The last week of April was one for the record books, as they say. The Treasury Department announced that April 24th was the single-day record for collection of personal income taxes, at $48.7 billion. On top of that, on both Wednesday and Thursday the Dow Industrials closed at back-to-back record highs. It seems that the Bush tax cuts might not have been so reckless after all.
Even though we now have an entire industry of professional doomsayers—whether it’s the ozone hole, carbon emissions, subprime loans, or outsourcing—the simple fact is that the current U.S. economy is the wealthiest and most productive that has ever existed in the history of mankind. People one hundred years ago weren’t worried about rolling over in an SUV, they were worried about getting stomped by a horse.
Looking at human progress over the last few centuries, many people attribute the steady increase in standards of living to new inventions. But that simply begs the question: What type of economic system needs to be in place in order for those inventions to do any good? After all, there were plenty of clever tinkerers in ancient Greece and China, yet they didn’t spearhead the Industrial Revolution. And even in our own times, there are places on the globe that are poorer now than they were a decade ago.
The reason “the West” grew rich at precisely the historical time that it did is that these countries respected the private property rights of their citizens. They weren’t (and aren’t) perfect, of course, but the idea that a man’s home was his castle, and that even the king couldn’t trespass on it, was peculiar to Western Europe.
Nowadays we call this system capitalism. Ironically, the term was originally a Marxist smear, meant to convey that capitalism only served the interests of the few capitalists. (In contrast, socialism supposedly served all of society.) Even so, the term is a good one, for under the capitalist system individuals have the freedom and incentive to save and invest (i.e. accumulate capital), providing a growing stock of tools and machinery for each succeeding generation. Today the average worker’s labor is far more physically productive than was the case 100 years ago, and it’s not simply that today we rely on advances in physics in chemistry, but also because we have far more sophisticated equipment and infrastructure put in place by our forefathers.