The Magazine

Capital Idea

How the market economy is to everyone's advantage.

Nov 24, 2008, Vol. 14, No. 10 • By MICHAEL TAUBE
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The capitalist take on taxes is clear and simple: Keep them low and equal. Donlan describes the benefits of George W. Bush's reduction of top marginal tax rates: This strategy enabled high-income earners to acquire more money and shoulder a greater percentage of the tax burden. Hence, "lower tax rates produced higher tax takes" and, by 2007, "higher economic growth and lower tax avoidance covered the loss of revenue from lower rates."

At the same time, Donlan decries the Robin Hood principle since it is "unjust to tax a dollar of income differently depending on who earned it." So Donlan supports the notion of a simpler tax system--and a flat-rate tax based on either income or consumption--to create fairness rather than the "progressive" system currently in place.

On health care, Donlan rejects universality and supports a market-based model that supports choice and price competition. Capitalists should be naturally offended by universal health care, which is neither efficient nor free, and is inefficient and unaffordable since it will "limit available drugs and treatments or force patients to wait for them." The more responsible strategy would be to have "national competition in health insurance." As he envisions it:

Imagine hundreds of companies competing for business on the basis of price and service, as if they were selling homeowners' insurance or investments. To keep costs low, they could work with groups assembled by churches, social clubs, neighborhood organizations, credit unions, banks, professional group assemblers, and, yes, even employers. Can everybody afford such a system? At least as well as they can now--and probably far better. For those who cannot afford it, government welfare departments could subsidize premiums directly or put cash in the hands of those capable of making their own choices.

One of the more impressive chapters in this impressive volume deals with the essential elements of capitalism: investment and invention. Donlan examines aspects of some 200 years of economic progress in a mere 12 pages, including the dawn of British wealth in mining and milling, the manufacturing of cost-effective iron and steel, the birth of money and finance during the Industrial Revolution, technological progress, and Thomas Edison's second greatest invention after the light bulb, "the system for generating, distributing, and selling electricity." He also explores capitalism's creative component, "that neither material things nor money are enough to create wealth. .  .  . Commerce is the constant conversion of things into money, and money into things."

Capitalism has proven that the invention of new products, combined with investment opportunities and strategies, has made our society stronger. While there may have been initial concern about prosperity and population growth, it has turned out that "prosperity converts people into consumers, increasing the market for goods, and enough prosperity creates security and reduces people's desire for large families." In Donlan's view, this capitalist "strategy" has changed the face of Europe, North America, and Japan, and is starting to have economic effects in China and India.

My guess is that there will be a handful of people who will whip through these chapters, skim reviews like this one, and say, "Why should I read the whole thing? We already know this." Well, yes and no. Most individuals know why they believe in capitalism, but very few produce supporting arguments in favor of it. In a society like ours, if we are going to defend the ideas that matter to us--capitalism, democracy, liberty, free speech, free markets--it's important that we grasp what they mean, what they do, and how they benefit us. Thomas Donlan's is a spirited defense of all that is good about capitalism. It will fortify its supporters, and challenge critics to put their beliefs to the test.

Michael Taube is a former speechwriter for Canadian prime minister Stephen Harper.