Capitalism itself cannot solve the problem of externalities. That's what the government is for.
I don't understand why would anyone think that it can. This is not just my opinion but an opinion of famous capitalists (for example Buffett or Soros).
The classical argument is that when trying to address externalities you can turn to either regulation or strong property rights (if your factory pollutes a lake the citizens using it for drinking water will sue). Regulation can sometimes lead to inefficiency.
Free-market evangelists tend to strongly favor the property rights solution. But one of the interesting things about the property rights case is that it seems to fall apart when both the responsibility and cost are diffuse. Probably the best example would be climate change. It's impossible to address with property rights because there would be so many plaintiffs and so many defendants that attributing who did what would be impossible. Climate change is the ultimate externality.
Right, ancaps argue for privatization of everything because that will eliminate externalities, but I see absolutely no way to prove that the carbon being pumped into the atmosphere is derived by some company/individual at some percentage, and then of course you don't actually have courts or a legal system but silly things like Dispute Resolution Organizations that are somehow supposed to enforce the decision of some court case across the globe?
> Capitalism itself cannot solve the problem of externalities.
True.
> That's what the government is for.
False. Government can't solve the problem of externalities either, because government is even more at the mercy of the perverse incentives that create them than free market participants are.
There is no "solution" to the problem of externalities, if by "solution" you mean some system we can put in place that will magically prevent them from happening or from doing harm. The only way to deal with externalities in general is to remove them wherever possible, by enforcing property rights and minimizing transaction costs.
> Do you enjoy the the benefits of the Clean Water Act and the Clean Air Act?
I like having clean water and clean air. That's why I have air filters in my house and don't drink tap water.
> does government at least partially solve the problem of some negative externalities?
Government can certainly change incentives in ways that will, at least temporarily, reduce particular negative externalities. But to say that "solves the problem" implies that, once that particular government solution is put in place, we can stop worrying about that particular negative externality and move on to ther things. I do not think that is the case.
> if by "solution", you mean some system we can put in place that will magically prevent them
Only a distributed system like capitalism rises to your bar of "magically prevent[ing]". Centralization is not magic, but when it works, it works. I prefer distributed systems too, but when it's hard to make the right incentivizes, we shouldn't throw in the towel.
Surely the parent post doesn't use a definition of "solution" that trivially invalidates their point. I think you are projecting your own preference for distributed systems as an inevitability.
In fact, I've thought of a "'race to the top' tariffs" system, which does at least create the right incentives between nations. If you are big market (e.g. US) put tariff on the difference between the manufacturing country's externalizes tax, and your own. This holds the total punitive disincentive constant, no matter who receives the revenue. The exporting country is now incentivized to raise their externalities tax so the tax revenue goes to them rather than the importing country. So simple!!
In a free market, yes. Again, "free market" is not the same as "capitalism". The robber barons who got the US government to grant them monopolies of railroad routes in the late 19th century were capitalists; but their revenue was not "dictated by the various consumer demands of mainly individuals and families".
Robber barons are not part of 'capitalism' either. If you have a free market of goods and a free market of labor, then you inevitably have capitalism, since someone will acquire enough money to hire labor to operate his productive goods.
I don't understand why would anyone think that it can. This is not just my opinion but an opinion of famous capitalists (for example Buffett or Soros).