One of the six values that form ISI’s core beliefs is a free-market economy. Allocating resources by the free play of supply and demand is the single economic system compatible with the requirements of a free society, and also the most productive and efficient supplier of human needs.
In the wake of recent economic challenges, and with the prospect of both present and future difficulties, we must inquire about what sort of economic conditions foster a truly free market, and which allow for the greatest amount of human flourishing. Indeed, the question emerges: “Is capitalism in need of repair or retirement?”
The views and opinions expressed in Debate content do not necessarily represent those of the Intercollegiate Studies Institute.February 18, 20110 comment(s)
Economic Liberalism Is Still Liberalism
One problem with diagnosing “capitalism” is defining what it is. Defined too broadly, it includes everything, which means that it means nothing in particular. Defined too narrowly, it becomes a “pure” system with no historical examples. This lack of a “pure” history provides an all-purpose defense; one can always say in relation to any failure, “Ah, yes, but that wasn’t real capitalism.” However, this makes the defense of capitalism identical to the defense of communism, since there are no “real” instances of that as well, at least none outside of the monasteries. Nevertheless, when every attempt to implement a system turns out the same way, are we not permitted to think that that is the way it must turn out? What we must look at is not so much the theory but the actual practice, that is, at the actual historical instances of systems that were regarded as more or less “capitalistic,” to see what patterns emerge, and what solutions suggest themselves.
The problems with the history of capitalism begin with problems about the name, for the term “capitalism” is itself the Marxist epithet for economic liberalism, the policy of the Liberal Party which came to power in England in 1832. “Liberalism” here meant “freedom from restraints imposed by government, tradition, community, custom, or moral law.” Government was to be confined to protecting property, while the rich network of social relations that characterizes any sane society would be reduced to free contract, to be made or broken at will. Laissez-faire was the policy of the Liberals, and they imposed it on the country without ever seeing the irony of a government-sponsored laissez-faire, in much the same way as the communists trusted the government to ensure the withering away of the state.
Alas, not only did the government grow under laissez-faire, but the economy became highly unstable. Despite the assurances of Bastiat, Senior, and Say that gluts could never occur, they did, and with increasing rapidity and violence, so that by the end of the nineteenth century people were losing confidence in liberalism, to which the Liberals responded by re-branding themselves as “conservatives.” The system could certainly produce vast piles of goods, but it had difficulty distributing them or stabilizing the economy. The situation in America was not any better. In the period from 1853–1942, the U.S. economy was in recession an astounding 41 percent of the time.
It comes as no surprise that everybody was ready for Keynesian “demand management” under Roosevelt. This has been the policy for the last seventy years, regardless of the administration, left, right, or center. Indeed, it has been the policy of every industrialized country around the world, whether they call themselves socialist, capitalist, or social democratic. And it worked fairly well. Since World War II, we have been in recession only 15 percent of the time, and the recessions were, on average, half as deep and half as long as the pre-war ones. But there were problems. In the first place, everyone, from corporate CEOs to single mothers became wards of the state, receiving welfare in one form or another. This is certainly a recipe for destroying the social fabric. Further, it was a half-baked Keynesianism, since Keynes called for a stimulus in bad times and a repayment of the debt in good times. But the economy has become addicted to stimulus in good times or bad, and the politicians are averse to repayment. We have become stimulus junkies; this will end as junkies always end, with an empty bank account and a damaged psyche. It is unlikely the system will continue for much longer.
Some believe that a return to pre-Keynesian economic liberalism is the answer, and they cite the examples of Reagan and Bush. Under this narrative, Reagan cut the taxes and expanded the economy. The problems with this story are that, one, Reagan didn’t cut the taxes, and two, he didn’t expand the economy, at least not the real economy. After an initial foray into tax cutting, which dropped the Federal Revenues by an astounding 3 percent of GDP, Reagan raised taxes twelve times. What he mainly did was shift taxes, from corporate taxes to individual income taxes, from individual taxes to payroll taxes, and from taxes to borrowing. But borrowing is taxing too, just a tax shifted to the next generation, the most immoral of all taxes. (Bush followed the same policy.)
Nor did the real economy (the economy that actually makes things) expand; in fact it shrank. What did happen was the increasing financialization of the economy, with corporate profits deriving more and more not from making things (a task that was outsourced) but from financing them. Thus companies like GM and GE made products mostly for the purpose of making loans on them. At the same time, the median wage stagnated, being the same now as in 1973. Families responded first by putting more family members to work, and then by increased borrowing. But the family wage has stopped growing since 1998; the family has nothing more to give the economy, and it has maxed out its credit cards.
But the real problem is trying to build a conservative social order on liberal structures. We cannot conserve values related to family, community, and self-reliance using the arguments of the liberals; because in any argument between a liberal and a liberal, the liberal will win every time. The end result is an unworkable economy of giant structures of government (national and international) and corporations (mostly international) that reduce the citizen to insignificance and encourage the attitudes of servility that Belloc predicted. We seem to be caught in a trap: we can no longer “stimulate” the economy with government spending because the actual economy has been gutted. Yet no sensible person wants to return to the pre-war economic chaos.
The gargantuan structures of economic liberalism are becoming increasingly unstable and will not last long. The true task of conservatives will be to rebuild the economy from the ground up, the only real way a stable economy can be built. We will need to look around our communities to see what problems can be solved by local resources and in absence of government and corporate “supports,” and what problems will require trade with our nearest or more distant neighbors. But mostly, we must be true to our values and not succumb to the arguments of liberalism, even (or especially) a liberalism that masquerades as “conservative.”
To read more from John Médaille check out his book Toward a Truly Free Market from ISI Books.
February 15, 2011
The Blessings of Capitalism
Around the year 1885, the American economy became the largest in the world. From 1800 to 1885, the economy had grown in size 31 times over—an enormous increase that of necessity comprehensively changed the life of every American.
The most significant and lasting change for the American people was the emerging condition of mass prosperity. For the first time in the history of the world, beginning a century and some ago, millions upon millions of people stood to have work that was so remunerative and efficient that the scramble to provide basic food, clothing, and shelter was no longer urgent. The necessities would come almost as a matter of course. Remuneration from work would increasingly fund saving and leisure goods—from recreational vehicles (first developed circa 1910) to vacations to fashions. There would be considerable leisure time too, as the work week shrunk as a percentage of waking hours.
There had never been anything like it: millions of people rarely, if ever, at risk of destitution, being confronted by a panoply of goods and services that could enhance life far beyond the subsistence level. Whatever the depressions of the first half of the twentieth century (and our late Great Recession), the trend continued all the way to our own day. Since 1885, when the nation first bestrode the world economically, per capita income in the United States has increased by a factor of ten.
America justly considers its democratic and Constitutional tradition as its greatest contribution to the cause of civilization. Perhaps nearly as significant, however, is what it has shown to be possible with respect to living standards. America is the most fabulously prosperous civilization in the history of the world. This is especially so with respect to the dissemination of prosperity across its population. The American middle class simply became gigantic. This is an unambiguous accomplishment, and the obligation it entails is not to gainsay it, but to figure out how to live well given this happy precondition.
Our recent economic difficulties have led to a round of criticism of capitalism. Common questions run as follows: Does capitalism really deliver? Is it not prone to crisis? Are its gains not artificial and fated to vanish from the scene? Probing questions have their place, to be sure, but these seem to be based on sand. For the objective reality of American economic history is that prosperity—mass prosperity—came out of nowhere and ensconced itself decade upon decade, indeed century upon century. This is an epic achievement, and as such should be recognized for what it is, husbanded, and extended.
But let us consider these objections to our American capitalism. For starters, let it be clear that our economy is not prone to crisis in any ordinary sense of the term. Crisis in the pre-capitalist era inevitably meant not merely destitution, but famine. Famine is unknown in capitalist history. Whatever starvation and vagabondage came in the worst spate of capitalism’s history since the industrial revolution (the Great Depression), it was a universe away from famine.
As for capitalism not really delivering, the voices of the dead must be consulted. How many Americans have lived long, full lives, lives that are now over (so that their measure can be taken in full), lives that were in fact characterized by prosperity far above subsistence for their duration? The number surely runs into the hundreds of millions; therefore, capitalism has delivered. To say otherwise would be to call into question the complete actual experience of masses of individuals.
And as for capitalism’s gains being evanescent, the objection simply becomes strange as it gains its third century of age.
Instead of challenging capitalism and calling into question its manifest successes, we should strive to understand the special obligations and opportunities it presents. On Aristotelian grounds, the permanent successes of capitalism make possible two major advances. One regards techne and the other magnanimity.
Techne is the talent for being able to manipulate the physical things of this world for human benefit: use of tools and such. Capitalism’s comprehensive advance has vastly increased the scope of techne. We are capable of successfully working with the physical stuff of the world so much more than in the past. We not only can use simple tools now; we can splice genes, write computer code, and perceive the outer reaches of the universe. This is a blessing of capitalism: we can be better at one of our core human capacities.
Outside of pure thought, the greatest single virtue in Aristotle is magnanimity: gifts from one’s surplus for the public good. Traditionally, this virtue was limited to the few rich. But given capitalism’s extension of prosperity far beyond subsistence to masses of people, many more individuals can partake of this high virtue. Learning how to climb this ladder of improvement is the opportune task that capitalism’s success shows to us. Simply put, capitalism offers us outstanding new ways to be good. As a civilization, we should concentrate on taking advantage of these remarkable opportunities rather than entertaining idle suggestions, born of intellectual confusion if not sloth and envy, that the great boon of capitalistic plenty is undesirable or an illusion.
For more from Brian Domitrovic check out his book Econoclasts from ISI Books.
February 18, 2011