Warren Buffett has told us that there’s something magical about American capitalism. This isn’t quite true, because other countries have achieved much the same thing. What is true about it is that it is the system itself which has caused the incredible wealth we all enjoy in this modern world. Buffett writes:
In 1776, America set off to unleash human potential by combining market economics, the rule of law and equality of opportunity. This foundation was an act of genius that in only 241 years converted our original villages and prairies into $96 trillion of wealth.
Other places which did much the same thing — that mixture of capitalism, the rule of law and free markets — achieved much the same end. We generally refer to those places as the developed world, while those that didn’t are still the Third World. There is nowhere at all that has become rich, absent some vast natural resource, without adopting this system.
We can show this, too, with the numbers from Angus Madison. The average GDP per capita over history, all countries, all empires, was some $600 a year or so — That’s in today’s dollars, meaning history was, by our standards, abject destitution for everyone. This is also why we use $1.90 a day (at modern American prices) as our measure of global absolute poverty. Because that’s just what the past was and we celebrate when people, a country, a nation, rise above that historical existence.
Tim Worstall, “Appalachia’s woes show the success of American capitalism”, Washington Examiner, 2018-01-09.
March 18, 2020
QotD: The “magic” of capitalism
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