Mises.org's naive view of Capitalism

Ben O'Neil has today posted a blog on the perfectness of Capitalism. While I think Capitalism a more realistic model than Socialism, I do not share his utopic view of it.

He correctly asserts:
"Indeed, there has been a recent resurgence of academic critiques and self-help literature lamenting excessive "materialism" and "consumerism," much of which lays the blame squarely at the feet of free-market capitalism and its lifeblood, money, " and then spends a very long blog post trying to debunk this statement. Let's go through it point by point.

Mises Point 1:
"the analysis of inalienable nonmaterial goods [personal achievement, relationships, broad knkowlege...] is well within the province of economics and does not present any particular problem for economic analysis.... Of course, there are none who desire only alienable goods and hence none who act in this absurd manner. Rather, we rationally weigh alienable and inalienable goods against one another, according to our particular preferences and with a view to achieving the greatest possible happiness over the course of our lives." [ie, the decision between inalienable and alienable goods is an economic one]

Counterpoint:
I 100% agree with the above statement, but fail to see how it at all addresses the concerns that Capitalism leads to an onverly consumeristic society. Few would disagree that Economics can concern itself with such topics. Few would disagree that people face tradeoffs with regards to inalienable goods (purusing relationships etc) just as much as alienable goods. The point is that the system itself - its very framework - by its very definition - forces people to consume and consume some more, and accumulate more and more wealth- less for real happiness and more for status and social norm and the need to feel superior (the best competitor in a competing world).

To its credit, Mises.org does note that retort.
Mises.org response:
"... the level of social status derived from wealth and the satisfaction derived from this social status are themselves subject to diminishing marginal returns....it does not matter why we gain satisfaction from material goods."

Counterpoint:
The problem with the above idea of diminishing returns is, while true, it does not paint a full picture. I may be a guy who wants a Ferrari solely for status, so I buy one. My value of a second high-end luxury/sports car is diminished. Fine. But maybe now I see that my neighbor Tim just bought a Lamborghini, in addition to a Ferrari he just bought last year. Well now I feel really small. I have to have one too lest I be laughed at behind my neighbors' backs. I have strut my wealth for all to see....

In this sense, Capitalism is a big form of overcompensation.

Mises.org might disagree on the reason:
"But in truth, this behavior is nothing more than a manifestation of diminishing marginal returns. The highly wealthy person desires these more opulent goods only because his desire for basic accommodation and other more fundamental goods is already satisfied."

Again, technically correct. Again, missing the big picture. When you combine the need for status maintainence and social norms with the above mention of diminsihing returns, you realize that at some point returns must hit a constraint. At some point, using just the idea of diminishing personal returns, you would ordinarily decide not to buy your 21st car. But you do anyway - money, status, norms ---they are all powerful motivators in and of themselves and can often cloud what might otherwise be our wants, absent capitalism.

This is not to say such consumption is irrational. I think Mises.org makes good points about that - afterall, status etc can be thought of as part of ones utility too. The point is that the Capitalist model causes consumption and materialism over and above what might occur in an identical society without such motivations. In other words, these concepts work together - they are not incompatible. And, Capitalism - ie a community-wide system of markets - in and of itself can create motivations that distort wants. To deny this without seeing the full picture is naive.

Mises might respond by saying, "so what. Economics does not care about 'why' people do what they do."

I would respond: "That's the problem. Because it is often the 'why' that matters most."

Having said all this, the positives of capitalism far outweigh the negative. And many of the negatives can be tempered with personal restraint, government assistance, and a sense of community.