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“The death of capitalism”

Posted by Richard D North in Interrogating the Media / Money / The Good Corporation on 14 September 2008

Why we posted this: A leading economics columnist tells the nation that there are no capitalists now. Is he being ironic, using a rhetorical flourish  - or just plain wrong?

The original stories:
We’re all capitalists now? Not any longer
An historic turning point has been reached: the West is ditching its faith in free markets and private enterprise.
Anatole Kaletsky
The Times
12 September  2008

Summary of the story:
The Times’s most respected economics writer argues that the West has lost faith in free markets and capitalism. What with the influence of huge state-controlled capital flows from the developing world, and the huge interference (and cash flows) from the governments of rich democracies, the classic model of capitalism looks fragile.

livingissues comment:
Let’s start at the beginning. Capitalism is the system in which privately-owned wealth is put to work for private gain. Its handmaiden is the free market system, in which there is as little interference as possible in telling capital what to do (or in keeping people safe from capitalism’s failures).

It is an enormous mistake, however, to imagine that capitalism and the markets have ever been given free rein (or free reign), or that they want it. The system has always been wholly dependent on the state to uphold the law and attempt to maintain key elements such as stable currency and moderate rates of interest (and even redistributive justice).

In the end, as we see at the moment, governments always need the great edifices of capitalism to survive and always fear the panic which might flood the system if any big bit of it were allowed to fail. So governments spend a lot of their effort and tax-taxpayer’s money to maintain capitalism’s magic ingredient: confidence. Rich, undeserving, greedy sharks wax arrogant and bullish in the good times and then go running to the state’s treasury when things go awry.

The question, as Mr Kaletsky discussed (along with everyone else), is this. Does the state’s role as regulator and saviour produce the very carelessness that weakens capitalism and makes it more likely to need state support?

Capitalist hardliners say that the more everyone (especially consumers and bankers) knows that it’s a jungle out there, the less will they suffer when there’s a forest fire. Michael Mainelli argues this case with winning elegance.

This is what people mean by the term, “Moral Hazard”. In essence, the idea is that more you support people, the more they’ll be dependent on support.

It may be that Mr Kaletsky’s drift is exactly wrong. People may come out of this credit crunch and recession with a greater appreciation that a greater faith in the capitalism and the free market (and less in government) might have kept us safer. For a start, bankers would have lent less and the consumer would have borrowed less.

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