Originally known as economic individualism, The Routledge Dictionary of Economics (2000) informs us that Capitalism is:
1. A socioeconomic system of production using roundabout methods of production*
2. An economy based on private enterprise.
3. The use of markets and not planning to allocate economic resources.
4. Production motivated by the profit motive.
However, with the mortgage debacle around the world creating havoc in financial markets, Capitalism is under attack.
As long as people are generating gains that seem unsustainable, all is well with the market. When the market corrects these excesses, the market or capitalism is blamed for the problem.
One side of the debate says deregulation caused the problem, while the other side says government guarantees for “junk mortgages” encouraged risk taking beyond the imagination.
One group also suggests that moving to the use of Fiat Money as opposed to the Gold Standard, has helped get the world in the mess it’s in.
Whatever the cause, and I’m sure the history of these times will be written in due course, governments around the world have wielded considerable control over economic affairs.
The Fortune Encyclopedia of Economics closes out a chapter on Capitalism with some important food for thought:
“Today the United States, once the citadel of capitalism, is a “mixed economy” in which government bestows favors and imposes restrictions with no clear consistent principle in mind. As Soviet Russia and Eastern Europe struggle to embrace free-market ideas and institutions, they can learn from American (and British) experience about not only the benefits that flowed from economic individualism, but also the burden of regulations that became impossible to repeal and trade barriers that were hard to dismantle. If the history of capitalism proves one thing, it is that the process of competition does not stop at national borders. As long as individuals anywhere perceive potential for profits, they will amass the capital, produce the product, and circumvent the cultural and political barriers that interfere with their objectives.”
At the end of the day, I’m not sure that Capitalism has been found wanting or the oratory skills of politicians from both sides of the political divide have so confused the discussion of how their actions might have impacted this crisis, that the free market is the easy scapegoat.
As Pope Leo XIII said in his Rerum novarum of May 15, 1891:
“The main tenet of Socialism, namely the community of goods, must be rejected without qualification, for it would injure those it pretends to benefit, it would be contrary to the natural rights of man, and it would introduce confusion and disorder into the commonwealth.”
Capitalism has done more to advance mankind than any form of government to date, and to swing toward Socialism, yet again, when economic history overflows with the destruction it brings, is folly.
*Roundabout method of production – A method of production which uses capital goods to increase productivity of factors of production.
