"Only one Economic System Exists: Market Captialism; For Mass of Mankind It's A Source of Hope."

City Journal
Economics Does Not Lie
The dismal science is at last a science—and the world is the beneficiary.
by Guy Sorman

Though economics as a discipline arose in Great Britain and France at the end of the eighteenth century, it has taken two centuries to reach the threshold of scientific rationality. Previously, intuition, opinion, and conviction enjoyed equal status in economic thought; theories were vague, often unverifiable. Not so long ago, one could teach economics at prestigious universities without using equations and certainly without the complex algorithms, precise (though not infallible) mathematical models, and computers integral to the field today.

No wonder bad economic policies ravaged entire nations during the twentieth century, producing more victims than any epidemic did. The collectivization of land in Russia during the twenties, in China during the fifties, and in Tanzania during the sixties starved hundreds of millions of peasants. The uncontrolled printing of currency destabilized Weimar Germany, facilitating the rise of Nazism. The nationalization of enterprises and the expulsion of entrepreneurs ruined Argentina during the forties and Egypt a decade later. India’s License Raj—requiring businesses to obtain a host of permits before opening their doors—froze the country’s economic development for decades, keeping millions impoverished.

On an even larger scale, the century witnessed a war between two economic systems: state socialism and market capitalism. In the socialist system, property was public, competition forbidden, and production planned. In the market system, property was private, competition encouraged, and production determined by entrepreneurs. Faced with the choice of which system was superior, nations hesitated and economists remained divided.

The state of affairs today is entirely different. When the Soviet Union crumbled, the socialist model that it embodied imploded, too—or, more precisely, the Soviet Union fell because the socialist economic system proved unworkable. Now only one economic system exists: market capitalism. Virtually everywhere, the public sector has given ground to privatization; currency has escaped state control, to be governed by independent central banks; competition has taken wing, thanks to the deregulation of markets and the opening of borders; taxation has become less progressive, so as to encourage entrepreneurs and create jobs.

The results have been breathtaking. Opening economies and promoting trade have helped reconstruct Eastern Europe after 1990 and lifted 800 million people, many of them in China, Brazil, and a now-license-free India, out of poverty. Even in Africa and the Arab Middle East, nations that have embraced capitalism have begun to escape from the terrible underdevelopment that has long plagued them.

Behind all this unprecedented growth is not only the collapse of state socialism but also a scientific revolution in economics, as yet dimly understood by the public but increasingly embraced by policymakers around the globe. The revolution began during the sixties and has finally brought economists to a broad, well-founded consensus about what constitutes good policy. No longer does economics lie; no longer would Baudelaire be able to write that “economics is a horror.” For the mass of mankind, on the contrary, it has become a source of hope.