Let’s be clear from the outset. I’m a capitalist. I’m a filthy lucre loving product of the democratic, free market system of capitalism much ballyhooed by fellow travelers all along the political spectrum. I will say though that those at the top of the economic dog pile tend to offer their unreserved love of the system while those farther down the economic food chain may still make cooing noises but are somewhat restrained by their own personal reality.
As always, it’s probably a good idea to define some terms before opining. I’ll warn you this is more complicated than it seems at first glance. Capitalism, is an economic system based on the private or corporate ownership of capital goods which produces and distribute goods and services to the market for a profit. We need to go a bit further. Free market capitalism is defined as a system of economics that minimizes government intervention and maximizes the role of the market. Good, so far as it goes, but it begs further definition of “free market” among other things. A free market presumes presence of rational actors behaving in their own self interest. It further presumes that in doing so they will deal with information and price goods and services most efficiently. These “rational actors” are generally of the mind that government regulation, trade barriers, and labor laws will distort the market. They believe that competition should and will decide what businesses are successful. A truly free market requires that there are no barriers to new market entrance. Free markets, therefore, will be self regulating through the modulating influence of competition. I won’t bore you with long winded definition of “market”. We both know that markets are defined by groups of buyers and sellers. Enough said. Sounds good as far as it goes. I could go further, but I’ll give you a break and stop with the definitions here.
The history of capitalism dates back to approximately the second century BCE when Assyrian traders exercised a form of long distance “buy cheap, sell dear”. It was improved and modified over time by the Romans and then by the camel and olive merchants of various Islamic stripes. Most students of economics, of which you are surely one, date modern capitalism to the hard headed Dutch merchants of the 15th century. I’m of the mind that this must be from whence comes the term dutch uncle”. Merchant capitalism was more or less perfected by the Dutch and British East India Companies who practiced a take no prisoners kind of capitalism, and it wasn’t a pretty picture in some cases. There wasn’t much government regulation for them to contend with, and if there was, they either ignored it or killed the regulators. The mid-eighteenth century saw the emergence of a new improved form of capitalism called Industrial Capitalism. That’s where we come in…America, I mean.
I’ve skipped over a lot of stuff to get to my point. You’ll note that I didn’t even mention ol’ Adam Smith and his “invisible hand”, nor will I dwell here on some of the worst manifestations of “unfettered” free market capitalism. That comes later. There is no doubt that capitalism has delivered more wealth to more people than any other economic system. The problems of capitalism, of which there are many, are directly correlated to the nature of man and the degree of “fettering” man will tolerate in order to get a form of capitalism that works for the least of us as well as the best of us. Seen from a distance, the idea of profit as the only criterion for success of an economic system may seem to be good; however, experience teaches us that inevitably unfettered free markets (and maybe even only partially fettered markets) lead to a concentration of wealth in the hands of the few, and ultimately to abuse. Such economic concentration, in the long run, does not serve the public good and, therefore, is not sustainable. I’m not making this stuff up on my own. This isn’t coming from socialist leaning, radical, flag burners. This is straight from the man himself.
You see ol’ Adam had two views of man and human nature. On the one hand he sees a society composed of citizens whose behavior is motivated, in substantial part, by social responsibility and concern for their fellow man. On the other, he sees a somewhat dysfunctional, free market capitalist society composed of individuals whose behavior is motivated, in very substantial part, by greed and self interest at the expense of the public good. The question then is what accounts for this duality of human nature that Adam Smith describes, and what must we do to knock the sharp edges off the system? And sharp edges there are plenty:
I”m sure that you, like I, read and were horrified by the excesses of the Chicago meatpacking industry described by Upton Sinclair in The Jungle. And surely you cringe at the continuing examples of corporate executives, some of whom I know, that languish in federal hoosegows for cooking the books and other high crimes in the name of more profits, more stock options, and, well….more, more, more. It’s interesting to note that we didn’t even pass our first law limiting the use of child labor in the United States until 1916, and the Fair Labor Standards Act was not enacted until 1938 only a few years after Roosevelt decided to bust the trusts (otherwise known as free market monopolies) with the Sherman Anti Trust Act of 1930. And then there is an unending list of abuses including but not limited to restraint of trade, pricing collusion, corporate bribery, ponzi schemes, other individual and corporate tom foolery, and on and on and on.
In light of the above, it’s not surprising that our American system of free market capitalism gets a bad dose of indigestion about every fifty months and lurches from a boom cycle to a bust cycle. You would think we could do better. Let me give you some reasons why we don’t…do better for all of our citizens, that is.
1. Capitalism assumes that the people and corporations who drive both behavior and results are “rational actors”. You only have to know a few Bernie Ebbers or Jeffrey Skillings to know that while they may be smart, they are not always rational.
2. Capitalism works best when given the modulating influence of infinite time. Like the man said, “the market is always right, over time.” Unfortunately, we humans don’t have infinite time. We live our lives and raise our families and send our kids to college, and retire to the lake in relatively short cycles. If we get caught in one of the periodic economic down drafts, we will never catch back up…in our human time frame.
3. Capitalism ignores the excesses of greed that appears to be part and parcel of human nature. We never are willing to accept that enough is really enough. We seem to want to get to too much as soon as we can, the devil take the hindmost. Even dear old Ayn Rand endorses this notion when she says that the only moral justification needed for capitalism is the greed implicit in human nature. Gordon Gekko agrees.
4. And finally, capitalism ignores the inability of monopolies, actual or de facto, to consistently behave in ways consistent with the public good. Hell, most of them can’t even stay on the right side of the law. I guess they just can’t help themselves. In America, big is good and bigger is better, and if you’re big enough you can’t even fail if you try really hard. Ask AIG, General Motors, Bank of America. Unfortunately, the inevitable consequence of big business, big government, and big labor is concentration of wealth and power, which, if you remember my opening, is absolutely not sustainable over time.
And now you’re going to ask me, “if you’re so smart, what should we do about it?”. The answer is, I dunno for sure, but I do know that there are some things we ought do if capitalism is to have a chance to fulfill its promise in the long run. We must educate our children at every level of our society. We must have a system of justice that works for everyone all the time. We must have a social safety net that protects the least among us while rewarding hard work and risk. We must have a fair system of taxation that generates the revenue we need to provide the services we all agree we need. We must have a set of rules and enforcement mechanisms that limit and guide the behavior of those who participate in our economic system whether as individuals or corporations.
Economic systems are far more than theory. They don’t work in a vacuum. They must operate in an environment conditioned by human nature and a civil society. I recognize that reforming or improving free market capitalism involves balancing conflicting objectives, values, and ideologies. No easy task. But I believe it can be done if only because it must be done.
Perhaps we can start by each of us being just a little less greedy, and by treating those around us just a little better. Every day, all the time. I’m gonna try.
