have learned very little from their teachers at school or university about the cruel and callous conditions under socialism.” Maybe not, but are they being taught otherwise in Mexico, Guatemala, Honduras, Venezuela, and other countries south of the U.S.? It rates asking because citizens of those countries seem to know the horrors of life without capitalism pretty well. That they routinely risk their lives to get to one of the the world’s most capitalist countries (more on this in a bit) is a sign that ideologically slanted teaching is unequal to the horrors of state economic control.

As for the U.S., there seems to be a disconnect. Supposedly the deepest disdain for capitalism can be found in states like California, but the latter annually takes in half of the world’s venture capital. This is brought up as a counter to Zitelmann’s assertion that capitalism has such a bad name. Rest assured that if the perception were as bad as Zitelmann claims (he writes toward book’s end that 47% of Americans surveyed agreed “capitalism as it exists today does more harm than good in the world” – surely higher in the Golden State?), and as deeply held as he seems to think it is, the capital outflows from the U.S. would be staggering in scope. In other words, markets are wise. Better yet, they’re not ideological. Markets signal a much more positive outlook for capitalism than Zitelmann seemingly does.

None of this is meant to besmirch Zitelmann’s correct belief in economic freedom. As editor of RealClearMarkets, I routinely feature his commentary. But it is meant to question his approach to elevating capitalism. It’s not so bad for our side. We have the easy job, while anti-capitalists have the impossible one. Get it?

For starters, Zitelmann is arguably too wedded to numbers over gut instinct as is. He cites a 2016 poll of 26,000 polled in 24 counties in which “70 percent believed the poverty rate had increased” over the last 20 years, while only “13 percent of respondents believed that the poverty rate had decreased.” On its face this reads as depressing until we remember what happens at our southern border every time the U.S. economy booms. And it’s not just here. Allowing for Zitelmann’s correct assertion that country economies around the world are a “test tube containing elements of markets and socialism,” people get it. While Europe is not as economically free as the U.S. or North America, Charlie Hatch-Barnwell, Chloe Baker, and Mike Martin’s 2016 book Crossing the Congo details in tragic fashion just how desperately Congolese citizens are to make their way to Europe, and exponentially greater economic opportunity.

The simple truth is that the world’s poorest constantly reveal through their actions just how much they loathe working and living conditions in countries where the proverbial “test tube” tilts toward socialism and government control. Forget polls, just watch what people do. Similarly late in the book Zitelmann writes that “As expected, low income earners (annual household income of less than $25,000) are less pro-market than high income earners,” but you sure wouldn’t know it by their movements. Nor would you know it from the migration of Lefty college graduates. Figure that they seemingly have an affinity for New York, San Francisco and Los Angeles, arguably the three most ruthlessly capitalistic business cities in the world. Please read on. Indeed, something north of 90% of technology firms fail, in New York City you’re always one bad trade or one missed deal away from the unemployment line, and then it goes without saying how bareknuckled are business practices in Hollywood. These truths seemingly belie polling data cited by Zitelmann, but also his pessimism. Watch what people do, not what they say to pollsters?

So while Zitelmann’s approach wasn’t for me, there’s surely useful information in the book. For one, we perhaps forget how awful things were for those living in past centuries. Here Zitelmann notes that “In 1820 around 90 percent of the global population was living in absolute poverty.” Very compelling, but there too lies a problem. In Part C of the book Zitelmann lists “Capitalism leads to growing inequality” as a “negative statement” about it. The view is backwards. And the 1820 stat explains why. Absolute poverty was the norm then because the global division of labor wasn’t nearly as advanced (a lack of specialization points to greatly reduced productivity, wages), and worse, the sad fact that the world wasn’t nearly as interconnected was a cruel sign that the world’s most talented entrepreneurs couldn’t reach nearly as many people with their genius. Put another way, the world wasn’t nearly as connected, and the hideously cruel result was greatly reduced inequality.

Far from a negative, soaring inequality signals rising economic freedom in concert with a skyrocketing ability for the supremely talented to meet and lead the needs of exponentially more people. Inequality is easily the greatest feature of capitalism, and it’s one that’s routinely proved a magnet for the world’s poorest in pursuit of the United States. Not only do the desperate and tired risk it all to get to where inequality is realistically greatest, they plainly flock to the most unequal parts of the U.S. once here. The freer the people the greater the inequality, and the greater the inequality the more that there is opportunity. At certain points in the book Zitelmann reveals an understanding of the genius of inequality (“more inequality means that people are happier”), but he doesn’t always stick to this truth. He should.

Zitelmann writes of how “physical weakness” born of a lack of food defined life before capitalism, and there’s no arguing with his association of weakness with a lack of food. At the same time, it’s not as though capitalism was just invented at some point. This is why his description of it as a “system” read as misplaced. Capitalism’s genius is precisely the lack of a system, at which point capitalism has long been life. Lest we forget, Adam Smith didn’t invent capitalism with The Wealth of Nations as much as he was reporting on it as vibrantly practiced in the 18^th century. Life was already happening. People were poor because poor is the natural state where there’s a lack of freedom, more crucially a lack of interconnectivity, or both. Basically, a case could be made that the surest sign of poverty is a lack of “globalism” that so many on the Right have demonized in modern times.

Zitelmann is surely persuasive when he points out that “As recently as 1981, as many as 88 percent of the Chinese population was living in extreme poverty” versus less than 1 percent today, but even more persuasive in moving beyond numbers to anecdotes about formerly desperate Chinese quite literally selling “human flesh” on the black market, or of a couple strangling their 8-year old son for food. The problem for this reader is that Zitelmann has a habit of migrating from the graphically persuasive to impossible-to-take-seriously lines. The biggest howler was the one about how the Chinese were suffering mightily under communism (no argument there), only for them to realize “that communist propaganda had been lying to them for years when it compared the ‘glorious’ achievements of socialism in China with the ‘misery’ in capitalist countries.” To read this is to think the Chinese would be terrifically offended if they read it. Does Zitelmann seriously believe they didn’t know how grievously wrong collectivism was, that they could be fooled even for a minute by propaganda? It read as victim stuff all over again. People once again get it. They know. We saw the previous truth throughout the Cold War as the people in communist countries risked their lives (often unsuccessfully) while trying to get out, we’ve seen it since the 1960s as Cubans have braved shark-infested waters to get to the U.S., and we see it now as North Koreans escape to China at the longest of odds. Zitelmann himself notes the outflow of East Germans to West Germany during the Cold War. Contra Zitelmann, capitalism is winning around the world. It’s always been winning. And it’s not even close.

Zitelmann reveals the folly of do-gooderism with an example from Bangladesh in which thousands of kids lost their jobs after Lefty types in the rich U.S. attacked American companies for using “child labor,” thus reminding readers of compassion’s cruel side. Good, important stuff. For kids in the poorest countries working is about eating. Leave them alone. The problem was that Zitelman tacked from the Bangladesh example to an odd observation that “workers doing basic jobs are facing competition from robots or from workers in China and other emerging countries.” No, that’s not true. Jobs aren’t finite as Zitelmann alludes, as much as they’re infinite. They’re only limited by investment, and investment invariably flows the most to locales where connection with man and machine is most evident. The Chinese and machines aren’t “competition” for jobs as much their existence in a globalized labor force ensures ever-higher wages for all. And in jobs that increasingly reflect our unique genius.

On the matter of 2008, Zitelmann unfortunately pivots to the lazy word that is “bubble.” The problem is that there’s no such thing. For every buyer there’s a seller, and vice versa. “Bubble” presumes market asymmetry on a massive scale, which means “bubble” is a mirage. Still, in an effort to explain 2008 Zitelmann suggests that the rush to housing was an effect of the Fed “radically” cutting interest rates. On its face, such a view is too silly for words. Price controls inevitably lead to scarcity anytime they’re artificially pushed downward, but apparently the Fed has magical powers to produce abundance with its own price controls? Zitelmann then argues that the rate cuts led to a “new bubble, this time in the real estate sector.” Except that housing similarly soared stateside in the 1970s amid rapid increases in the Fed funds rate, not to mention a lack of “bubbles” in Japan since 1990 despite its central bank having been at or near zero since then. Zitelmann then cites “Austrian economists” who claim a “link between low interest rates and rising house prices.” Oh well, interest rates are the price of accessing resources; as in no one borrows money as much as they borrow what money can be exchanged for. To pretend then, as Zitelmann does, that the Fed can decree resource access easy suggests a major disdain for markets more than anything. And it presumes that the most powerful force in capital allocation (compound returns) is no match for the small minds inside the Fed. You won’t find it in Zitelman’s book, but the “crisis” in 2008 was not a healthy housing correction; rather it was the Bush administration’s tragically inept decision to intervene in what was healthy. In short, “crisis” is inevitable anytime experts substitute their limited knowledge for that of the marketplace. Number of mentions of George W. Bush in the passages on the so-called “financial crisis”? Zero.

Which leads to more laments. There’s no doubt that Zitelmann is a true believer in the genius of capitalism, but this reviewer will go to his grave of the belief that perhaps subconsciously Zitelmann was focusing the book’s tone on the many victims and crybabies on the right. Consider the line a third of the way through about how “The very thought of the word ‘profit’ makes many people feel uncomfortable.” Really? Who? It’s just so trite. Or it suggests Zitelmann needs to find a new crowd. Figure that the soaring prosperity he cites in modern times is the surest sign that much of the world is very comfortable with profits.

After which, it seemed the book was haphazardly constructed. In the chapter addressing the notion that capitalism promotes greed, Zitelmann properly reminds readers through Mark Zuckerberg and Steve Jobs of how the rich get rich, only for him to essentially close the chapter with anecdotes about Ray Charles, including his heroin addiction. There’s so much interesting stuff in the book (did you know that Stalin advised Mao “to leave the assets of rich peasants unmolested”? – I didn’t!), but then it’s mixed in with puzzling lines about how “socialism always looks good on paper.” No it doesn’t. Individuals drive progress. How could that which makes us all equal “look good on paper”?

Arguably the book’s most gripping section was the shortest. One chapter. It’s in Part B that Zitelmann provided lots of horrific examples of how tragic collectivism is. Very effective, but then it’s in Part B that he notes how “socialism always looks good on paper.” Even when Zitelmann is good, he backslides.

It’s a long way of saying there’s some good learning in a book that could have been much better. Which brings us back to the book’s biggest challenge: numbers. Part C is full of polling data which is not a way to sell anything, only for it to remind your reviewer of a line fifty pages into the book about how “a regressive analysis also confirms that for every one point increase in the economic freedom index, there is a 1.06 increase in the environmental performance index.” No!!! Too much of this. Don’t reduce the beauty of capitalism to numbers. Tell a story, really many stories, in unapologetic fashion. Oh, what might have been.