Last year I was approached by the Alliance for Responsible Citizenship (Arc) to write a chapter in a book defending Western civilisation. I have quite a lot on my plate, and I find these one-off requests difficult to squeeze in. Don’t forget those adventurous expeditions that take up some of my time.

In one sense, I thought the task I was being assigned was unnecessary – to remake the case for capitalism and free exchange.  Doesn’t everyone understand the arguments? Is it really essential to restate the reasons in favour of capitalism and against the alternatives? Having posed these questions to myself, I quickly concluded that a chapter along the lines requested could be very timely indeed.

Before I go through the main points I make in the chapter, it’s worth describing Arc because it is having a major and growing influence in the world of ideas. Established by Jordan Peterson, Baroness Philippa Stroud, Sir Paul Marshall (now owner of this magazine) and Australia’s former deputy prime minister, John Anderson, Arc is described as ‘an international movement with a vision for a better world where empowered citizens take responsibility and work together to bring flourishing and prosperity to their families, communities, and nations’. I’m sure that description appeals to many Speccie readers.

Arc has convened some very successful conferences, one in London in 2023 and one in Sydney in 2024. There is one coming up in London next week, with a list of stellar performers including Niall Ferguson, Douglas Muray, Mike Johnson (Speaker of the US House of Representatives), Michael Shellenberger, Erica Komisar, Bjorn Lomborg, Vivek Ramaswamy and our own Peter Costello. Over 4,000 attendees have registered for the event.

The book to which I have contributed will be launched at the conference. It is entitled The Best of Our Inheritance: Restoring Our Foundations. Other contributors include Ayaan Hirsi Ali, Konstantin Kisin and Bjorn Lomborg. (You can order a copy of the book at https://www.arcforum.com/)

Capitalism has been the basis of dramatic reductions in poverty, higher real incomes, rising life expectancy, widespread participation in education and a quality of life that would be unimaginable to our forebears. It’s hard to understand why it gets a bad rap, but let’s face it, it does.

But capitalism is about much more than good economic outcomes. By facilitating voluntary exchange between buyers and sellers, it also underpins individual liberty. The system is enabled by a complementary set of values – honesty, hard work, cooperation; it also reinforces those values.

Capitalism first began to emerge around the time of the Industrial Revolution. Over time it replaced the paternalistic feudal system and the dominance of the monarchy/aristocracy in driving economic activity.  Coupled with the emergence of some important new technologies, capitalism quickly flourished.

Prior to this time, living standards had basically flat-lined for many centuries in England and elsewhere. Any time that population growth picked up, output failed to follow and living standards were essentially back to where they were. This is referred to as the Malthusian trap.

The ideas of Adam Smith, a hero of most economists, was important in driving the case for capitalism. The Wealth of Nations was published in 1776 and set out the case for free exchange that would drive economic growth and foster innovation. In this way, the Malthusian trap could be overcome.

It’s not possible to discuss capitalism without mentioning the central role of the price mechanism. The scope for prices to adjust to changes in supply and demand has the effect of generating signals for buyers and sellers to adjust their behaviour, including through investment.

One of the most important insights of Smith is that governments should leave economic transactions to market forces driven by the price mechanism, rather than government intervention. The pursuit of self-interest is compatible with the greatest net societal benefit.

Two other figures also figure prominently in the development of the case for capitalism: Friedrich Hayek and Milton Friedman.  Hayek’s famous book, The Road to Serfdom, made the important point that there is no material difference between fascism and communism because both entail government-directed economies and restrict individual liberty.

In his book Capitalism and Freedom, Friedman wrote that ‘underlying most arguments against the free market is a lack of belief in freedom itself’. He went on to argue that ‘the great virtue of a free market is that it does not care what color people are; it only cares whether they can produce something you want to buy’.

While the case for capitalism seemed to hold sway at various times in various parts of the world, particularly after the fall of the Berlin Wall, the arguments need to be repeated to convince those who naively believe that governments are better able to look after citizens and lift living standards.

But a complicating factor has been the perversions to the system of capitalism that have developed over the past several decades. At the Arc conference held in 2023, Sir Paul Marshall outlined what he called the ‘three ugly sisters of capitalism’ – monopoly and crony and woke capitalism.

Smith had always recognised that monopolies work to the detriment of consumers by restricting competition and driving up prices. While all advanced economies have enacted competition laws to lessen the damage caused by monopolies, it’s not always clear that these laws work well in practice.  Government regulations themselves can create barriers to entry for small players in an industry, thereby playing into the hands of the large incumbent firms.

Crony capitalism is now a widespread phenomenon, although the election of Donald Trump as President of the US is likely to see some retreat of aspects of crony capitalism – think here green rent-seeking. But here in Australia, crony capitalism is in full swing with the Treasurer, Jim Chalmers, on record as seeking to ‘reinvent capitalism’. By this he means that the government should be directing investment and handing out taxpayer funds in subsidies and grants.

Woke capitalism speaks for itself. The attention of companies is diverted from providing valuable goods and services to customers while giving adequate returns to the owners to focus on woke issues. To some extent, this has been forced on companies through regulation and other techniques used by governments.

But many companies have deliberately decided to pursue woke objectives – gender equality, elimination of racism, the rights of minority groups – while spending less time on their true purpose of serving customers and making profits.

The bottom line is that capitalism has been a successful means of allowing people to escape poverty and to use their agency to establish better living standards.  It is a foundational pillar of Western civilisation that should be celebrated much more often than it is.