Why is capitalism important?

Charles Murray does an excellent job answering this question in an article answering a slightly different question: why are capitalists so reticent to defend capitalism's tarnished reputation? (His answer to the second question boils down to capitalism being decoupled from virtue, so not only are capitalists more likely to behave badly, but moral capitalists lack the vocabulary and philosophical framework with which to criticize them.)

But his answer to the question at the heart of this post is wonderful enough.

Capitalism is the economic expression of liberty. The pursuit of happiness, with happiness defined in the classic sense of justified and lasting satisfaction with life as a whole, depends on economic liberty every bit as much as it depends on other kinds of freedom.

"Lasting and justified satisfaction with life as a whole" is produced by a relatively small set of important achievements that we can rightly attribute to our own actions. Arthur Brooks, my colleague at the American Enterprise Institute, has usefully labeled such achievements "earned success." Earned success can arise from a successful marriage, children raised well, a valued place as a member of a community, or devotion to a faith. Earned success also arises from achievement in the economic realm, which is where capitalism comes in.

Earning a living for yourself and your family through your own efforts is the most elemental form of earned success. Successfully starting a business, no matter how small, is an act of creating something out of nothing that carries satisfactions far beyond those of the money it brings in. Finding work that not only pays the bills but that you enjoy is a crucially important resource for earned success.

He then lays out a very compelling case for limited government.

Making a living, starting a business and finding work that you enjoy all depend on freedom to act in the economic realm. What government can do to help is establish the rule of law so that informed and voluntary trades can take place. More formally, government can vigorously enforce laws against the use of force, fraud and criminal collusion, and use tort law to hold people liable for harm they cause others.

Everything else the government does inherently restricts economic freedom to act in pursuit of earned success. I am a libertarian and think that almost none of those restrictions are justified. But accepting the case for capitalism doesn't require you to be a libertarian. You are free to argue that certain government interventions are justified. You just need to acknowledge this truth: Every intervention that erects barriers to starting a business, makes it expensive to hire or fire employees, restricts entry into vocations, prescribes work conditions and facilities, or confiscates profits interferes with economic liberty and usually makes it more difficult for both employers and employees to earn success. You also don't need to be a libertarian to demand that any new intervention meet this burden of proof: It will accomplish something that tort law and enforcement of basic laws against force, fraud and collusion do not accomplish.

What a great test.

Can you imagine how many worthless or positively harmful laws would be avoided if its proponents had to reasonably prove that X law will expand people's ability to pursue happiness in a way that tort law enforcement of basic laws against force, fraud, and collusion do not? I don't doubt that many people will still be able to justify plenty of stupidity on those grounds, but there would be so much less of it in the laws than there is now.

Definitely read the whole article. It's well worth your time.