This article first appeared in the Winter 1997 issue of the Harvard International Review.

Adam Smith has won his protracted boxing match with Karl Marx. Smith had been ahead on points, but the end came with startling suddenness—by knockout. A generation ago, no such quick and decisive climax to the long battle between capitalism and communism could have been forecast with confidence. The ultimate victory of capitalism, however, has come at a time of profound changes in the nature of capitalism itself. Consider the following:

First, by historical standards, the richest countries are now almost inconceivably wealthy. In the United States, real GNP per capita is now more than five times what it was at the end of the 19th century. And even at that time, the US economy was already the richest in the world on the basis of per capita income, as well as the highest-volume producer in both agriculture and industry.

Second, in the United States and several other advanced capitalist economies, more people now work in the service sector than in all other sectors combined. This does not mean that we are in a “postindustrial” age and are merely taking in each other’s laundry. It means that agriculture and industry have become so technologically advanced and the international trading system so well developed, that people in rich countries can now afford to do what human beings have always wanted to do: spend most of their time amusing themselves, rather than hunting, gathering, farming, or making things.

Third, even outside the rich countries, whose scant 15 percent of the world’s population enjoys incomes six times those of the other 85 percent, recent gains made by several national economies are nothing short of staggering. The East Asian “miracle” has spread from Japan, South Korea, Taiwan, Hong Kong, and Singapore to Thailand, Indonesia, and—the biggest player of all—China. Who could have predicted such a movement? And who could have forecast with assurance the absence of robust development in so many other parts of the world?

Fourth, the oft-presumed linkage between capitalism and democracy remains problematic. The developments we are now seeing in China and elsewhere may or may not be “capitalism,” but they are certainly not democracy. There has not yet been enough time to allow for mature historical perspective, but the conflation of capitalism with democracy may turn out to have been a modernist conceit, a wishful thought that peaked in the 20th century but whose roots go back to the Enlightenment. The relationship between the two may or may not be reciprocal. There is a lot of evidence for both arguments. This is one of the reasons why development economists insist on including changes in income distribution, in addition to economic growth per se, when they measure development.

Finally, many have come to question whether the welfare states of the advanced democratic countries can survive the pressures of global competition. Twenty years from now, will German workers still be able to take six-week vacations? Will the French, Dutch, Scandinavians, and other Europeans still enjoy a safety net from cradle to grave? Might there be some point at which democracy, in its affinity for security and current consumption, becomes estranged from the spirit of risk and deferred gratification? And if that happens, what will fuel entrepreneurship, productive investment, and, therefore, future growth?

The capitalist era constitutes a profound discontinuity in human experience. In pre-modern times, per capita economic growth throughout the world was on the order of just over a tenth of a percent per year. At that rate, incomes doubled every 650 years. Yet during the 177 years since 1820, borne by the high tide of capitalism, incomes in the United Kingdom have grown by a factor of about 10, in Germany by 15, in the United States by 18, and in Japan by 25.

There is no absence of informed opinion on the history and future of capitalism, and some views are offered with an air of infallibility. It is, however, impossible to know the answers to such questions, and we should be skeptical about predictions. Though economists and historians do not understand everything about capitalism— its precise relationship with democracy or even with consumer sovereignty, for example—they know much more today than their predecessors did two centuries ago, or even two decades ago. One thing is certain: capitalism itself cannot stand still. “Stabilized capitalism is a contradiction in terms,” Joseph Schumpeter once wrote. Capitalism is a perpetual-motion machine: its whole nature derives from the certainty of endless change. The experience of the 20th century has made clear—if nothing else—capitalism’s resiliency, flexibility, and unpredictability.