[I have been focussing on developing some models of how money works, after the manner of Steve Keen in The Roving Cavaliers of Debt. Until I get through that, here’s a vignette.]
One John Poole has been conducting a personal defence of “capitalism” in the Letters section of the Canberra Times. His argument is basically that markets always sort things out, that a system with markets is, necessarily, “capitalism”, and that anyone who disagrees is a socialist. Here is my own letter in response.
I hope self-appointed defender of “capitalism” John Poole read Paul Krugman’s account of current American capitalism on the Opinion page opposite his letter (Red Whiners, 18 Oct).
Poole’s simplistic division of the world into capitalists and socialists is a false dichotomy. Market economies can take many forms, some successful and some not, and destructive greed can manifest in market or non-market economies alike.
The most successful economies in recent history were the mixed economies of the nineteen fifties and sixties, when governments routinely intervened substantially in markets. Bob Menzies would be considered a raging leftie by most of today’s pollies, if any of them had the wit to remember or learn about his policies.
In contrast, Paul Krugman portrays modern American capitalism as lacking the fundamental requirements of well-capitalised banks, competent market supervision and effective contract enforcement. As a result America is being hollowed out by a predatory financial sector, and the disastrous consequences are far from over, for Americans or for us.
Capitalism has little to do with markets. Capitalism is about who owns assets. Markets are about the efficient allocation and distribution of goods and services.
Because money – which can represent assets – is used to distribute asset ownership we get this confusion that capitalism is about markets.
The benefit of transparent open markets is that we get an efficient allocation of goods and services.
Unfortunately the money market is not transparent, not open and is dysfunctional because shortages do not lead to increases in price and hence supply – rather the opposite. This then leads to maldistribution of ownership of assets.
So both capitalism and markets get a “bad name”.
Thanks Kevin. Yes that’s really why I put “capitalism” in quotes, because the way it is tossed around by neoliberal enthusiasts it is almost meaningless. The possibility of many ways of managing markets, and the possibility of many ways “capital” (savings) might be accumulated and distributed are completely lost. A futile debate.
Even if markets are transparent and open, there’s still no guarantee we’ll get efficient allocation of resources, because the invisible hand is more often the invisible foot. Except in the fantasy world of neoclassical assumptions.
Geoff you are correct – markets do not guarantee efficient allocation but good markets promote choice. It is choice that is the driver towards efficiency and is the mechanism that helps systems evolve.
One of the problems with today’s markets with the concentration of “capital” in big business and big government is the reduction in meaningful choice. This happens because credit is only allocated to those with existing capital. This hinders the evolution of new better solutions because existing capital tries to preserve the status quo.