The Paradox of Capitalism: Why Disinformation Runs Rampant in the Marketplace of Ideas

Winston Churchill famously (but unoriginally) said, “Democracy is the worst form of government except for all those other forms that have been tried from time to time.” The same can be said of capitalism. It’s the worst economic system — other than everything else we’ve tried. 

Capitalism is Darwinian. It is natural selection applied to business. In this context, “survival of the fittest” means survival of the most profitable, which generally rewards the most innovative companies but also the ones that operate cheaply. Therefore, the same economic system that gave us iPhones and Star Wars also gave us sweatshops and Ryanair.

The pros and cons of capitalism have been debated for centuries and do not concern us here. Instead, our focus is on the intellectual offspring of capitalism, a concept known as the “marketplace of ideas.”

This little idea went to the market.

The notion of a “marketplace of ideas” was elaborated by philosopher and political economist John Stuart Mill, but the term itself was derived from a dissenting opinion written by U.S. Supreme Court Justice Oliver Wendell Holmes Jr. in the case Abrams v. United States (1919).

Essentially, the term “marketplace of ideas” makes an implicit appeal to the power of capitalism. It argues that in the same way profitable companies survive and unprofitable ones die off, good ideas thrive, and bad ones fade away. If people are given a free choice, over time, society will come to accept good ideas and reject bad ones. This argument seems reasonable, and it surely is true in many situations. 

Consider prediction markets. People place bets to predict everything from who will be the next U.S. president to when celebrities will get divorced (or, more morbidly, die). Because gamblers put real money on the line, they likely make predictions based on what they think will happen rather than what they want to happen. In this way, people who are correct get rewarded, while people who are wrong lose their money. This is, in every sense of the term, a true marketplace of ideas.

The same could be said of scientific research. Scientists who successfully discover new facts about the world or develop new technologies are rewarded with more grant money or investments; scientists who do not will be looking for another job. 

Therefore, a well-functioning marketplace of ideas depends on its ability to link truth with success. In other words, a marketplace of ideas rests upon three assumptions:

1. The truth is easy to discern.
2. Humans are rational (and, as a corollary, seek the truth).
3. The truth is profitable, and lying is not.

Flawed assumptions

The problem is that, outside of a few limited examples, none of these are true. Let’s examine each assumption in turn.

The truth is not easy to discern. We believe that the truth is simple, but it really isn’t. Sure, it’s easy to get at the truth when the question is, “Where were you last night at 10 pm?” or, “What is the second planet from the Sun?” But these are trivial. The questions we really want answers to are far more difficult: Will this medication affect my long-term health? Is my environment unsafe? How can I protect my children? There is no easy or obviously correct answer to any of these questions.

Humans are not rational. Most of our decisions are rooted in emotion. When you order an extra side of bacon for breakfast, it is unlikely you arrived at that decision through logical deduction. You ordered it because you wanted it. When you bought those Agassi shorts with the neon-pink leggings in the 1990s, you did so because you thought they were cool. (Objective fact: They weren’t.) When you vote, your decision is based far more on fuzzy feelings — like who your family and friends vote for — than you would care to admit. Our day-to-day lives are governed primarily by emotion, and we invent reasons to justify our decisions.

Lying is often very profitable. It is not exactly a well-kept secret that lying is a profitable endeavor. Just turn on cable news. Organic food/products, alternative medicine, and fad diets — all multi-billion-dollar industries — keep growing in popularity, despite robust scientific evidence demonstrating that each of these industries is built upon a foundation of lies and half-truths, usually at the expense of the agricultural, biotech, pharmaceutical, and healthcare industries. The social media industry directly profits from the spread of disinformation.

The paradox of capitalism

The fact that disinformation is profitable wouldn’t be such a problem if it were true that the truth is easy to discern and humans are rational truth-seekers. But it is not, and we are not. Those who profit from disinformation know this. They play on uncertainty, fear, and suspicion to spin plausible alternative narratives. And because we humans are prone to confirmation bias, we eagerly seek them out.

The paradox of capitalism, therefore, is that the very same system that gave us the Encyclopædia Britannica and the Weather Channel also gave us 4chan and RT. Like the Riemann Hypothesis, disinformation may be one of those unsolvable problems. So long as people want to be deceived, there’s little anyone can do to stop them — which makes the marketplace of ideas an almost textbook example of a market failure.