When the Financial Times started its series on “Capitalism in Crisis,” I winced. Here we go yet again, an attempt to blame private enterprise for what are actually the failures of the state and paper money. And some writers — but not all — in the series have done exactly this, while obscuring the differences between free and unfree markets by referring only to the way “the system” has failed.
And what is the evidence of this failure? It is everywhere. Household income continues to fall all over the developed world. Unemployment is persistent, and to the extent that it is being fixed, it is by dramatic reductions in living standards, one paycheck at a time. Debt is egregious. Young people face terrible prospects. Complaints about inequality resonate in this environment not because the financial sector has bred such paper wealth, but because life is such a struggle for everyone else.
All of this begs the question: What exactly is this “system”? Our times are constantly being compared with the Great Depression, and plenty of people are hoping for a analogous ideological shift toward ever more state control of economic life. J.M. Keynes urged the destruction of the gold standard and the “end of laissez-faire.” Strongmen all over the world complied.
But back then, it was easier to bamboozle the public into believing that capitalism was the source of the problem and that the new scientific managers of the state machinery would deliver the restoration of prosperity. The Jazz Age was surely a time of free markets, was it not? Not entirely — there was the important matter of Prohibition as well as the central bank and its capacity to blow bubbles, such as the one that burst in 1929. That message did not stick, because only a handful of people truly understood, and they didn’t have the microphone. So the strongmen had a field day.
But today? The state machinery is the lumbering leviathan that leaves no part of life untouched. It taxes and regulates all things, and uses the central bank as its unlimited credit card to pass out welfare to all classes and maintain a worldwide empire rooted in military violence and executive privilege. It takes chutzpah to claim that this has anything to do with a capitalist crisis. This is a crisis of a system of state-based social and economic management
This might explain why the socialist left has yet to gain much traction in the post-2008 environment. Does any living soul doubt the role of the government and its friends in generating the housing and financial bubble? It has been demonstrated 10,000 times, and this information is available to one and all in a world of digital information delivery. We are no longer hunkered down by the radio, waiting on a homily from the high priest in Washington. This guy no longer controls what we are allowed to read and think.
Writing as part of the series, former Clinton Treasury Secretary Lawrence Summers points out that a recent survey demonstrated that “among the U.S. population as a whole, 50% had a positive opinion of capitalism while 40% did not.” I’m not sure what the take-away from that survey really is, however, because it presumes a shared understanding of what “capitalism” really is. Is it a system of privileged protection for the financial elite at the expense of everyone else, or it is a synonym for the free economy? These are two very different things.
What is especially striking about Summers’ article is his admission that Keynesian-style solutions seem pointless in this environment. He writes that, concerning the crisis, “there is no obvious solution at hand.” He further points out that some of the largest existing social anxieties are focused on three sectors in particular: education, health care and old-age provision. All three are run or lorded over by the state. He concludes with an honest admission: “It is not so much the most-capitalist parts of the contemporary economy but the least…that are in most need of reinvention.”
Another contribution to the series comes from Gideon Rachman. He presents a fascinating typology of the four ideological divides of our time. He says that public and intellectual opinion can be divided as follows: 1) right-wing populist, 2) social democrat, 3) Hayekian libertarian and 4) anti-capitalist socialist. This sounds right to me.
The right-wing populist camp (alive in the U.S. and Europe) is the warmongering contingent that opposes immigration, wants war on Islam, favors restrictions on civil liberties, obsesses over demographics, clamors for its own kind of income distribution and longs for a strongman to arrive to impose some kind of order. This penchant has a long history in politics, probably dating to the ancient world.
The social-democratic tendency is found in the Obama constituency, and it wants more of the same that got us into this mess: Keynesian fiscal management, union privileges, an ever-larger public sector, piecemeal planning and regulation, central-bank-backed stimulus, democracy-spreading imperialism or some random combination of this list. This is the party in power here, there and nearly everywhere.
The anti-capitalist/socialist element is obvious enough. It consists of a strange coalition of intellectuals and down-and-out young people leading the Occupy movement, together with media idiots always looking for a splashy and simple story to tell. It is a ridiculously simple-minded view of the world that all would be well if we could just take the income from the tiny group at the top and spread it around the population. To them, the market-based social order is little more than a scam to rob and loot the iPhone-carrying workers and peasants and benefit the financial elites.
What’s most interesting is the emergence of what Rachman calls the Hayekian-libertarian tendency, represented most conspicuously by Ron Paul but actually encompassing a global intellectual and popular movement that sees through fog of propaganda. Here we find total coherence: both realistic explanations of our current plight and clear answers for what to do about it.
Of the four groups, this is the only group that sees the importance of the issue of monetary reform. Keynes saw back in the 1930s that the most-important step to modifying the market system in favor of state management was the destruction of the gold standard. He hated it and dedicated himself to convincing all governments to give it up in favor of paper money. Without this step, there was no hope for Keynesian policies.
In a similar way, the libertarians recognize that the most-important step toward restoring economic vitality and a free market is to repair the quality of money. The gold standard would be wonderful but unlikely, since its re-institution requires enlightened statesman and bankers who do the right thing. A more-viable path toward the restoration of sound money is through total monetary freedom: Let the market reinvent sound money in our time through the free use of any and all monetary instruments.
What’s critical is that the libertarians have put the money issue on the map. We are living under a form of monetary prohibitionism today, forbidden to use any means of payment other than that maintained by the state. And it is not unlike the alcohol prohibition of old. It redistributes wealth, steers gains to the unscrupulous, strengthens the state and promotes various forms of criminality.
In introducing this series, John Plender writes, “F. Scott Fitzgerald chronicled the moral vacuity of Jazz Age capitalism in The Great Gatsby.” Nonsense. Fitzgerald nowhere slams capitalism in his great novel. Jay Gatsby made his fortune as a bootlegger, a profession that would not have existed in absence of state prohibition.
In the same way, our own age is filled with Gatsbys, people who have done well for themselves by manipulating a failed system. It is the system that must change, not the right to do well.
[Johan Norberg’s book is an excellent presentation for anyone still confused about the merit of the exchange economy: In Defense of Global Capitalism]
